Investing is a great way to earn extra money, which you can use for spending, saving, or making higher retirement contributions. But although you can earn a passive income through investing, how practical is it to be a full-time investor?
Being a full-time investor is very time intensive and there’s a lot of financial risk. But if you play your cards right and take a level-headed approach, you might be able to reap an enormous profit. If you’re mulling over whether to quit your day job and invest full-time, ask yourself these 5 questions.
What is My Investment Goal?
Every investor has a goal they want to reach. Most investors are trying to make a profit. But other investors are passionate about launching new companies or acquiring assets, like property. Your investment goal may determine whether you’re able to invest full-time.
Let’s say that you want to invest in real estate. If you’re trying to maximize your profits, you could be a full-time investor by constantly buying and selling properties or by fixing and flipping homes. But if you only want to earn a passive income, you could purchase a single property and earn rent from the tenants—this may not warrant full-time investing.
Maybe you want to invest in a business. If you’re trying to maximize your profits, you could invest full-time in the stock market and earn an income through dividends. But if you’re only investing in a business because you’re passionate about their product/service and you want to give them financial support, you may not need to invest full-time.
Think carefully about your investment goals, and only be a full-time investor if you’re constantly trying to grow your profits.
What is My Risk Tolerance?
Investing is basically gambling—you’ll never know whether an investment will actually turn out profitable or valuable. The best gamblers are able to assess risk and they never bet more than they’re willing to lose. You should take the same approach when you’re investing.
Are you willing to risk more money? Maybe you’d be better off as a full-time investor because you’ll have more time to find the most profitable investments. Conversely, you might feel safer investing part-time so you’ll have a steady income—just in case an investment goes sour and you lose lots of money.
Think carefully about your risk tolerance and consider whether or not you’d be more successful investing full-time.
What Kind of Investing Am I Going to Do?
Some types of investing require full-time involvement, and others don’t. If you want to be a real estate investor, you might not need to invest full-time because buying and selling a home can be done outside your 9 to 5. However, an investment property might require a full-time commitment—if you’re renting a property to tenants, you’ll assume landlord responsibilities that include finding tenants, running identity verification and credit checks, and responding to maintenance requests. It can basically make you a full-time investor, unless you hired a property management company.
If you’re going to invest in the stock market, you could also take either a passive or active role. You can download an investing app, create an account, and buy stocks whenever you see a good deal—that doesn’t require a full-time investment. But if you plan on buying enough shares to where you can vote on corporate decisions, then your full-time commitment may be required. You may also need to be a full-time investor if you plan on making risky investments, so you can give yourself time to thoroughly investigate the potential of the investment.
Am I Going to Have an Investment Partner?
Some investors partner up and share resources to minimize risk. While having an investment partner is a great way to reduce your risk, it may also cut into your profits because you’ll have to split them with your partner. You might benefit the most from having an investment partner if you’re looking for high-risk, high-reward investments.
An investment partner could make it easier to invest full-time because they’ll limit your risk of profit losses, but they may also prevent you from being profitable enough to do it full-time. Think about what kind of investments you’re going after and whether or not you’ll be more likely to achieve your investment goals with a partner.
What’s My Backup Plan?
Before you become a full-time investor, make sure you have a backup plan in case your investment doesn’t pan out. The nice thing about having a full-time job is that you’ll have a steady income even if you take a loss. When your investments are your only income, your income may change significantly year-to-year, since stock prices and market prices are always in flux.
Remember, though, that even losses could benefit you to some degree. For example, one of the tax implications of a capital loss is that you can offset capital gains. Additionally, short-term losses can lead to long-term gains or make stock prices more affordable. Consider coming up with a time frame—maybe you’re going to try and earn a steady investment income within 2 years, or you’ll go back to the 9 to 5. Or you can try part-time investing for a short time span and wait to see if you earn a high-enough income to quit your day job—this is the most risk averse strategy.
Take all of these guidelines into account before you become a full-time investor, and you’re sure to be successful in your investing endeavors.