We all dream of having a comfortable life where we can provide for our loved ones, treat ourselves occasionally, and have financial security. But achieving our dreams often requires having enough resources, pushing us to work harder and find ways to earn more.
Being employed is the first thing that comes to mind when we say we need a steady source of income. But sometimes, our regular paycheck is enough to support our ever-growing needs. We then think of ways to budget our limited income, or for the entrepreneurial, to earn more by offering products or services for profit.
Our income for being employed or for being an entrepreneur is called an active income because we earn by exerting effort to work. But did you know you can earn passive income by letting your money work for you? This is called passive income.
Now you consider two options: either start a business or invest in stocks. Starting a business allows you to earn active income, while investing in the stock market allows you to earn passive income.
Before you decide, here are some things you should think about:
Consider the risks involved
Asking the question, “Should I start a business or invest in the stock market?” is like choosing between caramel and vanilla. There is no correct answer because it all boils down to preferences, personal skills, level of knowledge, and resources.
It is, however, important to emphasize that investing in stocks and starting a business both come with risks. Either way, it is possible to lose all your money. This is why it is important to understand what you are getting into before taking the leap.
When starting a business, coming up with the capital is usually the biggest hurdle. You should factor in government fees, monthly operational expenses, equipment, and other assets that you need to launch your business.
Keep in mind that there are also chances that your business would slow down, not earn, or worst, go bankrupt. Although you own the business, your cash flow is not as liquid and you may not be able to pull out your money if you have an emergency.
Despite the difficulties, many still venture into business because of the possibility of high returns. But reality is that it’s not for everyone. Another option is to invest in stocks.
According to the 2017 Financial Inclusion Survey by the Bangko Sentral ng Pilipinas, only 3 percent of Filipino adults invest in stocks, bonds, Unit Investment Trust Funds, mutual funds and other managed investment schemes1.
Investing in the stock market could be a bit overwhelming for some due to the lack of knowledge, fear of losing their hard-earned money, fear of scams, and poor cash flow management, among others.
With the popularity of online investment platforms, some Filipinos nose-dive into investing without having enough knowledge of how it works. By itself, investing in the stock market does not guarantee high returns for one’s investment; much worse, one could end up losing money if one goes through it by trial-and-error. Directly investing in the stock market comes with bigger risks. If you invest in the stock market without enough knowledge, then it becomes a gamble that might cause you to suffer huge losses.
Consider the amount of time you have to spend
Starting a business is time consuming. Being one’s own boss takes so much hard work, patience and sacrifice. Usually, business owners end up spending more time working compared to salaried employees, especially when the business is just starting out. Are you willing to lose time with friends and family or to lose sleep to make your vision come to life?
On the other hand, investing in the stock market presents you with several options. While you can directly invest and manage your stocks, you may also opt to invest in pooled funds such as mutual funds, unit investment trust funds, and funds of investment-linked life insurance. Depending on the specific type of pooled funds you choose, you can open an account for PhP 5,000 to PhP 10,000 and have fund managers who can make sound financial decisions for you. This helps minimize the risks of losing your money.
One of the biggest advantages of investing in the stock market is that you don’t have to worry about management as much as business owners do. Because you don’t make any decisions in the actual business you own shares in, you don’t need to deal with actual business trouble. You do need to monitor the stock market, but this still gives you more time and freedom to do other things.
Some might also argue that having a good portfolio is not as fulfilling as entering your own office or seeing your name on a logo. People with a knack for entrepreneurship often get satisfaction from building a business that is not the same as investing in stocks.
Consider your level of knowledge and skills
The biggest factor that you have to consider is your goal. Starting a business and investing in the stock market are not comparable as they serve different purposes. You may hear advice like “you will never know unless you try” and this is equivalent to welcoming as many risks as possible when you don’t have proper knowledge or proper guidance.
Your choice will largely depend on knowing what you are really capable of. By tempering your goals with your ability, financial capacity, and time availability, you will be able to make a realistic decision on whether you will choose to start your own business or start investing in the stock market.
Coming up with a clear and well-defined financial goal is a good way to start. By knowing what you want to achieve, you will be able to plan a realistic course of action that will address your needs. Having money to start your own business or invest in the stock market is just the start. There is much to learn and do so you can manage risks and ensure that you will not end up losing your hard-earned money. Realizing your goals and dreams, after all, depends on how much you are willing to gain rather than lose.
1 Bangko Sentral ng Pilipinas. 2017 Financial Inclusion Survey