Start a Business or Invest in Stocks: Which Is Better?

It can be challenging to choose the best opportunity to maximize your valuable time and capital.

Is it better to start a business or invest in stocks? For the amount of capital required, starting a business has high income and capital gain potential yet requires far more time from the owner; investing in stocks has limited income and capital gain potential but requires little time by the investor. 

Risk Reward | Start a Business or Invest in Stocks

Investing in stocks has long been considered the best strategy to build wealth. With the explosion of entrepreneurship over the past decade and the fact that most of the wealthy made their money from business vs stock investing, however, it makes sense to explore if starting a business makes sense for you. 

Undoubtedly, the internet now provides an opportunity for investors to start a business with little to no capital, too. As such, the focus of this article will be comparing starting a business to investing in stocks.

Over 15 years ago we wondered if we should continue to invest in stocks or start a business with our savings capital.

In this post, I’ll share what we learned since then from starting several online businesses and after investing in stocks for almost 40 years. Along the way, I also bought an online business and invested in several startups. 

Note that the focus of this article is starting a small, local service type business or an online business, not a business that requires a large amount of funding since anyone can start a very small business today, and many readers are interested in possibly doing so. On the other hand, businesses that require startup funding are more challenging and all encompassing of your time and capital and therefore attract fewer individuals.  

Is Starting a Business and Investing in Stocks Mutually Exclusive?

Many investors think they need to choose between starting a business and investing in stocks. 

You don’t have to choose between business and stock investing, however. This is because investing in stocks can be done with very little time but requires lots of capital, and a business can be started with little to no capital but will probably require a lot of time. This paradigm is addressed in more detail later in this post.  

I think it makes sense to start a business and invest in stocks if possible, since they have opposite requirements and can both build wealth, generate income, and help manage both income and capital risk.

First Consideration for Starting a Business Vs Stock Investing

When initially deciding whether to start a business or invest in stocks the driving motive should first be confirmed; do you need to primarily generate income, produce a capital gain, or both?

Either endeavor is being done as a means to reach your financial goals first and foremost. Therefore, by answering this question first, you’re more likely to gain clarity about the better option for you. 

The factors that will be addressed in deciding whether to start a business or invest in stocks relate to time, profit potential, required capital, skills, and risk.

If you’re trying to decide whether to start a business or invest in stocks, my guess is that addressing the amount of time it’ll take you to make money is a top priority, so let’s start there.  

1. Time Needed to Start a Business Vs Invest in Stocks

There are two important time elements for consideration in starting a business vs investing in stocks. 

  1. The time it takes to start making money
  2. The time it takes to manage the chosen endeavor

1. Time to Make Money from a Small Business Vs Stock Investing

Getting profits from a new small business can take a relatively long time but there are several factors as addressed below.

While short term profits from stocks can take minutes, meaningful gains for buy and hold investors usually take one to many years, depending on the economic cycle when you invest in stocks as explained more below.

Let’s look at the time it takes to make money from business vs stocks in more detail. 

How Long Does It Take to Make Money from a Small Business?

It can take months or even years to get a return from a small business; it depends on the type of business you’re starting. 

While business owners are often viewed as a failure by themselves and others if their business isn’t immediately profitable, the reality is that even larger, highly regarded public companies have taken years to generate profits.

For example, Federal Express wasn’t profitable for about 4 years. It took 9 years for Amazon to become profitable! 

If you’re wanting to start a business, consider that many businesses take years to become profitable for various reasons. 

On the other hand, you can start a small business nowadays and become profitable within a few months, again, depending on the business model being used. There are many different kinds of  businesses from which to choose now, fortunately; your business model selection can even be tailored to your needed time frame for making money from your business.   

Speaking from experience, one of our online businesses, for example, generated a significant profit within a few months because the timing and the niche were just right.

A small local service or consulting business can truly begin generating income within weeks. While market size is limited for a local consulting or service based business, this type of business can provide an excellent way to test a market or income idea with no capital. It can also lay the foundation for expansion online and becoming a larger company.


How Long It Takes to Make Money in Stocks?

Money is most commonly made from stocks in one of two ways; dividends and capital gains; they each have different time frames for making money. 

Even though dividend income is very low relative to the capital required to generate that income, income can begin flowing within days of buying dividend stocks or funds.

Capital gains are the other major goal for stock investors. Again, you can buy stocks and have a capital gain or a loss within minutes. This is not the goal of most stock investors, however.

The amount of time it takes for buy and hold investors to make money in stocks from capital gains is based largely on two factors. Let’s look at those next. 

– Stock Investing Strategy

First, the amount of time it takes to make money and even be successful as a stock investor, period, depends on whether the stocks you choose are profitable. But it also depends on the economy and market cycle after you buy the stocks.

Note that most people, however, simply buy an index type fund, such as the S&P 500, not individual stocks. For stock index investors, the economy and stock market cycles heavily influence how long it takes to make money from stocks. 

– Stock Market Cycles

Whether you pick individual stocks or buy a stock index, investing returns are influenced by whether the market is in a bull market (as it usually is) or a bear market, particularly for index investors. The type of market, bull or bear, determines how long it will take to make money from stocks.

Many stock investors aren’t prepared for how a bear market delays the time frame it takes to make money from most stocks.

Bull and bear markets are based on various factors but usually, they’re related to the economy. Building wealth in a bull market is easy and can happen relatively quickly. For example, stocks, as represented by the S&P 500 index, can increase in value by over 29% in one year like the index did in 2013!

On the other hand, the stock index could go down over 55% as the S&P 500 index did in the late 2007-early 2009 bear market. The plan to invest in stocks, however, is usually based on buying and holding stocks for a long time for most investors.

The bottom line is that it’s hard to say how long it will take to make money from investing in stocks; there are a lot of variables at play, most of which are far beyond investor control. 


wealth plan

2. Time Needed to Manage Small Business Vs Stock Investments

In addition to the length of time it takes to begin making money after starting a business or investing in stocks, the time it takes to manage each endeavor is an important selection factor.

It takes very little time for a buy and hold investor to buy stocks and manage them following a simple asset allocation template. Alternatively, you can hire a wealth manager or financial advisor to invest in stocks for you thereby reducing the required time even more.

The required time factor here is determined by how you’re investing in stocks. Taking the time to understand your investments before investing in stocks is crucial whether you invest yourself or hire a financial advisor, however.

This is true simply because you need to know how to invest to evaluate and hire a financial advisor if you don’t spend time managing your own investments yourself. 

I personally invest my own portfolio after using several financial advisors many years ago. I use Allocate Smartly to implement a professional tactical investment portfolio in under an hour a month. (I provide free training for anyone that purchases Allocate Smartly through my affiliate link here.) 

On the other hand, when compared to stock investing, it can be a full time job to start a business and subsequently manage it. The time required, however, completely depends on the model you choose when you start a business, and your ability to delegate tasks. In general, investing in stocks is much less time intensive than owning a business. 

2. How Much Money Can You Make from Owning a Business Vs Investing in Stocks?

As previously written, there are two core elements to making money; one is from income and the other is from capital gains. Let’s look at the potential for each of these from both starting a business and investing in stocks starting with income from a business vs stock investing.

We’ll start with income potential. 

Income from Small Business Vs Stocks

Income is derived from the profits generated from your own business or from the stocks in which you’ve invested. 

Profits from Stocks Vs Small Business

Many companies distribute profits in the form of dividends. It’s important to remember that when a publicly owned company makes money, the profit from stocks is extremely diluted to you as an investor since there are millions of owners (stockholders) vs only one or a very few small business owners.

How Much Income Do You Get from a Business Vs Stock Investments?

An important advantage of starting a business that you simply don’t have with stock investing is this: Small business income can be in the thousands or even millions of dollars.

On the other hand, stock income is minimal when compared to the income that can be derived from a successful small business. Note that the key word here is “successful” since most small businesses fail. 

The reality, however, is that many stock investments fail to make money, too.

Let’s see how much income would be generated from a typical million dollar stock portfolio. Income is measured by the yield. Remember, we’re looking at income for cash flow vs capital gains here, not a potential increase in the price of the stock over what you paid for it

Large publicly traded companies in the US are represented by the S&P 500 index. While the yield changes, the average historical yield of the S&P 500 is about 1.8%.

This means that a million dollars invested in the S&P 500 would yield around $18,000 a year, or $1,500 a month before taxes or inflation are considered.

Going back to the basics of stock investing, this yield is the amount of company profits that would typically be paid to common stock investors for companies that even pay dividends; many companies don’t.

This leads perfectly to the next point.

Distributing Business Profits for Stocks Vs Small Business

With both business and stocks, income is received from stock dividends based on the company distributing profits.

Profitable companies may decide to reinvest profits, however, instead of distributing them to shareholders through dividends. This is very common, especially for growth type companies.

Small business owners, on the other hand, can decide whether to distribute the profits or use them for growth.

You’re probably seeing a pattern here that you have a lot more control and potential upside when starting a business vs investing in stocks. 

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Wealth Building from Small Business Vs Stocks

The above points addressed income from business vs stock investing.

Remember, there are two reasons to start a business or invest in stocks: income or capital gains; we addressed income from stocks and from businesses already. Wealth building is the second reason to invest or start a business.

The way to build wealth is by generating capital gains, from selling a business, a stock, or other asset, for more than you paid for it. 

Therefore, wealth building potential is an important factor in deciding if it is better to start a business or invest in stocks because the potential for each varies greatly. Let’s compare wealth building vs income potential from stocks vs small business next. 

Selling Stocks for Capital Gains

Of course, stocks themselves can also be sold for capital gains, which is the goal of most active stock investors.

By comparison to a small business, publicly owned stocks are rarely sold as an entirety to the benefit of stock investors. Instead of hoping a public company will be sold, investors try to get capital gains by selling stocks or funds for more than was paid for them.

Experience has taught me, however, that selling a stock for a capital gain is much more likely only IF you either buy the stock at the right time during the stock market cycle, follow a successful proactive strategy, or hold the stock long enough to have capital gains when you sell the stock.

The reality is that as stock investors, however, we have zero control over stock market cycles, and investing time frames are not always in our favor

Gains from Business Vs Stocks

Starting a small business has a good advantage over investing in stocks from a wealth building perspective. There have been many profitable very small businesses started by individuals only a few years prior that have been sold for millions of dollars.

Granted, this ideal outcome has a relatively low probability of happening. We know for sure, however, that such an outcome simply isn’t going to happen with a common stock investment. 

Also, small businesses can now be sold easier, and they commonly are, as online portals that list businesses for sale have become common and popular. 

The capital gain potential is exponentially higher for small business than it is for stock investing. Investing in stocks simply doesn’t compare to selling an entire business by an individual from a captial gain perspective. 

Business Vs Stocks Profitability

Aside from the above challenges, which endeavor is realistically more likely to result in a capital gain; investing in a quality stock or starting a small business?

First, there’s the company profitability factor. Since you can buy stocks that have already been profitable for years, there is a much greater chance of stocks being profitable vs starting a small business and it becoming profitable.

Next, there’s the capital gain factor, stocks have a higher probability of being sold for a gain vs a small business, and here’s why: Most small businesses fail. This is simply a part of the journey for most entrepreneurs.

If you own a business, whether it’s a blog or the next Amazon, however, you have control of the factors that determine success;  your commitment to succeed is a huge factor in determining the success of your business.

In summary, there’s a higher probability of selling a stock at a gain but the capital gain you can make from selling a small business that became successful is exponentially higher. Watch the video below where I talk about the pros and cons of starting a small business.


3. Capital to Start a Business Vs Invest in Stocks

The capital required to start a business vs invest in stocks varies greatly depending on the types of business under consideration. All stock investing is capital intensive. 

Capital Needed to Start a Business

There are many types of small businesses you can start, many of which are capital intensive. In this post, however, we’re addressing a very small low capital business that anyone can start, which would probably be an online, local service, or consulting business. 

You can start an online business that reaches a global market for less than $25 now; this continues to blow my mind.

We started a business online for under $2,000; it generated consistent multiple 5 figure monthly revenue within 15 months with a very high profit margin. I don’t share this to brag but to let you know the opportunity that exists when you start a business online.

Stock investing simply can’t touch this as far as the potential opportunity with a strategy that requires no capital.

It’s also entirely possible to start a website for under $25 and make passive income of $1,000 to $2,000 a month from ad revenue within two to three years. 

Other revenue sources can double or triple that income; I regularly see examples of this.

Starting a consulting business can require only the money to buy business cards. Individual consulting can generate very nice income with a great profit margin since there are little to no costs. 

Capital Needed to Invest in Stocks

Investing in stocks is capital intensive, meaning it requires 100% capital unless you are an advanced investor using options.

High capital is the complete opposite of the capital needed to start an online business.

In the example above, you saw that a million dollars invested in an S&P 500 index fund will generate only about $1,500 income a month based on the past average yield.

In other words, a million dollars of capital is at risk for 1.8% income. There might be capital gains but you don’t know if the stock market will go up or down over a given time frame.

In general, the capital needed to start a business is a fraction of the capital needed to create a stock portfolio. 

4. Skills Needed to Start a Business or Invest in Stocks

The skills needed to start a business or invest in stocks vary greatly. I would say that you need to learn considerably more to start a business than you do to invest in stocks unless you have experience in managing a small business of the type you want to start. 

For example, you can invest in stocks by buying an index based fund nowadays making it very easy to get started.

Many people who start a business, however, bring in a partner, contractor, or employee with the needed skills to start a business and manage it.

This, of course, requires the expertise to accomplish hire and manage a team. It also requires the capital (or profits) to pay someone or it requires giving up equity in the business to a managing partner.    wealth plan


5. Risk from Starting a Business or Stock Investing

There are two major factors when it comes to risk; time and money. Let’s address each.

Time Risk to Start a Business or Invest in Stocks

It can take a lot of time to start a business since a lot has to be learned and done beforehand in order to launch the business.

In essence, it’s time that is at risk of being wasted. The thing about time risk is that you learn from the time you spend on any endeavor, however.

That knowledge can help build wealth in the future even if the current endeavor doesn’t succeed. Knowledge is an asset that can be leveraged. Even if the first business fails, skills can always be put to use in a side hustle to increase income before or in retirement. Alternatively, you can use the small business skills you acquire to work for someone else. 

For this reason, I am going to discount time risk as it relates to your own time to start a business.

The same can be said for investing in stocks as far as the usefulness of learning how to invest. Investing in stocks, however, takes much less time as written previously so there is less time risk. The knowledge gained from investing in stocks, however, can also be leveraged just as it can from starting a business.

Financial Risk to Start a Business or Invest in Stocks

The amount of money you put into an investment is always at risk. So what we’re really addressing is how likely it is that you’ll lose your money from starting a business or investing in stocks.

While there are many variables, it’s more likely that you’ll lose the money you put into a small business since there is such a high failure rate.

Therefore, it’s important to start a business with as little capital as possible. This is very the theory of lean testing – to start your business as quickly and inexpensively as possible. 

On the other hand, if you’re investing in high quality stocks it is extremely unlikely you’ll lose all your money even though stock values may drop temporarily after being purchased should a bear market occur. Many steps can also be taken to reduce risk in stocks from a portfolio perspective, such as buying assets that go up when stocks go down, like bonds or gold, or increasing the portfolio cash allocation during high risk times. Small business ownership doesn’t have defensive strategies. 

Of course, small businesses can be a way to lower overall net worth risk since many types of small businesses can be alternative defensive investments

The offsetting variable, however, is that many online small businesses today are started with little to no capital given the internet. Therefore, much more money is at risk when investing in stocks than with starting a small business as addressed previously in this post.  

Summary for Start a Business or Invest in Stocks

These 5 considerations will hopefully help you decide whether to start a business or invest in stocks.

I personally like doing both and here’s why. Stocks provide a core, mostly passive investment strategy. On the other hand, small businesses are still an incredible opportunity with almost no risk or capital required. For us, they have been financially rewarding; they have also led to expanding our skills and even life enjoyment from the sheer achievement of creating something from nothing.

Owning a small business and having stock investments also increases both income and capital gain diversification which lowers risk while building wealth.



 The best place to start is with my Ultimate Wealth Plan. You can get it here now.

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