How Entrepreneurs Can Make Stock Investing A Profitable Side Hustle
Running a business may take much of your time, keeping you from starting a side hustle. But if the side hustle is stock investing, this could be perfect. You won’t necessarily need to invest much of your time to do it, particularly once you learn the trade.
Furthermore, stock investing is a side hustle that allows you to be your own boss. This means you can do it anytime, anywhere, without supervision. However, you’ll need to use your own money for this side hustle. When you know how to do it right, it’s possible to become profitable. The following ways may help you achieve this goal:
1. Understand The Risks
As an entrepreneur, taking risks is basic. However, you also need to assess if the risk will be worth your time and money. If you think the risk may be overwhelming, then it’d be best not to take the plunge. You should apply this risk tolerance when investing in stocks too.
While some become profitable, others lose money in stock investing. Given this, you must understand the risks listed below before leaping:
High Returns Take Time
Stock investing doesn’t always give you immediate high returns. This usually happens when you buy stocks of companies you know nothing about. You may have to get the facts about the company and understand them first before you buy their stocks. Doing this will help you weigh if the company will give you a return on investment (ROI) after some time.
There’s also a liquidity risk wherein the stocks are costly or hard to liquidate. The ones with high capitalization are more liquid, unlike stocks with low capitalization. Thus, knowing the company’s capitalization will help you avoid being stuck to stocks you can’t sell quickly.
Take into account the business risk. The company may suddenly go bankrupt or suffer a drastic decline in profits. No matter how good the company is now, future external circumstances may affect its performance. These factors include competition, slowdown of the industry, or economic crisis.
You should also consider the market risk. International and local economic factors can make stock prices unpredictable and volatile. This means you may not know when the stock prices will suddenly plummet.
2. Investing Through Your Business
Aside from investing using your personal money, you can also opt to invest through your business legal structure. However, different states have varying regulations about this. Before using your business finances for stock investment, seek expert financial advice and you should consider many factors, some of which are as follows:
You don’t have to worry about legal restrictions with an S corporation (S corp). This means you can invest in stocks the same way a non-business owner does. However, the profits you make from stock sales or dividends will incur taxes that your business will pay.
The taxes that your business will incur when investing in a C corporation (C corp) are known as double tax. This means you’ll be taxed personally and at the corporate level whenever you gain profits. While it may seem disappointing, investing in a C corp is still recommended. The federal corporate tax rate may be high, but the tax is much lower when buying and selling foreign stocks, from 10.58% to 13.5%. Thanks to the Global Intangible Low-Taxed Income (GILTI) tax, which reduces a corporation’s taxes on profits from stock investing.
Limited Liability Companies
You can also enjoy tax reduction on stock investing if you’re a limited liability company (LLC). You can even choose to incur taxes like S corps. However, you should avoid blending your business and personal assets in this type of structure. That way, you can still enjoy the liability shield afforded to LCCs.
Sole Proprietorships And Partnerships
When you have a business under this structure, you don’t get the same tax reduction and liability protection that other structures provide. So, if you use your business finances to invest in stocks, you won’t enjoy tax reductions. The best way to maximize your business’ money when investing in stocks is to register them as corporations or LLCs.
You should work with a tax attorney to ensure you’re complying with state laws regarding stock investing. They know the rules and can help you maximize your profits and keep everything legal.
3. Invest In IRA
You can also invest in large stock indexes through an individual retirement account (IRA). Since stocks should be considered long-term investments, adding an IRA is recommended. This is known as one of the safest and best accounts to place your assets. So, when you retire, you can enjoy your hard-earned money from doing business.
Over time, your capital in an IRA will increase. Thus, allocating some profits from your business to buy stocks in such an account will help you maximize your finances. Even when you retire from doing business or when your company goes bankrupt, the IRA won’t. Instead, it can give you a retirement fund that businesses can’t guarantee.
Most importantly, you should learn to diversify your investment. This means buying various types of stocks from different industries. Avoid pooling all your assets into one company because you may lose everything if it goes bankrupt.
But when you buy stocks from different companies, you can still balance your portfolio. For instance, you bought shares from an oil company, financial services company, manufacturing company, and others. When there’s an economic crisis, it may hit one or two industries. Their stock prices can plummet. Since you’ve diversified your portfolio, not all of your assets will be at a loss.
You’re an entrepreneur, and taking risks is normal. While stock investing has inherent risks, it’s possible to mitigate or resolve them. As long as you learn to buy and sell stocks, it’s possible to turn this side hustle into a profitable one. Try the ways above to assist with growing your personal and business finances, as an alternative to letting them sit in the bank.