Why I Prefer to Invest in My Own Online Business Over Trading Stocks
On the flip side, I also remember the sinking feeling in the pit of my stomach during the crash of 2001 when I lost a large percentage of my portfolio practically overnight.
I remember trading through the dot com bubble…and the real estate bubble. It was all quite an adventure and my mental toughness was often stretched to its limits.
Even though I managed to do pretty well in the stock market overall, during the past few decades, it did take its toll on my psyche. After experimenting with many other ways of accumulating wealth, I finally came to the conclusion that investing heavily in stocks was no longer for me.
That's when I decided to invest in my own business instead.
Why I Gave Up on the Stock Market
So how did I come to the conclusion of being against investing in stocks? If you look around, there are many people who are killing it with their stock investments. Warren Buffet, for example, is a multi-billionaire who makes more money per day than I do all year.
But through all of the ups-and-downs of trading stocks, and making fairly decent returns over the years, I finally hung up my trading gloves and found a more lucrative use of my time and money, starting online businesses.
Today, I run a small number of websites that make well into the six figures every year. In fact, I'm most proud of my eCommerce shop Bumblebee Linens which my wife and I started so she could quit her job and stay at home with our kids.
Looking back, could I have had similar financial success by trading stocks? Possibly. But if you were to ask me today, I would always put my money into starting my own online business over investing in the stock market. Here's why.
More Control Over Who Calls the Shots
One of my biggest pet peeves with investing in stocks is that you have absolutely no control. Sure, you can do the research behind the companies that you invest in, analyze balance sheets, cash flows and other financial metrics, but ultimately your portfolio performance is based on factors that are beyond your control.
In today's age of computer-based trading and insiders who have access to way more information than you do, it comes down to luck, expectations and psychology (especially in the short-term).
That's why there's the age-old saying that, you can never time the market and that you're better off just buying and holding or investing in index funds with your money. And it's precise because of this randomness and volatility that makes investing in stocks so frustrating.
But when you start your own business, you're the one in charge. You call the shots. Of course, you can still be affected by market conditions that are outside of your control, but you can always pivot your company differently to account for them.
When my wife and I first started our eCommerce store (which sells wedding linens), we made a huge mistake early on by targeting the wrong market. But after recognizing our initial customer base simply wasn't buying, we adjusted our marketing plan and decided to target the wedding industry instead. And that's where we struck gold!
Less Risk and More Leverage
If you have $100,000 to invest, you can buy $100,000 worth of stocks and bonds. Sure, some investors can elect to buy on the margin or trade options, but for the most part these techniques are very high-risk options that only experienced investors should be making.
Anyways, the point I want to emphasize is that you need a decent sum of money to make a decent amount of money with stocks. For example, a 10% return (which is considered quite respectable) on your 100K investment would net you 10K. However, you have to risk 100K to make that 10K.
With an online business, you can literally invest a few hundred bucks (or less) and have the potential to earn many times your investment later on down the line.
For example, my wife and I invested $629 to start our online store and managed to make over 100K in profit within a single year. I started my blog for only about $10 and it started making six figures after about 4 years.
By starting your own online business, you have the potential to turn a small amount of money into something many times larger without risking a lot of money upfront.
With stocks, it's difficult to obtain this kind of leverage without trading options or investing heavily in the margin.
More Flexibility and Broader Options
When you trade stocks, there are only a finite number of ways to make money — your stocks can appreciate in value or you can get paid with dividends. Of course, there are many ways to trade securities but making money pretty much boils down to these 2 basic factors.
With a business, your options are much broader.
- You can sell physical goods online.
- You can sell info-products.
- You can sell advertising
- You can become an affiliate
- You can sell subscriptions to your content
Overall, having the flexibility over your business model makes running your own business online much more flexible and fulfilling.
Larger Tax Benefits
Because tax rules vary depending on your state and locality, I can't get into the specifics about the exact amount of money you would save by running a business. But I can comfortably say that the tax benefits of owning a business go way beyond that of investing in stocks.
For example with a business, you can take tax deductions on pretty much any expense that you incur, that's related to your business. Plus, there are many creative ways to save on taxes by changing your corporate structure to a corporation or LLC.
With stocks, you pretty much have to sell your asset in order to cash out. And each time you sell, you are stuck paying taxes in the current tax year whenever you sell for a gain.
Higher Expected Value
Many people believe that starting your own business is way too difficult and that your chances for success are slim at best. After all, I used to think the same way before I started mine.
So I thought that I'd end this article with some basic probability. According to the small business administration, 78% of small businesses fail after their first year, and 90% fail after 5 years or more. But just to be super ultra-conservative, let's say that only 5% of small businesses succeed.
Are you willing to invest a few hundred dollars to start a business that could potentially make 100K (or more) per year? If you run the numbers correctly and your business has the potential to make that much, then simply multiply your potential revenue by 5% to get the expected value for your business.
Using the example above, if you multiply 100K with a 5% success rate, your expected value is 5K. Will it cost more you more than 5K to start your own online business? If not, it might be in your best interest to start one.
Anyways, this is an oversimplified expected value calculation, but hopefully, it illustrates my point. Are you ready to add an online business to your investment portfolio?
About the Author:
Steve Chou runs MyWifeQuitHerJob.com where he writes about entrepreneurship and how to create a profitable online store.
As someone who has started their own business and also someone who has invested in the stock market, I believe it all depends on a person’s risk appetite, which in turn depends on their stage in life and commitments. On balance, however, I’d agree with you – I’d sooner back myself to succeed over a lot of stock market companies, but on the other hand there is a lot less hassle just buying shares, without the multitude of worries that come with running a business.
So true. It’s like those ads on the radio around here right now that ask listeners why they would pay somebody else’s mortgage, because that’s what you do when you rent. Same thing with investing – why invest in somebody else’s company when you can invest in your own?