Firstly, I apologise for my absence on my own blog – I have been away investing and would like to discuss with you what to invest in now, with interest rates still at an all-time low across the globe.
I have just invested in a new business and this has taken up my time – I bought a new business back in October 2010 and will admit that it has taken all my focus for the last 6-8 months. The industry was completely new to me and the learning curve extremely steep – the business designs, manufactures and installs fitted furniture, mostly built in bedrooms and home offices – so it is not only an industry I don’t know, but also I have never run a manufacturing business before!
So if you were to ask me – “What to invest in now?” – I would have to say ‘Invest in a business’, which can either be existing or a new one you start from scratch, which is a continuation of my last post ‘where to invest cash’ and to show the readers of my business blog, I put my money where my mouth is!
You could spend your time looking at the best money investments – the banks; premium bonds; property etc. but ultimately, one of the highest returns you will make is when you buy a business…let me explain further:
If you were to use an ‘investment return calculator‘ you would enter certain information – the period of the investment, the amount of the investment, the return and so on. At the end of the investment period you would achieve a certain level of ‘Return’.
With a business, there are two investment returns to calculate, the first is the ‘cash’ generated from the business each year, which you might choose to take out by way of salary or dividend. Secondly, you have the ‘capital growth and so long as you make the right choices in your new business and it grows over the period of your ownership, then if the amount you sell it for is higher than what you paid for the business in the first place or more than the money you used to set it up from scratch, this represents capital growth. So for example:
If you invested £100,000 in a business and receive a £20,000 annual dividend from it your annual investment is 20%, however if after 10 years you sell the same business for £500,000 your capital investment is 400%, but if you add the two returns together your total return would be 600%, assuming the dividend you take out from the business over the ten years remains at just £20,000, which is unlikely. There is no bank, pension or ISA that would give this level of return on the market, and that is not simply because interest rates are low right now, but this will never be the case.
You will have to do some hard work though – running a business is not for the faint hearted and the risks are much higher, but you can’t expect to get a high return without higher risk and without a bit of work.
The other consideration is that, of the £100,000 used to set up the business or to buy it from another owner, some of this could be borrowed money from a bank. So if for example, you were able to secure a 60% loan on your investment, your own personal capital outlay is now just £40,000.
This makes your return on investment much higher, because you have leveraged your money – which in this case the total return of note above of £600,000 would mean a total return on investment of a staggering 1500%, which might make the answer to ‘What to invest in now?’ much easier.