Many people are often conflicted between starting a business or investing their money into more traditional investment vehicles such as the stock market, real estate, bonds, etc. Personally, I remain conflicted between both. Why? Mainly because investing your money into a business carries with it great risk, but ultimately, it carries great reward. Investing in the stock market or real estate, on the other hand, is generally lower risk but has lower reward with it assuming you are INVESTING and not SPECULATING. Let’s start there.
What is the difference between investing and speculating? Investing is putting your money in an asset with the goal of generating income or appreciation in the future. These asset classes are typically stocks, bonds, mutual funds, U.S. Treasuries, and real estate. They have proven the test of time and GENERALLY carry a low level of risk, but they are slower to provide returns.
Comparatively, speculating is investing your money into something that carries a substantial risk of losing all of its value, but there is the expectation of a SIGNIFICANT gain over a shorter period of time. These types of investments are asset classes such as Bitcoin, startup companies, options, house flips and Uncle Jimmies new invention…
Therefore, when I am talking about investing, I am talking about putting your money into proven and generally safe asset classes. Starting a business is a speculation. You have no idea if it will be successful or not. Yes, you can start a practice that has proven the test of time, such as weight loss clinics, IV hydration clinics, wellness practices, primary care, etc., but you never know if it will succeed or not until you try. That is the inherit risk of starting a business:
Losing all the money you invest into it.
But! This carries great reward with it. This is why it is a speculation. When I started my first Men’s Health practice, I invested about $5,000-$7,500 into it (this was a couple years ago, I don’t remember the exact number, but it wasn’t really that much…). I had no idea this was going to succeed or not. I was totally SPECULATING. Well guess what? It did succeed and now I generate $30,000 a month in revenue in just 20 months, during COVID.
Please, tell me, what other investment of $7,500 can turn into $30,000 a month in less than 2 years? There isn’t one. Investing in Tesla or Amazon is not going to provide you those kinds of returns. Therefore, starting a business is considered a SPECULATION. Investing money into Bitcoin 7 years ago when it was $700 and then selling it when it was $10,000 a few years later was a SPECULATION, not an investment… Big risks = Big rewards.
When you invest money into starting a practice or growing your already established practice, you are risking losing your money. There is no way around this other than doing your due diligence before starting. This includes market research on your demographics, studying the niche service you are going to provide, and determining the level of competition in your area. There is no difference when investing your money into a particular stock; you should be doing research on the company beforehand, even though very few people do. Hell, I’ll be honest with you, I did very little research when I started my 1st Men’s Health practice… It really was a gamble.
Before I opened my 2nd Men’s Health practice though, I did my research beforehand. I searched high and low about who my competitors were, what the average income in the area is, the demographics of people living within an hour drive, and how much I would need to invest into getting it up and running. Expanding my practice is a SPECULATION, but I was doing as much due diligence as possible before hand. Regardless, I am risking losing my money in the tune of $15,000. I still have no idea if this will take off or not. It might, or it might not. We will see in about 3-4 months.
When you save up a nice “startup” fund for a business or have some money saved up in your already established practice, you have to be OKAY with losing that money. If you are not OKAY with that, then you need to reconsider investing that money into a safer investment vehicle like the stock market or bonds. I always ask the nurse practitioners I consult with this question:
“How much money would you be comfortable with going to a casino and losing?”
That is the amount you need to invest into a business. If you saved $5,000 and invested it into a business, and it failed, how would you react?
Would you freak out and have a panic attack?
Would you be declaring bankruptcy?
Would you be significantly stressed?
If so, then investing money into a business might not be the best course of action. You must be okay with SPECULATING with that money because you could lose it.
If you are risk averse, then perhaps you should invest your money into other asset classes like the stock market or real estate.
Ultimately, your RISK TOLERANCE, is the defining foundational concept when deciding where you should put your money: into a business or into an investment.
But I want you to ask yourself this question if the thought of losing $5,000-$10,000 into a business frightens you:
What is the worst that can happen?
Seriously… What is the worst thing that could happen? If the business fails, you are not living on the streets… More than likely, you are not going to declare bankruptcy unless you take out a massive amount of debt (NEVER START A BUSINESS WITH DEBT). You will not be going to the food shelter to feed your family. Come on… The worst-case scenario is that you lose the money, be depressed for a week or two, and just continue living life.
THIS IS THE SAVING GRACE OF STARTING A BUSINESS.
If it fails, it is not the end of the world…
Now, if you still are pretty risk averse, then you should consider diversifying your investments. Personally, I diversify my investments between my businesses, cash reserves, stock market portfolio, and real estate. I believe this MITIGATES the risk of either one of these assets failing. What are the chances that all 4 fail? PRACTICALLY ZERO. This is another reason why you should have MULTIPLE income streams. This is the concept of redundancy and every nurse practitioner needs to implement it into their life.
If you have a nest egg of $10,000 or more sitting in your savings and are risk averse, then you really should consider investing it into a safe asset class like an index fund or rental property. Sitting on cash that is not working for you is dumb. Yes, have an emergency fund, but after that, that money needs to be elsewhere working for you.
On the other side of the coin though, if you have $10,000 and would be OKAY losing it, then consider investing it into a business instead. Remember, what is the worst thing that could happen?
I have always been okay with losing a portion of my money. The speculation has paid off for me, and more than likely, it would pay off for you as long as you provide an in demand niche service.
To sum it up:
If you are willing to take a risk, then invest your money into your business. This is what will make you wealthy QUICKLY.
If your risk tolerance is low, then invest your money into safer asset classes like stocks, bonds, and real estate. This will make you wealthy SLOWLY.
You must have money to invest. There is no way around it. Your job and your business will give you the income necessary to invest. Your investments essentially keep your money safe and allows it to grow so you can reach the ultimate end goal of working: FINANCIAL INDEPENDENCE.
Just a heads up, I am busting my butt right now creating a course that teaches you how to achieve financial independence through smart money management, building a business, and investing your money appropriately. I am even partnering with a financial planner for this one! Keep your eyes out for it. I am hoping to have it released for the new year so many of you can put down “financial independence” as one of your new years resolutions!