Fund your path to entrepreneurship with smart investments

Your long-term plan is to start your own business. It could be one of the smartest financial moves you’ve ever made. As they say, you can’t get rich by working for someone else; When you find an industry you’re passionate about and start a business that you own, not only will you be motivated to work harder and achieve better results, but you’ll reap the rewards of your accomplishments.

The only obstacle between you and your dream is capital. You need money to start a business. There are options like bank loans and investors. Bank loans can even be an indicator of business survival rates, as banks tend to subject start-ups to rigorous analysis to measure the chances of repayment before issuing a loan. However, you still have to raise your own money. By financing yourself instead of looking for other investors (family, friends or institutional investors) you can recoup more of your profits sooner.

Now how do you get there? You can set aside money from every paycheck, but investing could be a way to get there faster.

How to invest to start a business

When you invest, you let the money you save work for you and grow through compound interest. Investing in starting a business is similar to investing in buying a home (without the ability to access tax-advantaged retirement plans). You should consider short-term investments (ie maturities of 5 years). There are a few factors that make short-term investing different:

  • Risk: The shorter your investment period, the lower your risk appetite. Stocks are one of the riskier investment options because of the way markets go through corrections. It may take you some time to recover. So if you invest everything in stocks because you love seeing high growth, but the market crashes 6 months before you can cash out and start your business, your plans are on hold. You must receive your seed capital.
  • Liquidity: Your investment must also be reasonably liquid, ie it must be easy to sell. For example, if you put your investment in real estate, a difficult market could make you wait for the payout and put your plans on hold again.

Effective short-term investments

#1 Gold

Gold is a great short term investment as it protects your money from inflation. It’s better than a savings account. Gold can also help you offset the risks of other investments like stocks. Just make sure you know the current price of gold and its history. When the headlines say the price of gold is peaking, you should consider another investment as the price of gold is cyclical in nature.

#2 Money Market Accounts

A deposit account is like a savings account that offers much higher interest rates. There are restrictions on how you can withdraw money that affect the liquidity of a money market account, but it’s one of the few safe haven assets that has a chance of beating inflation.

#3 P2P Lending

Become a lender with a P2P lending platform and issue micro-loans (or rather parts of loans) with reasonable returns. You risk losses and these investments aren’t FDIC insured, but you can easily diversify your borrowing and limit your lending to protect against defaults.

Smart short-term investing can make your dreams come true sooner. Stick to low-risk investments, increase your savings by cutting personal spending, don’t forget about liquidity and make sure you diversify your portfolio.

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