Knowing What to Do with Retained Earnings to Get Better Investment Returns

As entrepreneurs, we fight tooth and nail against tough-nosed competition to scrape a profit. We diligently reinvest the profits in the business to supply it with enough working capital to run the operation and continue to expand. In some lucky cases, there are better opportunities to invest outside of the direct business or simply to diversify the business activities for asset protection. When doing this, it’s a good idea to know what you’re doing or your hard-won assets will evaporate.

Wall Street Scandals

Just think of the most recent Wall Street scandal where investors’ money disappeared into a Ponzi scheme. A black hole swallowed their money whole. Investments go bad when people don’t follow the rule that you should “never invest in a business you cannot understand.” When breaking this rule, you lose money. Period. Don’t say we didn’t warn you.

Knowledge is Power in Investing

One of the old adages is that “those who don’t know history are doomed to repeat it.” This is just as true with investing. When the dot-com stock market crash happened early in 2000, the value of the US stock market was at approximately three times its normal level. Few people other than legendary investor Jim Rogers noted this or publicized it. People retired based on their million-dollar portfolio and then returned to the workforce a year or two later when their holdings were down 70%. None of these retirees thought to ask the question whether it was possible to know if the stock market was under or overvalued. It was the blind leading the blind.

Figuring Out What to Do with Retained Earnings

When an entrepreneur has retained earnings, it’s a good idea to know what to do with them. Should they pay down debt, fund new ventures, or invest in the stock market? Having a plan for the money ensures it gets put to its best use. Otherwise, it’s the case of idle hands, which never has a good outcome.

Serious About Investing? Become an Expert

When you’ve read a couple of beginner books on investing and your interest has been piqued, what do you do next? What we’d suggest is that you consider taking an online master of financial economics degree course, which takes an academic perspective and teaches students how to understand the markets and how they link to the overall economy. That’s right. The lectures don’t just look at investing in the abstract with the online MFE program; they connect the markets to the economy so it all links up and makes logical sense. This way, it’s easier to know whether your future investment decisions are smart or not.

Not every entrepreneur plans to sell their business when they want to retire. Many never plan to retire. It also depends on the business type whether it’s even an option to sell it. When the branding of the business is too tied to the owner, it can be a real problem when it comes time to offload the company onto someone else. Therefore, knowing how to invest profits to build a nest egg without having to sell the business outright is a very useful way of covering your bases.

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About Dequiana Jackson

Dequiana Jackson, CEO of Inspired Marketing, Inc., is a small business marketing coach who shows women entrepreneurs how to use solid marketing strategies to turn their life’s passion into a profitable, service-based business. Dequiana is the author of Know Your Business: How to Attract Ideal Clients & Sell More and runs the award-winning blog, Entrepreneur-Resources.net.

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