Should You Buy a Business or Invest in the Market?

Good morning adventurers!

The online membership platform is coming together quickly. Very soon, you will be able to embark on your own expedition — traveling across a fantastical map and following a storyline as you progress along your personal wealth-building journey.

I’m so excited to share it with you soon! My goal is to have it up and running before the end of August.

In the meantime, let’s take a look at something I’ve been reflecting on lately: business ownership.

I love numbers. But for all their precision, they can’t predict the future — and sometimes, they don’t even come close. So when weighing a business opportunity, it’s not just about the simple math. We also have to consider probabilities, possibilities, shifting variables, and the intangible rewards that might come along the way.

Here are a few thoughts to explore.

Until next week,

Daniel

“There is only one thing that makes a dream impossible to achieve: The fear of failure.”

– Paulo Coelho

PARADIGM SHIFT
Should You Buy a Business or Invest in the Market?

When evaluating the leap into starting or buying a business, some benefits are easy to measure — like income or return on investment.

Others are harder to quantify. Things like:

• Flexibility

• Real-world education

• Perspective

• Business acumen

• Sense of purpose

• Experience

• Increased confidence

These are generally results of business ownership, but are difficult to ascribe a value to—especially a future value of what those qualities will mean for future wealth accumulation.

So let’s stick with what can be measured for now.

Imagine Madeleine is planning to purchase a small business for $50,000.

More specifically, she’s considering a dropshipping website priced at 30x its monthly profit — meaning it earns about $1,667 per month before taxes.

The tax will depend on her personal income tax rate, but let’s assume it’s 25% in this example. This leaves $1,250 as potential income to herself every month ($15,000 per year).

Alternatively, she could invest this $50,000 in a diversified stock portfolio, and earn an estimated 7-9% annually over many years.

We’ll assume 8% market ROI for this example.

In both cases, we’ll assume that any profits are reinvested in the stock market — either from the original portfolio or from business cash flow — to keep the comparison fair.

Now we can run two simplified projections of each option:

So the simple math, assuming absolutely nothing changes for ten years, shows a breakeven point around the fifth year.

By year ten, the business owner could be almost double ahead of the market investor, with $187,000 vs. $100,000.

Simple math says to buy the business if Madeleine is willing to put in the effort to keep it up and running.

But, of course, reality is more complicated. No business is a fixed-income investment.

Her business could suffer from a sudden algorithm change, reduced demand from AI-generated answers, disruptive new products, or aggressive pricing by competitors. She might struggle to deliver the same quality service as the previous owners — or she might simply burn out.

In the worst case, her $50,000 investment could go to zero. She has to be mentally prepared for that, even if the likelihood is small.

Alternatively, she might be able to grow the business and double those monthly profits. Or she might be able to merge this business with another that complements it, and thereby reduce overall costs (and increase profits).

The decision to start or buy a small business comes down to far more than the projected breakeven point, or the potential to double or triple your return on investment over the years.

If you’re going to take the leap, there has to be a bigger reason.

When you add up all the intangible benefits of entrepreneurship, one common denominator emerges: personal growth.

Warren Buffet has repeatedly stated that, by far, “the best investment you can make is in yourself.” One way to fast track that investment in yourself is to cast yourself out into the wild world of business ownership. Not blindly, mind you. But with a carefully crafted strategy and a mentor or coach to help you along the way.

Some businesses will succeed. Some will fail. Some will coast.

If you're considering this leap yourself, don’t just weigh dollars. Weigh the person you’ll become in the process.

In the long run, it’s not just your net worth that grows — it’s your capacity to act boldly, take charge, create, lead, and thrive.

Points for Reflection:

• If you could design your ideal workday, would it look more like an active owner, a passive investor, or something else entirely? Why?

• Are you willing to risk loss, and face the unknown, for the chance at taking more control — and securing greater freedom?

• Where do you see the greatest return: in building something of your own, or investing in what others are building?

Daniel Lancaster, CFA

Forwarded this email? Subscribe here.

I’d love to hear from you. Let me know what you’d like to see in upcoming newsletters, articles, or a digital course at Contact Us - The Wealth Expedition.

Follow me on X, Facebook, LinkedIn, or YouTube