Investing vs Speculating – Difference and Comparison

What is investing?

Investing is committing money or capital to a project to obtain an income or profit. It is a broad term that refers to the purchase of assets in the hope that they will provide income in the future.

Investing can be done by purchasing stocks, bonds, mutual funds, precious metals, and other assets. The goal is to create wealth by generating gains on investments over time.

Different investment strategies may be appropriate for different types of investors. Such strategies can be broadly categorized into active and passive. Active strategies involve predicting the changes in prices and markets, while passive involves investing with minimal involvement.

An example of an active investment strategy is day trading. Day traders buy and sell stocks, bonds, currency, or other financial instruments within a single trading day.

Passive investments are those where you do not have to monitor the investments daily, but instead, wait for them to grow over time.

One example of a passive investment strategy is investing in mutual funds. Mutual funds are investment pools that contain many different stocks or bonds. You can buy shares in a mutual fund for as little as $50, which means you can start investing even if you don’t have much money.

What is Speculating?

Speculating is buying and selling stocks, bonds, commodities, or other financial instruments, hoping their prices will rise. It can be done by talking to people, studying graphs and charts of past prices and trends, and carefully guessing what might happen next.

Though a risky business, speculating can also be very profitable. It is risky because, most of the time, investors never know what will happen to the asset price they are speculating on. Their judgment is based on prediction. It is making an educated guess about the future prices of securities or commodities.

People speculate because they believe that the price of an asset will rise later. Speculators are people who make money by buying and selling assets with the hope of making a profit. They do this by purchasing something at a lower price and then reselling it for a higher price at some point soon.

When speculators buy something, they are betting on its value increasing in the future. If they get lucky and their bet pays off, they make money; if not, they lose everything they invested into the asset.

Difference Between Investing and Speculating

Simply put, investing is when you buy an asset with the expectation that its value will increase. Investors are financially savvy and can make sound decisions about what they want their money to do for them over time.

On the other hand, speculation is when you buy an asset intending to sell it at a higher price before it decreases in value. It is a short-term investment aiming to profit from price fluctuations. It is attractive because there are high chances of getting huge profits when prices of held assets go up suddenly.

Comparison Between Investing and Speculating

Parameter of ComparisonInvestingSpeculating
Investing durationIt is done expecting returns after a long time.Returns are expected in periods shorter than a year.
RiskIt has less risk.It is very high.
Investment selectionAsset to invest in is carefully selected.The motivation is to invest as quickly as possible so there is often no careful consideration.
CriteriaIn-depth information.Charts and leaders’ opinions.
Profit motivationIncrease in value of the asset.Increase in prices to get a big margin.