Last week, I discussed options for funding your startup, including self-funding. When you self-fund your startup, you maintain control over every aspect of the operation and don’t have to share the profits thrown off by your business, which both create a great incentive for this type of funding. Today, I’d like to delve more deeply into investment strategies you can use to build the nest egg you need to get your startup off the ground. In this blog post, we’re going to explore six different highly scalable and profitable investment strategies you can use in 2021. That way, as you work toward planning your startup you can also start saving to get it started. To create a successful business, it’s essential that you invest in the correct type of investments that balance returns and risks so you don’t risk losing your capital.
Investment strategies
Before investing your startup capital in the hopes it will grow, you must consider that risk and return are often inversely related. So, the more risk you incur in an investment, the more return you should expect. If you have a low risk tolerance, certain of these investment strategies make more sense for you but if you’re willing to accept a bit of risk, your capital will increase a lot.
Also, consider when you need the money. If you’re planning to open your startup within the next year, certain investment strategies, such as funds, make a lot of sense since they’re pretty liquid (meaning you can turn them into cash fast). If you’re still early in the planning process, you might consider other investment strategies, such as real estate that offer a good return with relatively low risk but it takes time to get your money back out again.
1. Forex trading
Forex trading continues to grow as a popular investment option for entrepreneurs looking to diversify their portfolios. Trillions of dollars are traded on global currency markets every DAY! That makes currency market volume even larger than that traded on and even larger than the amount of money passing through various stock exchanges. If you think about it, this makes perfect sense – after all, why should large investors hold onto cash when they can trade currencies and make money? However, it’s important to note that if you want to find success for your forex business strategy, you need at least two years of experience trading before starting up. This isn’t something anyone can jump into without training or knowledge of financial markets because the chances of failure are high if you don’t have enough theoretical background and experience. If you’re interested, you might want to make the time to learn about Forex and what it takes to succeed with this kind of trading.
2. Money market funds
After the recession in 2008, many people wanted safer investment strategies with less volatility and less chance of loss. Many of these investors turned towards money market funds because they promised guaranteed dividends and low-risk returns on investment (ROI).
A money market fund is a diversified portfolio containing short-term debt such as cash and cash equivalents. Well-known companies like Vanguard offer relatively high yields that range between two percent and seven percent per year and represent a very low risk of loss. If you’re lucky enough to receive an ROI of over three percent, this is a good sign – after all, there aren’t too many businesses out there where entrepreneurs can make such large amounts of cash without risking much at all!
3. Real estate investing
Real estate investing is a popular choice for entrepreneurs who have the time and money to invest in commercial or residential properties. Experts predict an investment of over $21 trillion in property purchases – and this number doesn’t even include any of the cost of renovations made on these buildings! Real estate investing involves everything from purchasing real estate as a long-term investment to flipping houses to make a good return in a relatively short period of time.
If you want to adopt this investment strategy, keep in mind that you need at least six months to start turning a profit since good deals take some practice and patience. This isn’t something where you can sit around all day waiting for leads; instead, if you want long-term success as an investor, it’s vital to seek out opportunities actively. Real estate investor marketing can make an incredible difference in the quality of leads you generate and the property you secure.
An alternative if these types of investment strategies appeal to you but you don’t want the risk and wait for returns, consider investing in a real estate investment trust (REIT) where risk (and rewards) are distributed across many investors and many properties.
4. Corporate bonds
Many publically traded corporations authorize bonds to pay for high-ticket items such as buildings and machinery. In exchange for cash now, these corporations promise to repay the money with interest over a specified period of time. Often, buying corporate bonds is done through a fund, especially for small investors, rather than purchasing individual bonds. Governments also release bonds to pay for bridges, roads, schools, and similar high-ticket items. Below, you see a graph from the Financial Times showing the amount (in Euros) invested in corporate bonds in recent quarters.
If you want a great investment opportunity with low risk and high yield, this is an excellent option! Keep in mind that when it comes to investing in these bonds, there’s always a chance of default, and rating agencies grade bonds to reflect this risk. As risk increases, the amount of return offered increases to compensate for the increased risk. Still, the company issuing the bond might fold or skip a required payment on the bond. For investors like yourself who want to purchase corporate debt securities from companies with a great bond rating, look into investing in government-issued securities because they tend to carry lower risk profiles than most other fixed-income products out there.
5. Corporate stocks
Publically held corporations sell stock to investors to raise money for everything from inventory to salaries. Some stocks come with voting rights that allow investors a say in major decisions facing the company. When a business experiences excess profits, the board of directors might distribute these profits to investors, which are called dividends. In addition, stock prices reflect the success of the business and you might sell your stock when the time comes for more than you invested initially.
Dividend stocks are an excellent option for entrepreneurs who want to make money without having to put in too much effort. This is an incredible opportunity because many of these companies selling stock have a long, successful history – which means they’re likely here to stay no matter what the economy does next. So if you’re looking to purchase stocks from established firms like Coca-Cola or McDonald’s, keep in mind that while their stock prices might seem high now, the chances are good that they’ll maintain their value over the long run, while short-term losses are possible. So as long as you don’t need your money right away (and can afford some patience), holding onto these stocks is one of the best investment strategies, with certain caveats discussed below.
- Only buy stock issued by well-established companies that have a proven track record of success for many years to suggest they can continue their success far into the future.
- They should also pay dividends regularly, preferably each year or every other year, with an increasing dividend payment history over time.
- They should also have a solid income statement and balance sheet, which means that they can continue to operate and pay dividends for many years into the future without going out of business.
- And finally, their cash flow per share must be strong or growing over time as well. This ensures that these companies have enough capital available to invest in new projects.
6. Index funds
Index funds are an excellent choice for investors because they allow you to diversify your investments to reduce risk and are commonly comprised of highly respected company stocks. Instead of purchasing individual stocks like you would if building up an investment portfolio, index funds do the work for you by buying shares of many different companies that fit into one specific industry or sector. For example, the S&P 500 Index contains 505 U.S.-based companies and represents around 80% of the total market value; it’s also found within other indexes such as popular stock mutual funds (e.g., Vanguard Dividend Appreciation ETF).
7. Invest in a start-up business
While you’re waiting to start your own business, think about investing in a start-up business as both a way to invest your capital and to gain valuable experience you can use when you get your own firm off the ground. As with any investment, it’s best not to invest money that you can’t afford to lose, but the potential rewards can compensate for the risk if you don’t need your return quickly.
The first thing you need to do is research and determine whether or not this company has significant traction already – meaning have they found product/market fit? If so, there’s a good chance that your investment will pay off handsomely as long as the founders continue running the business the way they have in the past and manage their money effectively.
Conclusion
There are many investment strategies out there and these are but a few of the many options available to invest your nest egg so it increases before you’re ready to start your own business. This list includes some of the most common and profitable options currently available on the market today, so consider whether they meet your specific needs before investing.
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