Choosing a Good Investment
Starting a business or investing your money--which one provides the biggest return? Our Personal Finance Expert takes a look at both to help you determine which option is best for you.
Q: I just inherited $100,000. Should I use this money to start a business or should I invest it? I'm looking for the best return on my money.
A: Well, as Harry Truman's two-handed economist might have said, "On the one hand, you could start a business, but on the other hand..." So while I aspire to give you a direct answer, there's more to this question than meets the eye or, shall we say, pocketbook.
First, it takes more than money to start a successful business-a lot more. Starting a business takes drive, commitment and an insatiable desire to work like you've never worked before. When you're stuck in a job you don't like or when you read about how Bill Gates started Microsoft in his garage, it may seem like anyone can follow the yellow brick road to success. And while many entrepreneurs do make a go of their own business, undertaking this challenge shouldn't be done lightly.
There are lots of ways to start a business. You may have an area of expertise in which you could be a consultant, and that takes less money to start up than a retail or food establishment, for example. Purchasing a franchise can cut time and a number of potential mistakes from your learning curve, but these can be expensive and hard to come by (see our Franchise 500 listing for the top-rated franchises).
One of the best things you can do for yourself is to get a copy of Start Your Own Business (Entrepreneur Media Inc.). In it you'll find everything you need to know to make your start-up a success. After reading it, you'll have a much better idea about whether or not you should start a business.
On the other hand, if you're feeling tired just thinking about all the work involved in starting your own business, investing money in the financial markets can be a lot less time consuming, provided you're smart enough not to fancy yourself a professional day trader. Here are some questions to ask yourself before you make any investments:
- What are my goals for this money? Consider both short-term (buying a new car or taking a vacation) and long-term (saving for a child's education or your retirement) goals.
- Do I want or need income from this money now, or can I put it aside to let it grow?
- How much risk can I withstand and still sleep comfortably at night?
- What investment experience do I have? Will I need professional help or am I prepared to make financial decisions on my own?
These are just a few questions that should get you thinking. For more information, consider my book, Financial Fitness in 45 Days: The Complete Guide to Shaping Up Your Personal Finances (Entrepreneur Press). In it you'll find everything you need to know to get started on the road to financial success.
Finally, whatever you decide, don't quit your day job just yet. While $100,000 is a lot of money, it's not quite a kiss to build a dream on.
Lorayne Fiorillo is a financial advisor and senior vice president at a major brokerage firm. She spent six years as the on-air financial commentator for EyeWitness News and 11 years as a market commentator for National Public Radio. She is the author of the new book, Financial Fitness in 45 Days: The Complete Guide to Shaping Up Your Personal Finances (Entrepreneur). She specializes in retirement and business planning for small businesses.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.