More and more startups are emerging on the scene and garnering success, and just as many are being sold off to larger companies for an impressive amount every year.
If your startup is one of these, you now have an important question: where do you invest your money?
It’s important to make sure your hard earnings continue to pay off, which is why you should carefully decide what to invest in and how.
This post details three major options.
Investing in Other Startups
Startup investing has become more accessible to everyone in recent years, with a wide variety of options for moving forward, such as:
- Leveraging personal relationships with other entrepreneurs to invest
- Making direct investments through venture investing platforms
- Attending pitch events
- Investing through your IRA or self-directed 401K
- Following other investors and joining a syndicate on AngelList
Amazingly, a whopping 90% of all startups fail, making the idea of investing in them seem like risky business.
However it’s important to remember that the vast majority of startups are either self funded, or backed by loans, friends and family. Only 3% raise money through crowdfunding and 1% get venture capital.
And say you managed to invest in companies like Amazon, Apple or Microsoft before they went IPO. You’d be a million dollars richer today. So if you pay attention to the important characteristics that make a promising startup, you’ll likely find that your investing success rates are much better than the overall numbers.
Investing in Real Estate
Real estate investing also offers many valuable options to suit your specific needs and investment interests. You can start small by investing in basic rental properties that you rent out to others, however you’re responsible for paying the mortgage, taxes, and other maintenance costs.
Or you can dive further into the business by:
- Joining real estate investment groups
- Starting real estate trading (buying and selling properties after short periods of time)
- Participating in a real estate investment trust (REIT) — This is where a corporation uses your money to purchase and operate properties for income
Your chances of a positive return with real estate investing makes it a much safer option than other startups. How well you do will depend on the country/state you’re buying and selling in, but barring major damages to property value, your chances of ROI are pretty good.
Recent research by Realty Mogul showed that the average return on real estate equity syndications is about 7.7%. And there are some advantages of investing in real estate compared to other options.
For one, you have leverage. Mortgages don’t require you pay the full value of the property, much unlike stocks. Down Payments can range from 5 to 25%, meaning that you can start earning profit on your property without actually completing the purchase.
Investing in Stocks
Investing in stocks is another area that has become increasingly accessible for regular people. But your payoff with this method will mostly depend on how much risk you’re willing to take. Low-risk investments tend to offer slow, steady returns over long periods of time. Higher-risk investments with binary options broker like Nadex can result in big wins and big losses. Having a diversified stock portfolio can help you reduce risk.
The Great Recession of 2008-2009 resulted in more than a 30% portfolio hit for most investors, so there are some big risks with investing in any kind of stocks. But if you stick with it for the long run, you can accumulate a lot of many.
Say, for example, you invest $8,000 per year. This will grow at an annual average of 8%, making it possible to accumulate nearly a million dollars over a 30 year period.
A few investment options include:
- Stocks & Bonds — A stock is a piece of direct ownership of a business, while a bond is a loan
- Mutual Funds — These allow investors to pool money to help increase their purchasing power
- Exchange Traded Fund (ETF) — Another investment tool based on the law of one price
You have a lot of options when it comes to investing your earnings. But if you want to make the most out of it, you need to make an informed decision based on the risks and benefits of each.
No matter if you invest in stocks, other startups or real estate, be sure to thoroughly vet each investment for viability and long term profitability.