Synopsis: Entrepreneurs and small business owners can use investments as a second source of income to scale their operations. While the best investment strategy will depend on your business goals,here are seven tips to help you generate high returns. Building a business from the ground up and keeping it running requires hard work, determination, and endurance. But what if your capital is limited? One option is to look into passive income methods, such as investing.
Creating wealth for your company requires investing in the correct instruments that bring in money when your cash flow is low. To know more about it, read our blog on thebasics of financial literacy.
This article will share seven tips that will help you generate high returns. Let’s begin by understanding how investing can benefit your business.
Why Is Investment Knowledge Important?
Understanding investments can help you make informed choices, invest intelligently, and shape your business’s future. Here are some reasons why you should have a good understanding of investments:
Benefits Of Investments In The Long Run
Whilestock prices fluctuate, sometimes wildly, over short periods,they can generate steady returns when you hold them for a long time. Some more ways through which investments help you in the long run are:
7 Investment Tips To Generate Better Returns
Here are seven investment tips for small business owners and entrepreneurs that will help you maximize your returns and minimize risk:
Diversify Your Portfolio
Goal: By diversifying your portfolio, you can reduce your dependency on one asset class and maximize stability of your business’ investments.
As a rule, don’t put all your eggs in one box. Instead, spread your money across different asset classes or industries.
For instance, you mightinvest 60% of your portfolio in equities, 30% in bonds, and 10% in real estate. This way, if one asset class or industry underperforms, the others can help offset potential losses.
Have An Exit Strategy
Goal: The goal of exit strategy is that it prevents you from taking impulsive decisions, so you don’t lose your hard-earned money to market volatility.
Establish a clear exit strategy for selling an investment, such as a pre-determined profit target or a specific event trigger. This will help you make rational decisions based on your financial goals rather than reacting impulsively to market fluctuations.
For example, you purchased shares of a tech company at Rs 50 per share, and your goal is to earn a 20% return. So, you should sell your shares when the stock price reaches Rs 60 per share.
Hedge Against Inflation
Goal: Don’t let your cash flow management efforts go to waste. If you have surplus cash, invest it into assets that appreciate in value, so you can beat the inflation.
Consider investments that historically outpace inflation, such as stocks, real estate, and commodities like gold. These assets tend to be appreciated over the long term and can preserve your wealth.
For instance, you can invest in real estate, providing you with rental income and property appreciation, outpacing inflation.
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Keep Some Cash On Hand
Goal: If your cash flow management permits having some cash in hand, the goal is to set some aside.
If the stock market falls suddenly, having cash on hand allows you to buy shares at a lower price. This process is called ‘buying on the dip,’ it can help you maximize your gains over time.
Some reasons why you should have cash on hand are:
Consider Debt Mutual Funds
Goal: Debt mutual funds provide you with a reliable source of passive income while helping you battle market volatility.
Debt mutual funds invest in various debt instruments or fixed-income securities such as bonds, treasury bills, and money market instruments. These fund instruments have a fixed term, and investors receive interest until maturity.
Debt funds are also considered less risky than equity investments and offer stability to investors. The fund manager allocates assets across these securities based on their credit quality, duration, and yield.
Have A Tax Strategy
Goal: A well-thought-out tax strategy helps you minimize the taxes on your investments, this can improve your yearly cash flow.
By having aneffective tax strategy,you can optimize your tax liabilities and maximize your after-tax income. It involves investing in schemes with tax benefits, taking advantage of deductions, and staying up to date with the tax laws.
For example, you might invest in an ELSS. Under Section 80C of the Income Tax Act of 1961, if the principal amount for an ELSS scheme is less than Rs 1.5 lakhs, it is exempt from taxes.
Invest In Penny Stocks
Goal: Penny stocks often deliver rapid growth in a short period, allowing you to boost your cash flow from passive income.
A penny stock is a common stock that sells for less than Rs 10 on the market. As a small business owner, you can start trading penny stocks. This can help you learn about the market and enhance your financial skills while making some passive income.
Once you've mastered penny stock trading, you can either continue with it or go on to other types of assets.
Schemes For Entrepreneurs And Small Business Owners
Some investment schemes you can look into are:
Conclusion
Market investments are an excellent way to maintain a positive cash flow and grow your business. They serve as an additional source of income you can re-invest in the business, save for emergencies, or use to pay off debtors.
These invesem*nt tips will help you come with an investment strategy that aligns with your business objectives. However, before deciding one, conduct due research and read up on their risks.
