Investing in Stocks vs Index Funds

My younger brother Josh and I had an interesting conversation about what the best forms of investment are and how he should use his time. This is what I had to share:

I have studied finance and stock with great intensity since I was 12, majored in finance in college, worked at Merrill Lynch (financial institution), and have invested my own money very successfully since graduation….. so things I take to be obvious are not obvious to others. I will try to be more patient and nice.

 I do not recommend you invest in stock options or put your money in a savings account. I specifically recommend you use an index fund or perhaps a mutual fund to invest your money (this IS buying actual stocks in the stock market, just through an intermediary, make sense?)
Let’s say that grandpa’s assertion is correct: he can beat the stock market consistently over time in just 1 hour per day (which is not true of even bigtime professional investors who spend 12 hours a day investing for decades). Look at these 2 examples:
  1. Investor Grandpa…
    1. Invests in stocks himself $1 million and earns 6% average year over year
    2. Spends 1-2 hours per day researching stocks, discussing, calls, investing and trading. 400 hours per year. 400 hours / 8 hours in business day = 50 FULL WORKING DAYS PER YEAR
    3. RESULTS: $1m * 6% = $60k investment increase
  2. Worker Grandpa
    1. Invests in mutual funds or index funds himself $1 million and earns 5% average year over year
    2. Spends 1-2 hours per day building a side business earning on average $40 per hour doing consulting (or airplane certification training or whatever).
    3. RESULTS: $1m * 5% = $50k investment increase + $40 per hour * 400 hours of side business work = $16,000. Total = $16k + $50k = $66k.
That is with the assumption that Grandpa earns a measly $40/ hour (most everyone I know with businesses can make significantly more). Now let’s look at your case which makes it even clearer:
  1. Investor Josh…
    1. Invests in stocks himself $25k and earns 6% average year over year
    2. Spends 1-2 hours per day researching stocks, discussing, calls, investing and trading. 400 hours per year. 400 hours / 8 hours in business day = 50 FULL WORKING DAYS PER YEAR
    3. RESULTS: $25k * 6% = $1.5k investment increase
  2. Worker Josh
    1. Invests in mutual funds himself $25k and earns 5% average year over year
    2. Spends 1-2 hours per day building a side business earning on average $75 per hour doing landscaping (which I did 2 years younger than you)
    3. RESULTS: $25k * 5% = $1.25k investment increase + $75 per hour * 400 hours of side business work = $30,000. Total = $30k + $1.25k = $31.25k.
The bottom line for you Josh is that you should clearly invest in mutual funds or index funds and use the time you save more productively. There is a 20x greater return for you to put your effort into other areas.
Additional notes:
My investment hierarchy:

  1. A business you run yourself and control that is established
  2. A business you run yourself and control that is new
  3. An index fund
  4. A mutual fund
  5. Investing in individual stocks yourself
  6. Loaning money at a significant interest rate to people you trust
  7. Stock options – I use this strategy for the huge rewards possible. Gambling blood in me leads me astray… but I have done well. Went from $60k to $90k in the last 3 three months.
  8. Bank savings
  9. Loaning money to people you don’t trust at significant interest rates or to people you do trust at low interest rates
  10. Poker at home
  11. Poker at a casino
  12. Blackjack at a casino
  13. Slot machines at a casino
  14. Lottery tickets
My point is that you should let a paid professional do your stock investing for you… put your money into an index or mutual fund. Make sense?

Creating Your New Small Business Idea: Business Cheat Sheets

New Business IdeasCreating your new business ideas cheat sheet PDF can be downloaded here.

The most fun part of being an entrepreneur is coming up with your business idea. This is a phase that involves creativity and requires almost no execution. Many entrepreneurs are pretty good at the idea phase and have dozens of viable business ideas, so the key here is how you approach your process of narrowing down from all the different possibilities to one narrowly focused business idea that you can believe in and be passionate about.

New Business Idea Phase

During the initial idea phase for a new business you want to come up with as many ideas and variations as you possibly can. Do not be negative towards yourself during this time and don’t let other people try to shoot holes in your business ideas yet. That will come soon.

The best way to approach this is to start with what you already know and you already have skill in. If you are an investment banker, think about things related to finance. If you are a physical laborer, think about business ideas related to landscaping. If you are a trucker, think about business ideas related to the transportation industry.

You want to avoid businesses you know absolutely nothing about. Stick to stuff you already have familiarity with and a passion for. Don’t try to do robotics if you have never written a computer program and don’t understand the basics of hardware. You also may not have the passion to stick with your business through all the hard times if you don’t already understand it.

The best sort of business ideas look at your current skill set and hobby interests and then looks to fill gaps that exist. For instance, if you are really into remote control helicopters but can never buy enough replacement parts to keep your choppers flying, then you should consider selling bulk parts to consumers. Or perhaps if you are a janitor, you should look into creating a property management company if your local area does not have trustworthy property management corporations.

37 New Business Ideas To Get You Started

  1.  Digital tracking of performance on a bicycle
  2. Smartphone connection with doctors
  3. Turn vacant office space into hotels
  4. Music streaming that improves focus at work
  5. Beer brewing
  6. Landscaping
  7. Writing a blog online
  8. Sock that can detect foot injuries
  9. Furniture moving
  10. eBay / Craigslist retailer
  11. Jeweler
  12. Home theater setup
  13. House painting
  14. Auto mechanic
  15. Locksmith
  16. Life coach
  17. Carpentery
  18. Disaster planning
  19. Massage therapy
  20. Restaurant
  21. Bar
  22. Social media consultant
  23. Tree farmer
  24. Animal farmer
  25. Veterinarian
  26. Web designer
  27. Camera that can show you your pet while your at work
  28. Travel comparison
  29. Interior designer
  30. p2p lending
  31. Vehicle that can be put together from a kit
  32. Self driving cars
  33. Solar powered computer
  34. Portable segway vehicle
  35. Social network for hospital patients
  36. Social network for retirement home people
  37. Customizable shoes


How To Manage Interns: Business Cheat Sheets

Before you’ve actually had interns working for you, managing them seems like it would be a piece of cake. Those of us who have had experience managing interns realize that getting productive work out of them without putting too much time into monitoring them while also helping them learn something is actually somewhat challenging.

The purpose of an intern is to give another person an opportunity to learn more about a field through practical experience. This person generally only comes in with very general knowledge and very general skill sets. The intern also is usually a temporary employee who works a few months and only a few hours a week.  To get productive work from team members you need to spend a fairly significant amount of time training them and that time pays off if they work full time and save you time doing the tasks you’ve handed off to them well.

The obstacles to managing an intern well:

  • Interns only have a very basic knowledge of your industry.
  • Interns only have a few limited months to spend at your company.
  • Interns usually only work a few hours a week.
  • Interns don’t care about your company as much as regular employees – you are a stepping stone.
  • Interns need to actually learn valuable skills.

Understanding these obstacles and assigning work that does not conflict with these obstacles is the key to successfully having interns.

The work you assign interns should meet these requirements:

  • No higher than basic level skills required. If a skill is required, it should take no more than an hour or two of training.
  • The work should not be “busy” work. Make sure it is something genuinely valuable to the business.
  • The work should bring the intern into contact with valuable knowledge about the industry

Using internships as recruiting tools:

Keep in mind the people you have as interns today may be employees tomorrow. You should carefully select interns who have the potential to become full time team members. Once on board, watch their work closely and people who have the work ethic and drive to become stars of your team should be recruited to be full time team members. You essentially turn an internship into a three month job interview!

Typical assignments that are good for an intern to do:

  • Backburner projects you have not been able to get to that are time consuming but not especially technical
  • Quality assurance work – reviewing other tasks/work to make sure they meet certain explicit guidelines
  • Writing copy for your website
  • Writing guest blog posts for other websites that link back to your site
  • Filing and organizing paperwork or digital files that need to be accessed in the future
  • Doing research into areas that you may not have had time to get to
  • Acting as personal assistants for employees (doing work tasks, not getting coffee)
  • Gathering client feedback

Keys to motivating an intern:

  • Treat the intern like an equal team member as much as possible
  • Share the big picture of what the company is doing, how it is doing it and how they contribute
  • Meet the intern weekly to assess his/her performance
  • Break big projects into small incremental tasks
  • Encourage your intern to ask questions