As we age in our financial lives, each of us has had that pit in our stomach feeling of a major financial mistake we wish we had never made. For some people, there will be no recovery from these mistakes while others still have the opportunity to make up for lost time. Although I’ve been fortunate to have very few blemishes in my own personal financial life, the financial move I would welcome doing over again would be to invest in a friends dream with the hope of getting some return on my money.
Unless you are a really savvy and experienced investor, I am not a big fan of investing money in a business of a friend unless you are going to be an owner operator yourself. The majority of the time it will take you three times as long to get your money back if you are lucky enough to get it back at all. Almost 15 years ago, I invested a decent sum of money in a rock quarry business that a friend of mine was running up in Wisconsin. The business was doing very well and in 2006 they had the opportunity to sell it for a 10x return on my money.
Unfortunately, I had no say in whether the sale would happen or not and my friend held on to the business only to see it dramatically crash in 2008 along with all of the investors who put their money in the quarry. It was one of the most important lessons I learned which is a) don’t invest in private equity unless you can afford to lose 100% of your money, and b) don’t invest in a friend’s business (or any business) unless you plan to own and operate every day. Investments like these can ruin your friendships and they can most certainly put a hole in your wallet.