As a savvy entrepreneur, you know that your brilliant start-up idea, together with your visionary approach to a certain industry niche, is going to need a strong financial backbone. Capital is pretty hard to come by in this day and age, and your start-up needs to grow or have a soft cushion to land on in case something bad happens. There are plenty of options out there to inject capital into your business to boost its development, but some of them are traditionally riskier than others. The easier ways are getting a bank loan or finding an angel investor among others, but they all come with drawbacks you might not want to face.
Here I identify ten advanced investing tips for taking your start-up to the next level:
1. Understand taxation
Getting on top of tax requirements is probably one of the best strategies to ensure a successful future as an investor. No matter what types of investments you choose, tax efficiency will ensure you don’t lose huge chunks of money on taxes, or you accidentally do something illegal with your investments. There are plenty of tax specialists, and tutorials helping you to find your way through the taxes and legal jungle, and provide you with tax-efficient investments in the long run.
2. Use Forex Simulators and read political news
Forex investments come with great benefits and a fair share of risks, but you don’t want to learn by doing. Sometimes in Forex trading, huge gains can become massive damages in a matter of minutes. The major advantage of Forex in comparison to equities is that Forex revolves around four major currency pairs and three commodity pairs. Instead of picking between tens of hundreds of different stocks, you need to keep an eye on the economic and political news of about eight countries.
While Forex trading is said to be one of the fastest ways you can make money for your company, specialists advise all entrepreneurs to use Forex simulators before tapping into the largest and most liquid market in the world. In this case, practice definitely makes perfect.
3. Understand the 6 key figures of real estate investing
Even in the most volatile economy, real estate is still a solid ground to play on when considering investing for your business and your future. However, before signing on a deal you couldn’t refuse, you should understand and have a good grip on the five figures that can make or break a real estate investment: net income, cash flow, ROI, cap rate, cash-on-cash return and total ROI.
Historically, real estate appreciates despite the occasional economic slow-downs and it still can make you some good money as long as you properly choose when and in what to invest in. A real estate broker may be of assistance, but first, you need to coin your medium and long-term investment goals. Once you know exactly what you want to achieve with that investment, you will be also able to make the correct buys and sells.
4. Make less money, get more security
As an entrepreneur trying to get a start- up off the ground, your career and your business are already at risk and present high levels of volatility as it is. Smart entrepreneurs have to balance this intrinsic risk by beginning their investment journey with more stable and reliable targets. Bonds are fixed-income securities, and you will know at all times the exact amount of cash you will get back if you hold on to the securities until they reach their maturity stage.
While you may be tempted to play on the stock market – which has better rates of return – bonds ensure you will have a foreseeable amount of money in the near future to pump up your start-up.
5. Build an untouchable portfolio
Many specialists advise you to diversify your investing portfolio to lower your risks. Not placing all eggs in one basket is still a wise strategy. However, an even more prudent approach is to refrain from eating the eggs in the baskets. Creating untouchable portfolios in accounts you will never access sounds counterintuitive for business growth, but look beyond your immediate need of capital injections.
However, such strategy will keep you from accessing long-term investments to cover immediate expenses or feed your start-up’s immediate need for a cash infusion. While you can still have some touchable sources of income to boost your start-up, untouchable portfolios come with huge fees to be accessed, and this will keep you honest for a long time.
6. Taking your Start-up to another level means protecting it
As a start-up manager, you might learn that your business faces economic or legal perils of all sorts. Also, the stock market may, and its fluctuations puts you in grave dangers as an investor and businessperson. Learn how to restructure your business and investment portfolio, so you can keep creditors away from your hard-earned money. If it is at all possible, you may want to transfer assets to your spouse or children and invest in retirement accounts and real estate – most of the times they are out of the creditors’ reach.
7. Invest in counter-cyclical industries
This also sounds counterintuitive, but let’s take a closer look at things. When you look to invest in counter-cyclical businesses or industries, you need to make sure they are counter-cyclical to your own business niche. In other words, you need to diversify away from the industry you are currently operating in. As an example, commodities usually make a risky investment, but if your business is somehow linked to the national economy or a broader economy/public equity market, investing in commodities may start looking very appealing.
8. Have a cash cushion to fall on or throw at the opportunity
As a visionary entrepreneur, you surely can’t pass on a good deal when it presents itself. And also as a visionary entrepreneur, you also know that sometimes all it takes is a bad deal for your start-up to fall hard. A cash cushion is a type of investment not many consider carefully – we are talking here about savings and choosing the right savings account which sometimes may be as hard as choosing the right stocks to invest in.
Having a cash cushion, you can rely on for covering short-time cash needs also grants you the possibility to future invest the cash into opportunities you can’t ignore. Saving money for retirement is one of the top strategies you need to put in play as an entrepreneur. Even if your projects and investments don’t prove successful in the long run, your financial security will be protected.
9. Understand how mutual funds’ expense ratios vary and stop paying high fees
Some of the advantages of looking into mutual funds investments is that they are professionally managed at affordable prices for investors. Mutual funds also offer that welcomed diversification specialists talk about. Transactions are also cheaper, and mutual funds can provide you with liquidity at any time you desire to have your securities turned into cash. There are, of course, some disadvantages coming with them, one of the biggest being costs, fees and capital-gain taxes which for entrepreneurs means money that won’t return anything in exchange.
You can learn how to stop paying high mutual funds fees and see your business grow. Keep in mind that the total expense ratio consists of the investment management fee, a 12b-1 fee, and other operating expenses, so the funds with higher internal costs also show higher expense ratios. Before investing in an MF, make sure you properly select the MF, deciding which fees are right or not for you.
10. Learn patience
Unfortunately, many new entrepreneurs rush towards the next big thing when it comes to their start-ups and their investment strategies. Some investments do gain you quick returns, but most of them require patience, knowledge, and skills to become productive on medium and long periods of time.
Most investments also take a long while to generate the results you want them to, so patience is the key feature of any good entrepreneur and investor if he/she wants to achieve his/her goals. This is something all new and seasoned entrepreneurs should know before even thinking about investing, but experts can’t emphasise enough the importance of patience no matter how much experience you have as a dynamic investor.
About the author
Ethan Featherly handles the content section of online trading provider Admiral Markets. He has a masters degree in economics from the University of Chicago and now specialises in Forex trading.