Original question from Quora:
With $100,000 in the bank, what’s the best business to get into with a good ROI?
There once was a man who inherited a great sum of money. Many of his friends and relatives and even those who didn’t know him would come to him and ask for money.
Each one had a great business opportunity for him. Some were in real estate. Others in the stock market. Some in local businesses. Some in multi level marketing. Some in even more sketchy get rich quick schemes. Some were complete fraud.
The man didn’t know much about business and took many of the people at their word. Many were dressed in nice clothes, had formal college degrees, certifications, and so on. He was no fool and didn’t trust his money to cheap hustlers and sleazy used car salesmen.
So over time he found his money invested in real estate, the stock market, some local businesses, multi level marketing, and so on. His hands were in many pots as they say.
He was quite the “success” for a while. In his wealth he had a fine house, nice cars, and all the outward appearances of his wealth.
Yet, before he inherited his money, he was a construction worker. Luckily, he didn’t forego all of his friends, and one of his closest friends still kept in touch.
His friend was a hard working man who always worked odd jobs on the nights and weekends. He did repair work and handyman services on Craigslist from time to time. He hauled firewood in the winter.
And while his friend made the extra money, he saved a portion of it for himself over time.
Oddly, his friend never asked for money to grow or expand his business. Instead, they would hang out, drink beer, and watch football as they always did.
Life was good for both men.
Then one day the man who inherited the money started getting phone calls from those who he invested in. They needed more money for sales and marketing and infrastructure and many other things he didn’t understand, but they sounded important.
Things were going well, so he kept investing. After a while, 90% of what he inherited was invested and the other 10% went to service the debt on his house and cars and lifestyle.
Running out of cash, the man started to call in on his investments only to hear excuses why he couldn’t take his money out. As it turns out, the money was all spent and the investments were drowning in debt.
Even if he tried to get his money out, he wasn’t the first creditor and he realized he had lost nearly all that he had.
The house, the cars, the lifestyle all went away and the man found himself back as a construction worker with his friend.
But now, the friend had saved and invested in his side business enough that it was a thriving enterprise. They had many construction projects of an ever growing size.
Despite the danger of running a construction operation, cash flow was stable and there was money in reserve.
The first man lost everything because he invested in what he didn’t understand and never took the time to become an expert on it. His friend invested what little he had into what he knew was profitable and always had a reserve just in case.
The point is, the best ROI is a terrible metric for investment if you don’t understand what you are investing in. Be smart and invest in what you know and have some control over.
P.S. I unpack more ideas in Creative Genius.