How Do You Invest Your Money?

Say, you're given $800 billion to fund anything you want. <ol> <li>You can buy cars.</li> <li>You can buy railroads.</li> <li>You can buy cookies.</li> <li>You can buy chipmunks.</li> <li>You can buy __________.</li> </ol> You can do whatever you want with the money. Your job is to create a thriving, strong, sustainable business that produces freakish value -- and most importantly, generates freakish cash that will allow you to create more jobs for people and grow the organization exponentially further. <h2>How should you spend your cash?</h2> Peep this: <ol> <li>You buy 100 Chevrolets for $3 million. </li> <li>Ten years later, those 100 Chevrolets depreciate to $800,000.</li> </ol> In other words, you spent money on junk that actually lost you over two million bucks. Sure, you provided jobs when you made your initial purchase (HOORAY!) -- but you didn't create a sustainable model that would produce an endless array of jobs that would grow your organization into the future. That is, ten years later, the community and your business are worse off with your purchase. They now have to scrounge around looking and pleading to get jobs, while the ones who work for financially-responsible businesses are supporting their unemployed butts. <h2>Is there a better investment?</h2> Instead of spending $3 million on 100 depreciating assets, you instead do this: <ol> <li>Spend the $3 million on a staff of salespeople and domain-specific folks for your business.</li> <li>What happens 10 years later? At a 20% ROE, that initial $3 million investment produces a return of $18 million.</li> </ol> You see that extra cash you generated? <ol> <li>You use it to employ more people and buy more resources to grow the business even more.</li> <li>You start creating more job opportunities, as well as hiring more vendors and contractors -- which, in turn, creates more jobs for other businesses.</li> <li>With the added investments, you produce more cash -- which DING DING DING...creates even more jobs to amplify the organization further.</li> </ol> As the cycle escalates: <ol> <li>More investment opps.</li> <li>More cash.</li> <li>More jobs.</li> <li>More resources for the world. Yay!</li> <li>Repeat #1.</li> </ol> Now, flash-forward another 10 years; that initial $3 million at a 20% ROE now produces $111 million. (The 100 Chevrolets, now twenty years old, are worth a measly $0.2 million. OH NOES!) <h2>The Key to Spending Cash</h2> It's just this: <ul> <li>Invest your cash in things that will give your business the biggest return for its buck.</li> </ul> That's it. That's the key to investing/using-cash/running-a-business/running-a-coffeeshop/running-a-__________. Focus on the ROEs (a.k.a. ROIs) of your different investment choices. The more you spend on higher ROEs, the more money your business will generate (and the more jobs and resources you'll create for the world). <h2>What About Investment X?</h2> Say Investment X sounds tempting because you see a potential return of 5%. (In any event, you'll create jobs either way to help stimulate the economy, so you think you're doing your community a greater good.) But, then Investment Y captures your eye; you see it giving you a much better return: 15%. <h3>What do you do?</h3> Ding-ding-ding-ding-ding! Investment Y. With the bigger return, comes more investment opps. for your business -- creating more jobs, more cash, more jobs, more cash, more jobs, more cash -- as the cycle viciously continues like a penicillin-induced ostrich on a $#@%#@ spinner. The biggest pitfall that business/organizational decision-makers make is this: <ul> <li>They spend money just because they see a "positive return". </li> </ul> BOO. <ol> <li>Don't just spend on X because you speculate a positive return.</li> <li>Spend on X because you see X having a bigger return than any other investment choices you have.</li> </ol> Let's repeat that: <ol> <li>Spend on X because you see X having a bigger return than any other investment choices you have.</li> <li>Spend on X because you see X having a bigger return than any other investment choices you have.</li> <li>Spend on X because you see X having a bigger return than any other investment choices you have.</li> </ol> <h2>Here's the most ignored investment trick.</h2> <ol> <li>List your investment opportunities.</li> <li>Rank them by potential return on investment.</li> <li>Hedge your bets accordingly.</li> </ol> ROEs. ROIs. Basic. Fundamental. (Yet, mysteriously ignored.) <h2>The Biggest Bangs.</h2> 2009-01-28T21:18:42-08:00 true 724 how-do-you-invest-your-money

2009-11-06T21:45:48-08:00