Investing in some way often has to be considered by business leaders. Whether you’re planning to invest in new employees by hiring some people to staff a new department. or you’re planning to buy a new building, investment opportunities are everywhere. However, there are less obvious investment opportunities available to businesses.
One of those is stock investments. While this sort of investment is often associated more closely with retail investors, buying up shares in other firms is something that existing firms have also been known to do. The advantages are largely the same, but the reasons for doing so – and the appropriateness of the decision – can be different. This article will explain why firms do this in order to grow, and how to go about it if you’re thinking of steering your business down this path.
For some business leaders, the idea of investing in the stock of another company is one that doesn’t make much sense. A business may have a high amount of cash reserves, for example, but there are not many scenarios in which that cash is truly spare. Very few businesses are in a position where they won’t need to invest their own cash reserves in an in-house project further down the line – whether that’s a new office, a new store or branch, or even just a new employee. And even if there are no immediate investment projects on the horizon, there is still a benefit to your business of having cash on hand. While it may seem unlikely, anything from legal fees to insurance excess pay-outs could crop up with little to no notice – so it may be prudent to keep at least some cash reserves aside.
But there are lots of reasons why investing in the stock of another firm may be a wise move. Say your business doesn’t have any immediate investment needs, but is planning to make a significant expansion in around five years’ time. Keeping your cash reserves in your business bank account is unlikely to result in much growth, given that interest rates are so low. In fact, it may even depreciate in value given that inflation can eat away at it quite significantly over time. As a result, investing that cash somewhere else as a stopgap makes sense – and a portfolio of stocks and shares in other companies is as reasonable an investment destination as any.
How it’s done
When it comes to actually investing in other stocks as a business, however, there are lots of options. One way is to invest in traditional stocks and shares. That can be done by buying them directly. You may want to consider that option if someone in your firm’s senior leadership team has a business contact who is looking for equity investment: provided that the other firm is not a competitor, offering funding for another growing business may make sense. If this is not an option, investing company cash in a tracker fund which rises (or, indeed, could fall) in proportion to the stock market’s performance is an appealing move – and it also means your cash is in theory less at risk, given that it is spread over several different investment sectors.
In the modern world, though, there are lots of alternatives to investing directly in traditional stocks and shares. One alternative is to invest in contracts for difference, or CFDs. These are derivative products which don’t actually confer stock ownership in the way that the previous scenario would, but they do provide a way in which you can hopefully benefit speculatively from the performance of various markets including stocks, shares, cryptocurrencies and more. The top CFD brokers will be able to provide competitive fees as well as a variety of instrument choices, too. Hopefully, your CFD investments will mature in a profitable fashion and deliver you the opportunity to re-invest the cash in your own business in turn and grow that, too.
So, with many businesses now choosing to invest in other firms in order to grow their cash reserves and make a healthy return in the face of dwindling business account interest rates, what was once known as the exclusive preserve of retail investors is now open to businesses as well. And by looking at direct investment, tracker funds and even modern instruments such as CFDs, it’s possible that investment in other firms could bring rewards.