If you've ever been approached by friends or neighbors about selling products like Amway or Tupperware or even sold these products yourself, you've been exposed to the world of network marketing. If you've invested in your 401(k) plan at work, you've had a brush with the stock market. While you may engage in either one as a means of making additional money, they are two very different animals.
The stock market is a term used to describe the organized trading of investment vehicles known as stocks. Stocks are issued by corporations as a means of raising operating capital for their business and are bought and sold by investment professionals called stockbrokers. Network marketing, also referred to as multi-level marketing or MLM, is a type of business model where direct sellers of products, also known as independent distributors, attempt to build their business by recruiting others to also sell the products. In return, the distributors typically receive a percentage of the sales generated by their recruits.
Both the stock market and MLM are entered into by individuals who hope to make money. Investors in the stock market want to see the value of the stock that they own increase so they receive a return on their investment. MLM participants seek to build a large distributor network to generate a stream of residual income, which is income earned through little or no effort. There is an element of risk in the stock market and network marketing, as neither guarantees investment success.
While the stock market and MLM both may be susceptible to fraud or scandals, the stock market may be viewed as the more "legitimate" of the two. Stock market activities and stockbrokers are regulated by the Securities and Exchange Commission (SEC), a federal agency created in 1934 in the wake of the stock market crash that led to the Great Depression. MLM is largely unregulated and is often associated with "pyramid schemes," in which only the originators of the network end up profiting.
Proceed with Caution
You should view both the stock market and network marketing with caution if you are looking to invest in either one. The stock market can be highly volatile and you can easily lose money if you don't know what you're doing. Many MLM opportunities don't pan out due to the inability or desire to recruit distributors or the illegitimacy of the organizations that operate them.