You have probably heard of Richard Branson, the founder of the famous Virgin Group. And you probably agree with me that he is one of the most successful business owners in the world.
His results speak for themselves. Currently Forbes estimates his net worth to $5 billion, putting him among the top 300 richest people in the world.
Branson’s first successful company was Virgin Records, which he founded in 1972. The company became a worldwide success issuing albums by artists like Mike Oldfield, Spice Girls, Janet Jackson, Genesis, the Human League, Lenny Kravitz and others.
In 1992, Virgin was suddenly struggling to stay financially afloat and Branson sold it to Thorn EMI for a reported $1 billion in cash. One of the main reasons for doing that was that Branson wanted to invest money in his new business ventures and expand his Virgin Group. As we can see, he was very successful at doing that, as Virgin Group now consists of more than 400 companies worldwide.
But now prepare for a surprise.
If Richard Branson didn’t invest the money he got from the Virgin Records sale into his own businesses but into a simple index fund (a low cost investing vehicle, more about it in my upcoming book, The Milion Dollar Decision) that tracks the performance of the 500 biggest US companies (S&P 500), he would now be worth $5.4bn. That is $400m more than the current estimate of his net worth.
If he invested that money in a technology index fund, he would be worth $8.8bn today. Let me say this again:
Richard Branson, one of the most successful entrepreneurs in the world would be financially better off if he just invested his money in index funds and did nothing.
Of course, I’m not saying that in 1992 he should have invested all that money in index funds and retire to a tropical island. He would probably be bored to death in a couple of months, and his life would not leave a mark on this planet as it does now.
I’m just trying to show you how powerful investing in index funds is. Even for successful business owners. The reality is that when you start your business, you can have a huge growth rates in your business year to year but when your business matures, you can hardly keep up with the best companies in the world. Plus, your company, just like any other company, can get into financial problems or even out of business.
Even the most successful business owners in the world can hardly beat the returns that index funds give us.
That is why it’s not smart to only invest money in your business. I know a business owner who was very rich, but all of his money was in his own business. After the financial crisis had hit, he lost a lot of customers and had to declare bankruptcy. He has not recovered since. So, even if you have a successful business, you need to invest a part of your profits in passive investments that take care for your safety and pension.
This is a short excerpt from my upcoming book The Million Dollar Decision Get Out of the Rigged Game of Investing and Add a Million to Your Net Worth. Get a free chapter The Six Dark Forces of Investing here…
FREE download: How the financial industry takes the money you invest - without you even knowing it.