Justin Mwangi | Dec 23, 2019 |
Investments Justin Mwangi | Dec 23, 2019 | Investments
Investments and business are similar in that both need you to commit some money in anticipation of future profit or benefit. The key difference, however, is that in business; you are actively involved in management while in investments, your role is more passive. An investment turns into a business when you begin to control the operations; the opposite is also true.
Say for instance you had to choose between running a business versus being a shareholder. If you chose to run a business, you would need to be actively involved in its day-to-day operations, manage it, and interact with customers and all stakeholders to create value then sell it to your target market for a profit. On the other hand, if you were interested in acquiring public equity, you would give your cash to a stockbroker who then acquires a number of stocks for you. Without too much interference from you, your shares would earn you a return when they go up in price (capital appreciation), or when the company pays dividends.
Both operating a business and investing have their advantages and disadvantages. Starting a business offers you independence because theoretically, you are your own boss and can pick your own hours. In reality though, a business will require a lot of your time, especially if you are just starting out. Added to this, there is also the stress of dealing with your competition, handling employee issues, and stakeholder management.
Starting and running a business is also capital intensive, which would require an entrepreneur to put in their personal savings, raise equity or take on debt, despite the fact that it could take several months or even years before the business breaks even.
In contrast, investing in equity may sound like the easier route, but this is not necessarily true. With any investment, there is a risk that you will not get the anticipated returns due to volatility and market fluctuations. The greater the return, the higher the risk. The performance of the firm you are investing in and the market are out of your control. Another challenge is that investors often expect a quick return when in reality, to get the best out of any investment, a long-term view is necessary. After carefully doing your market research, you then proceed to select the firms whose long-term outlook is positive.
This is where fund managers come in place. These are professional firms with expertise in the investment field. Fund managers collect money from many different individuals and organisations and invest on their behalf. They diversify and invest in many sectors thereby reducing the risk of your money as an investor suffering a loss. The fund manager monitors market, economic trends and track securities in order to make informed investment decisions.
Fund managers are also affordable and enable you to access investments you would not have. A government bond in Kenya requires a minimum of Kshs 100,000 with top ups of at least Kshs 50,000 whereas in a fund manager, say Cytonn Investments, one can invest in a money market fund with as low as Kshs 5,000 with top ups of a thousand shillings. The money market fund may then be invested in the treasury bills among other venues.
All said and done, having a blend of both will always come in handy. Quoting Warren Buffet, “Being a businessman makes you a better investor and being an investor make you a better businessman.” Each pursuit teaches lessons that are applicable to the other.
FAQs
Investments and business are similar in that both need you to commit some money in anticipation of future profit or benefit. The key difference, however, is that in business; you are actively involved in management while in investments, your role is more passive.
Is it better to be an investor or business owner? ›
Compared to an entrepreneur, an investor will not have as many duties or as much work to do, but it costs a lot of money to start investing. Ultimately, the choice between being an entrepreneur or an investor depends on your personal preferences and circ*mstances.
What is investment answers? ›
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth.
What makes a good company vs good investment? ›
Stable earnings, return on equity (ROE), and their relative value compared with those of other companies are timeless indicators of the financial success of companies that might be good investments.
What is the difference between business plan and investment plan? ›
A business plan would normally be sufficient for raising somewhat small finance with banks, business angels and other financiers. An investment proposal is a must when raising substantial funds with venture capitalists, business angels or other significant investors.
What is the difference between a business plan and an investment plan? ›
The main differences between an investment proposal and a business plan are purpose and audience. An investment proposal helps find potential investors. A business plan helps define the goals of a business and determine how well it's doing. You can secure funding with only a business plan.
What is the difference between businessman and investor? ›
1. An entrepreneur focuses on the business operation, while investor focuses on commercial and financial sides of the business. 2. An entrepreneur comes up with new business idea, while an investor considers the existing business idea brought up by entrepreneur.
What is the difference between self-employed and investor? ›
Whereas the self-employed own their jobs and business owners own systems, investors own assets that make money for them.
Do investors always make money? ›
The stock market's average return is a cool 10% annually — better than you can find in a bank account or bonds. But many investors fail to earn that 10%, simply because they don't stay invested long enough. They often move in and out of the stock market at the worst possible times, missing out on annual returns.
How to double $2000 dollars in 24 hours? ›
The Best Ways To Double Money In 24 Hours
- Flip Stuff For Profit. ...
- Start A Retail Arbitrage Business. ...
- Invest In Real Estate. ...
- Invest In Dividend Stocks & ETFs. ...
- Use Crypto Interest Accounts. ...
- Start A Side Hustle. ...
- Invest In Your 401(k) ...
- Buy And Flip Websites And Domain Names.
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
What is considered a good investment? ›
Good Investments: Asset Classes To Consider. Good investment opportunities can often be found in stocks, bonds, mutual funds and real estate. Investments such as cryptocurrency and forex are highly speculative, or high risk, and not necessarily good investments for beginner investors.
How do you know if you are a good investment? ›
In a nutshell, determining whether an investment is a good one requires establishing goals and creating a strategy to help you reach those goals. It means you'll need to research the stock or bond, investigate the fund's management and performance, or analyze annual and quarterly financial statements.
Why is owning a business better than working for a company? ›
Creative freedom and personal satisfaction. As a business owner, you'll be able to work in a field that you really enjoy. You'll be able to put your skills and knowledge to use, and you'll gain personal satisfaction from implementing your ideas, working directly with customers, and watching your business succeed.
Do investments count as business income? ›
Investment income.
Income such as interest and dividends from bank accounts, stocks, and bonds are generally not considered business income for a sole proprietor, even if you think of them as reserve funds for business downturns.
Is an investment company a business? ›
An investment company is a specialized business that is engaged in the business of investing pooled capital into financial securities. Investment companies can be privately or publicly owned, and they engage in the management, sale, and marketing of investment products to the public.
Do you need investment to start a business? ›
It's absolutely possible to start a business with no money, or at least with so little you'll hardly miss it. If you're ready to apply hard work, ingenuity, and resourcefulness, your business can be up and running in no time. Here are some tips on how to start a business with no money.
Is an investor a business? ›
An investor is an individual, company or any entity that invests capital with the aim of making a profit. The investor's main concern is to maximize return while minimizing risk. Speculators, who hope to make a higher-than-average profit, have a greater risk tolerance than investors.
