Educating Investors

Investments vs Speculation | What’s the difference2 min read

An Investment is an asset acquired with the intent of generating income or appreciation in the future, whereas Speculation is a financial transaction that has a substantial risk of losing all value, but with the expectation of a significant gain. let’s have a look at Investments vs Speculation comparison in detail

Investment is majorly considered as safe bets and has low risk in comparison with Speculation. The potential of losing the whole amount is the best differentiator between these two styles.

Investments vs Speculation: They can be compared on the basis of 4 major criteria’s they are:

  1. Time Horizon
  2. Risk Levels
  3. Decision Criteria
  4. Investors Attitude
  1. Time Horizon: Investment are generally held for a long term this may range from 2-5 years or more than that whereas speculation is held for a very short time span this is basically less than a year.
  2. Risk Levels: The amount of risk is relatively moderate in investment when compared with speculation. Speculation generally involves greater risk than investing like options, futures, financial derivatives and similar financial instruments. Speculators ofter tent to be looking for a larger and quicker payout than long-term investors. Both involve risk but as the things move fast in speculations it is riskier than investing.
  3. Decision Criteria: Investors tend to have a more basic fundamental approach whereas speculators, on the other hand, focus more on trends, market or investors psychology, they usually focus on these factors for a booking a quick profit.
  4. Investors Attitude: Investors mostly have cautious and conservative considering their risk appetite, they know their capability and invest as per the risk that they can absorb, in case of speculator they are more aggressive with a high-risk appetite.

Investments vs Speculation – Final words

These points reflect the attitude of investors and speculators. Investors generally follow a cautious & conservative approach, while the Speculators have an aggressive approach. The end goal of both is to generate superior returns. 

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