Say you have 100K$ Why start a business with all the risks involved over say buying 100K$ of Google stock? Say I open a coffee bar. I have to pay people, workers, suppliers under the table perhaps even. Maybe a coffee bar opens up in the same street. Maybe they start working severely limiting accessibility to my street and coffee house. Maybe the economic crisis deepens and people start cutting back even more. etc etc etc If you buy a stock, it could go up, or down. Say it turns sour you can still get out with a 10% loss, 20% loss, 30% loss... If you want to get out of a failed business project chances are you lose a lot more no. Why should and people often favour opening a business nevertheless?
You are talking about investing in an existing business vs. starting a business. Never forget that the entity behind a ticker symbol is a business. Google is established, and while your bar business is not, you can retain 100% equity in it and can therefore reap all the upside/growth benefits (if they come to fruition). Consider if your small business branches off into chains (if your brand becomes recognized and takes off). With GOOG you will not likely see much additional growth. The risks are quite different in each case. One risk you should consider is liquidity. Most of your capital invested in a small business becomes illiquid pretty quickly and it can be hard to get liquid again if the business fails and you wish to retrieve some of the cash invested. On the other hand, a large cap like GOOG will likely find plenty of buyers and sellers.
It would be wiser to use some of the money to start a bussiness in the poverty industry, use the market to hedge the economy and some to invest in blue chips as the market action is slow right now. Akuma
you own business, you have the pricing power, mark up is generally 20 to 40%, even you have competitions on same street, you aren't just compete on price of coffee, thinking you aren't just server coffee for homeless, price isn't point, but services, location and quality of your coffee. not saying, you can price whatever for your coffee, you can lower or higher than your competition in a reasonable range. On the other hand, let say on the market, you can liquid your asset pretty fast, for 100k coffee shop, it will take few weeks if your shop is at good location.
Why start a business over trading? Let's see.... Imagine Sergey Brin and Larry Page said "Hey, why start a business called google? Lets just put our money into Yahoo instead." Do you think they would be billionaires today if that happened? And thats why a business is better....much more upside potential. On the downside...you cant just sit your ass in a chair watching a screen for 6 1/2 hours and then go do whatever. With a business, you actually have to work and manage it. It's like dancing with a bear...you can only take a rest when the bear gets tired.
Yes, you can start a coffee bar chain, or maybe you will be the next Google. Let's face it, if you start a businesss you'd be lucky to still be in business after 10 years and be able to provide yourself with a salary that whole time... Many selfemployed have to work like 70 hours to week to make an average salary at best and have their dreams of becoming the next google or starting a chain given up a long time ago. Let's not generalize, business men and traders can be succesfull or unsuccessful, but I guess playing the stockmarket has a more riskfull profile and I don't know if that is justified. Maybe a lot of it has to do with people getting loans from the bank to start a business. Try getting a loan cause you wanna play the stockmarket.
Good post. With 100k, you're in small business territory. Yes, you could easily do a web startup with 100k, but you better be the programmer, otherwise no dice. Outside of software, most small businesses are tons of hours with at best an uncertain future. You have to deal with taxes, bad employees, real competition, customers who are fickle, regulations, and on and on. Now, if you had a trading strategy that actually worked, you're 100k would give you the capital needed to not just provide for a good living now but be the foundation of really getting a good bankroll going. Unless you have passion for the business, do trading.