Passive Investments are a business owner’s dream. Imagine watching the money flow in while sitting on your hands.
I was listening to the 321go podcast and the episode had a “teaser” spot for the current guest to come back to talk specifically about passive investments. I know we hear these same questions from our box owner clients so I wanted to share my thoughts on this.
And let me say this up front: “There is no one size fits all answer here.” Just because a passive investment is right for one person doesn’t make it right for someone else. What’s right for me could be wrong for you. What’s wrong for me could be right for you.
Earlier in my accounting career, I had the year of “MLMs”. MLMs or network marketing companies are sometimes considered passive investments. I can tell you that if you want to be successful in a network marketing company, it will not be passive. Tough Nickel explains some of the flaws that encompass the MLM life in this post.
Not all is lost for the MLMer!
But hold on. We do have some clients that are ultra-successful MLMers and they work their tails off. According to this research, the 2-10% of network marketers earning the really big bucks are the same who are working consistently on their business. We have also come across our fair share of other MLMers that tell us their vision of why they joined and we know instantly, their “passive” approach to it will lead to an “un” success. Here is more information on the success MLMers might have.
My Experience
During this year of “MLMs”, I had joined 4 different ones. All of them got me interested with the same concept; you are already meeting with all these people about their taxes and joining an MLM is a great way to get additional tax write-offs which saves them money.
So it should be “natural” for me to push the juice, software, educational tool, etc on my clients because at the bare minimum they at least save taxes. And with our tax strategies, I know we would save them more in taxes than their monthly MLM fees.
During that year, I can’t remember a single time I actually gave an invitation to one of my tax clients to join my downline. If felt wrong to me, plus as a CPA, it would have felt even more awkward to disclose (as required by law for me) that if they join the MLM I will make money on them joining.
It definitely wasn’t for me. Not to mention that joining an MLM for the sole purpose to reduce taxes (as opposed to actually making money) is a bad idea.
Passive is not so passive
My purpose isn’t to bash MLMs in general. Like I said, I have firsthand knowledge of people who make a great living with their network marketing efforts. I have two points to make about passive investments in general.
- Most “passive” investments are not as “passive” as you think. They will require your attention. That is the same attention that you now can’t give to your business. If you are looking at passive investments, make sure you understand what it will take to make it generate income for you. And ask an unbiased third party their opinion on what it will take to make it successful. You might have already drank the Kool-Aid so you aren’t seeing straight.
- Not all “passive” investments will be right for you. What I realized after a year of wasted MLM fees, is that I was much more passionate about my tax business and I made way more money in the short run and the long run adding a new tax client than I did having someone in my downline.
When should I consider passive investments?
I believe the right time to look at passive investments is when either:
- Your box is at capacity, runs well without you being too involved, and you don’t want to add a second location, or
- Your box is generating so much extra cash that you want to have the money working for you instead of sitting in a bank account.
Now you can make more money by creating this
Now, as a matter of semantics, some people may call this next thing a passive investment. I don’t. I call it a business product. And this is something I believe you should very much be looking at doing.
Find something that relates to what you are currently doing. I.e. health and fitness. Figure out a way to package your knowledge or build a better mouse trap for something and sell that product. Then automate the process as much as possible from marketing, sales, to fulfillment into the customer’s hand.
Once you develop that system, then it can run smoothly without your involvement making the income you generate from it pretty darn “passive”.
So there you have it, I’ve rambled on long enough. Crossfit on my friends!
P.S.
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