To be financially successful, you need to invest. The problem most people have is deciding where their investments should be made. For a long time, real estate was seen as the best and most profitable bet. Remember the house flipping trend in the early millennium, before the housing market crashed? A successful investing strategy for a short period is no guaranty of that strategy working for the long term. Diversification provides more long term stability.
There are two approaches to investing in a franchise. The one most people go for–especially those who are tired of being someone else’s employee–is to opt into an already existing franchise. Yes, the cost of these franchises can be pricey. For example, the average UPS franchise cost is anywhere from $100K-$440K, depending on where your franchise will be located, if you will need to build a new structure, etc. But there is financing available and if you work with an established brand (like UPS, food chains, mall shops). There are risks and you can read about problems franchisees face just by searching online, but it also has been very successful for many people.
Another approach, for people who already own their own successful businesses, is to think about turning those businesses into franchises. This way people will pay you to run your company at their locations. This is quite a huge leap in complexity but the profit potential is very large.
My favorite method for business, and one my brother used for his business, Hexawise (I continue to consult for Hexawise), is bootstrapping. With this method you grown the business from the funds the business is able to generate. You don’t have to worry about pleasing investors or large debt payments. It does limit the ability to spend cash before the business generates it but this is often a benefit, in my opinion, as it forces you to avoid spending you can’t afford. It is a drawback however if the business really needs to spend a large amount of cash before it generates large amounts of income.
If you don’t want to have the responsibility of running a company yourself but still want to profit off of business investments, your best chance to do that is to invest in a promising new business. There are some people who turn enough of a profit doing this that it becomes their entire vocation.
Investing in a business has many benefits, especially if that company does well. When you invest, you typically do so in one of three ways:
- Silent partnerships: You front the money and lend your reputation in exchange for a share of the company’s ownership so that the investment will be profitable. This is good for people who want to have more control over what the company does with your investment. It can also be one of the riskiest types of investments to make.
- Angel investments: This is where you invest a large sum in a promising company but remain entirely hands-off while that company gets up and running. Most angel investors ask only for their initial investments plus a small sum on top of that original amount (usually accrued via interest charges) so that the investment is profitable for everyone.
- Traditional investments: Buying stocks or bonds in public companies. This is by far the easiest and is a very sensible way to invest. Often this is done using index funds to invest in the performance of the broad stock market.
The Usual Suspects
If you want to make real money via investing, you will want to make sure your investment portfolio includes a good mixture of stocks, bonds, mutual funds etc.. In fact, while we’re listing them last, these are the investments you will usually want to make first, as you build enough wealth and capital to make larger investments like franchises and investing in promising startups.
For many people, the first investments are savings accounts, 401(k)s or retirement accounts. If this is where you are, your next step should be something with a guaranteed return like a treasury bond (government bond) or a money-market account with a good interest rate. Let these investments mature while you are learning about stocks, mutual funds, real estate, business investing, etc. Then use the profits from those initial investments to fund your larger and riskier future projects.
You should never invest more than you can afford to lose. Sure taking risks can pay off, but if you want to build a genuinely successful portfolio, play it safe, especially when you are just getting started.