Nine reasons why investing is better than multi-level marketing
Are you looking for a way to make money? Find out why investing in stocks is a better and less risky option than joining an MLM.
These are tough times financially for many people. You might have lost your job, be finding it hard to get freelance work, or had to close your business.
And when you are desperate to earn money and keep the wheel turning, many people are willing to take chances. But it’s deciding which chance to take as part of a calculated risk that’s important.
In trying times, people might gravitate towards promises of income, and be tempted to fall for a multi-level marketing scheme (MLM). Reps for these companies often prey on people who are in need of an income and aren’t aware of how these schemes really work.
But before you turn to MLMs, have you considered investing in the stock market as a way to generate income? There are a variety of different options where you can place your money, which will serve you better than investing in the startup cost of an MLM.
You could invest any amount of money you choose in a single stock, have a fund that invests in stocks for you, or place your money in several different stocks to build up a portfolio for yourself.
So, why invest in stocks? The simple answer is: because it can prove to be a great way to make money. If the company or companies you invest in succeed or become successful, your investments will have paid off, and your portfolio will increase.
But before we compare the risks and rewards of investing in single stocks versus joining an MLM, let’s briefly explain what an MLM is, if you’re not aware.
What is multi-level marketing?
Despite their protestations, multi-level marketing schemes resemble pyramid schemes. But, according to research published by the Federal Trade Commission they’re actually worse – you’re apparently more likely to make money in a classic pyramid scheme than you are in an MLM.
In MLMs, companies that sell products will recruit you as a distributor, and your job is to sell products. You are also encouraged to ‘build a team’, which involves selling the idea of selling products to other people who will then do the same, and the ‘pyramid’ goes down from there.
To even be remotely successful in an MLM, most of the time you need to rely on who you know, and essentially turn your friends and family into customers. Many consider it a shady business practice that preys on the vulnerable.
Given all of this, investing your money in stocks seems a far superior option.
How does the stock market work?
The principle behind the stock market is quite simple. The stock market concept is to enable buyers and sellers to consult prices and trade deals with each other. It’s also a great way to grow and increase your wealth.
Each stock is a representation of how much you own in a company. Stock ownership is an investment in that company – you can buy, and you can sell.
It’s easier than you think to break into the world of stocks. Anyone can buy or sell shares. Simply work with a stock brokerage or deal with the company directly who distributed the stock.
Unlike the old days, where stocks and trade deals would take place in a physical environment, nowadays, the stock market is mostly done electronically.
The internet and online stockbrokers trade stock by stock; however, in general, the price of a stock is continuously changing because of external factors such as economy, news, and politics.
How can you invest in the stock market?
There are always providers from which you can buy and sell shares. The cheapest way to do it is online.
Investing in individual stocks is a two-part process. Once you’ve picked the platform or website you want to buy your shares from, deciding which investments to buy is the next step.
Charges will apply once you’ve used the platform and bought the stocks and investments. This is because each website usually charges a platform fee. The company buying the shares for you will also take a commission for the use of its service.
There are also different websites and stock apps out there that can advise you on your investments. They provide free information on the stock market and can give you detailed, in-depth advice on stocks and shares.
Nine reasons why investing in stocks is better than joining an MLM
Now that you have a little insight into the stock market, here are nine reasons why investing in individual stocks is a wiser decision than joining an MLM.
1) You have reduced fees
When you’re buying individual stocks, you’re more likely to see decreasing costs. There are no annual fees like you would see when purchasing multiple shares. Instead, you just pay a one-off fee when you buy and sell the stock. There are no additional costs after this, which is why many people opt for individual stocks.
Also, a great thing about investing in individual stocks is that the longer you own the stock, the cost of owning it decreases. Therefore, it’s more advantageous to invest in the stock market this way.
An MLM usually has startup fees, sometimes substantial ones – despite what they may tell you when recruiting you. Once you sign up you need products to sample and sell, you’re encouraged to invest in training, and you generally have a monthly sales (or purchase) requirement to stay ‘active’.
So while investments (sometimes) have a commission, that’s not nearly close to the true cost of an MLM startup.
2) You have complete control of what you’re investing in
Once you choose to purchase and invest in an individual stock, you have control of the share. It’s essential to keep tabs on the stock you own and track its value. With knowledge on your side, you can decide whether you want to sell it or keep hold of it.
With an MLM you have no control over the products you purchase and sell. You’re forced to purchase products from your MLM company at fixed ‘wholesale’ costs (when you compare the prices of MLM products you often find their wholesale price to reps is as, if not more, expensive than buying comparable high street products at retail prices).
In an MLM you have no freedom to choose your products, nor to shop around for the best prices, suppliers or deals.
3) It’s easier to manage taxes
When it comes to individual stocks, managing your taxes is comparatively much easier than if you’re involved in multi-level marketing. You hold the keys. You oversee whether you want to sell the stock. In turn, you control when you take your gains or losses.
A significant difference between stocks and MLM is that, with MLM, you don’t reap all the rewards. The company usually takes a portion of your sales. And sometimes, their decisions might be different from yours. They can even (and do sometimes) change their reward program with little notice, leaving you earning less for your efforts.
Also, there’s a tax liability to think about. Usually, when part of an MLM program, you’re an independent contractor. So, you’ll need to keep track of expenses and file income on your tax return, just like you would if you owned a business.
4) If the company you invest in increases in value, so do your shares
When investing in the stock market, you need to know the ‘game’, and picking your stocks well is a big part of this. If the company you purchased shares of increases in value, you could potentially earn a reasonable sum of money. This can either be from dividends or sales of shares.
It’s all about picking the right company to invest in. If you see potential in a company’s business model and believe in their work, investing is a wiser financial decision compared to the fickle world of MLM.
If your MLM company does well, you’re not automatically entitled to any reward for this. You don’t own shares and your personal reward won’t necessarily change.
5) You can invest in different companies by buying individual stocks in each
Purchasing single shares will also allow you to grow your investments gradually – you’ll have the option of picking more single stocks in different companies.
However, it is advised that you don’t let your eye slip from the market as a whole when you own individual shares in more than one company. Trends change, external factors may depreciate your stock, and your losses and gains can fluctuate.
If you’re always aware of the stock market and actively keep track of your stocks, you will be able to react accordingly. Regardless if you’re a novice or an experienced investor, it’s essential to continuously educate and inform yourself on trends.
The other big perk with stocks is diversification – you have access to a variety of markets all in one portfolio. Compare this to MLMs where all your eggs are in one basket; your hopes and financial fate tied to one company.
Most MLMs frown upon their members joining other MLM businesses, so you’re stuck with the company you’re with. And if you do decide to change companies then you need to start right back at the bottom again.
6) You can manage your portfolio easily
With stocks, you know exactly where your money lies and that you have complete control. Before investing, you can rationalize whether your decision to purchase a share in a company is a good idea. You can perform your own risk and gain assessments, therefore managing your portfolio easier.
You control whether you want to keep the share or sell it based on economic factors or changing personal circumstances.
With MLMs, you can be stuck with a product that’s difficult to sell if the market changes, the product or company goes out of fashion or the products are even deemed to contain unsafe or illegal ingredients.
7) You’re the boss
When you invest in stocks, you’re the boss. You don’t oversee the company, but you do own a share in it. If your investment isn’t performing well or not making enough money, you can simply sell your stock and move on. You have no emotional ties to the company, and your only interest should be making a profit.
As you can see, owning individual shares in multiple different successful companies is a great way to achieve a constant source of income. The company and its workers do all the groundwork, and you profit because you own a share of the business.
In an MLM, despite what they may tell you when recruiting you, you are not the boss of your own business. As already covered, you can’t make any decisions about stock choice or pricing, and you can be sacked or have your compensation plan changed at any time.
In reality, in an MLM you are simply an unsalaried sales rep with no employment rights.
8) You can own a share in a company you love and believe in
When you purchase a share in a company, no matter how big the business, your investment automatically makes you part owner. Stocks allow you the chance to take part in SRI, or socially responsible investing. In short, SRI focuses on companies that do good for the environment (such as using renewable energy). This can keep you feeling good about a company with a responsible ethos.
On the flipside, with MLMs, you usually must recruit others to sell the same products. In my personal experience with friends doing MLM, it can strain a friendship and, ultimately, it’s difficult to keep confidence in the company you’re selling for.
9) Owning shares of a company means you have the right to vote on important issues
If you own a share of a company, you’re legally allowed to take part in shareholder votes on any issues that arise. Whether the company you own stock in wants to merge with another company or is hiring new directors or executives, since you own a piece of the company, you legally have the right to cast your vote and opinion.
With your investor title, your vote is granted by proxy. Proxy means you don’t have to leave your house to make your vote. You can do it through mail or electronically. Essentially, you’ll have a say on any issues that come up at shareholder meetings.
If you opted to invest in a company because you love and are passionate about the business, it’s a great way to make sure your voice is heard regarding big decisions. This includes changes that may ultimately affect the value of your investment.
When you join an MLM you have no such rights. You are subject to decisions made by others with no ability to influence these decisions. Sometimes these decisions can decimate the efforts you have made over several months to try to build a team.
Investing in stocks can be risky – but joining an MLM is riskier
Hopefully these nine reasons have you strongly considering to invest instead of entering the world of multi-level marketing.
Yes, purchasing individual stocks may sometimes be risky, but MLM is even riskier. It’s more comforting to know what you own and be able to take 100% creative control all the time.
After all, it’s your money, your investment, and your future.
This article was written by Chris Muller, a professional personal finance writer who has written for some of the largest financial publications in the world.
Chris brings a BBA and MBA in Finance, along with a decade of experience in the field, to help break down complex financial topics into easily digestible pieces through his written content in an effort to assist others in better managing their finances.
Chris is currently in pursuit of FI/RE, is an aspiring minimalist, loves craft beer, and is a dad two to kids.