Investment versus Speculation

humagaia By humagaia, 11th Apr 2010 | Follow this author | RSS Feed
Posted in Wikinut>Business>Investment

Investment is for long-term wealth creation, speculation is a gamble to gain short-term profits

Investment versus Speculation

Investing is the strategy employed to create long-term growth in capital and income. The emphasis is on the safety of the capital investment. When you invest decisions are made on the basis of overall market conditions and the fundamentals of the securities being purchased.
Your investment objectives are attained by being careful and sticking to the basic rules. Investing is the business of designing a strategy for the creation of long-term wealth. It is not to be taken lightly as your future is at stake!
Speculation, on the other hand, involves short-term timing and taking advantage of short-term market fluctuations. It can involve gearing or leverage - the use of borrowed money to increase potential returns, but not without an increase in potential risk.
If speculating you will usually be dealing with factors that are outside of your control. These factors are likely to be difficult to analyse. If you speculate you must be aware that you will be wrong much of the time. You should expect to lose money when you go down this route. You should only speculate with money that you can afford to lose. Cut losses quickly. Employ stop-loss strategies where possible to limit the potential for loss. Count on a few fortunate successful moves to finance the failures. This is the gambling side of "investment". Speculation is a "fun" and exhilarating business designed to give your capital a quick boost, if successful. You must analyse your needs and scale the risk / rewards balance in order to determine how much speculation you can afford against the avoidance of risk in a long-term wealth building strategy.
In future articles I will explain the detailed strategies for "playing the game" in options, commodities and precious metals, margined stocks and shares, rights issues, financial futures, stock and share offers.


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