There are many ways people can make money, but two I am often asked about are investing in stocks and starting a business. These two ideas are actually related. Let me explain.
When some people think of investing in stocks, they often think they need to pick the hot stocks to earn a good return. However, one secret to building financial independence is to not take on concentrated investment risks. “Concentrated” is the key adjective here. It may mean the difference between a temporary paper loss and a permanent loss of capital. Concentrated portfolios pick only a few companies or even a few asset classes to invest in.
Another option people ask about is starting a business. As an entrepreneur, I’ve learned that it is difficult to get ahead financially unless you participate in business opportunities. But for many people, this seems like an impossible hurdle. Many people come up with an infinite number of reasons why they don’t feel comfortable owning their own business due to the risks involved.
I believe your best alternative to both of these options is to find a way to invest in many businesses. The basic idea is simple: People need and want the goods and services provided by businesses. Globally, there are millions of businesses attempting to meet the needs and wants of billions of people.
If you are willing to take a long-term perspective and, therefore, ignore the temporary, short-term fluctuations of the markets, consider investing in thousands of companies using index mutual funds and exchange traded funds. These are investment funds that do not try to pick the winners. They do not attempt to concentrate their investments in companies they believe will outperform the market. Instead, they invest in hundreds or thousands of companies representing the overall market.
In the investment business, there are few guarantees. But here is a guarantee: These investments will fluctuate in value. They will either increase or decrease in value each day. They may even decrease in value over months or years. But if you want to invest in the collective human efforts of thousands of companies throughout the world, and you are willing to take a long-term view, you are likely to be handsomely rewarded.
Even if you never start your own business, diversification in many businesses can help you build your own financial independence. Avoid letting temporary market fluctuations distract you. Without patience, the best financial advice in the world won’t make much of a difference.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.