“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

<ul><li>Just because speculation carries a higher risk doesn’t mean it’s all gambling, however.</li><li>The same level of scrutiny and research that’s applied in long-term investments can be applied to short term cycles and market behaviour.</li><li>However, when people make trades based on zero knowledge of what they’re investing in (like crypto, often times), then it’s basically gambling.</li></ul>

Speculation is not Gambling

<ul><li>Speculation follows the saying: “With great risk comes great reward”</li><li>Speculation is the act of putting money into investments that have a higher probability of failure, while also sometimes paying off with a big reward.</li><li>Speculators tend to trade more frequently, and they’ll wager on higher-risk markets such as commodities, cryptocurrencies, or in shares of small or distressed companies.</li></ul>

Speculation is focused on short-term gains

<ul><li>The difference between investing or speculating, is not about what you buy, but why you buy—and that varies for people based on their financial goals.</li><li>For example, a low-income earner near retirement won’t want to chase a short-term upswing. In contrast, someone with more wealth might want to reduce their exposure to just stocks or bonds, so they might be happy investing a small portion of that wealth in high-risk intangible assets like crypto.</li></ul>

Risk is a spectrum

<ul><li>Investing is most commonly thought of as an attempt to profit on transactions, stocks, or assets.</li><li>Often, there is a “safety first” approach, as the most conservative-minded investors will trade off higher returns in exchange for reduced risk.</li><li>Safe investments can include bonds, buying property, loans to low-risk borrowers, or investing in blue-chip stocks.</li></ul>

Investing is a long-term play

<ul><li>To ensure the highest margin of safety, choose an investment that gives consistent returns.</li><li>The most conservative investor will avoid short-term market volatility by investing in assets over the long-term, often decades, called “passive” investing. </li><li>This strategy has performed well for investors like Warren Buffett.</li><li>The longer the money is invested, the more it will compound, making it less susceptible to short-term, double-digit dips in the market.</li></ul>

Passive Investing

<ul><li>Difference between investing and speculation is a matter of risk tolerance, with speculation being closer to gambling.</li><li>The truth is that there’s no clear cut line between them, as all investing carries risk.</li><li>Still, there are differences worth knowing about, no matter what your financial goals might be.</li></ul>

Investing and Speculating

<ul><li class="ql-align-justify">Know the difference between low-risk and high-risk investments.</li><li class="ql-align-justify">Knowing your own risk tolerance.</li><li class="ql-align-justify">Your risk tolerance depends on your age, financial status, and retirement goals</li><li class="ql-align-justify">Consider consulting with a financial advisor to walk you through the trade-offs that come with investing and speculating. </li></ul>

Know your risk appetite

Whether you're investing or speculating, you'll want to know your risk tolerance.

WARREN BUFFETT

Similar ideas

Betting on a hot stock isn't worth it

Restarting the economy

How much to invest in growth stocks