Are Your Personal Finance Efforts More On Investments or The Speculative Side?

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Investments

Investments Today Are Part Of Your Financial Goals For Tomorrow

There was a point when it was mostly the older generation looking at savings and investments, but things have changed.

Millions of people worldwide are looking for ways to make their financial future more secure, given how uncertain the times are.

Millennials are showing more interest in investments and saving money.

What’s Your Financial Plan Like?

Do you value stability, or will you brave some volatility for a bigger payoff?

Your answer here determines how you must approach your financial journey.

Whether you’re just starting, or already have your own burgeoning portfolio, it is instructive to be aware of which side your financial efforts fall into investments or speculation.

Knowing the difference between the two can help you remain focused on your financial goals, whatever roadblocks you encounter.

Investments: High-Floor, Low-Ceiling Bets

Investments can be understood as a purchase of something today to gain something tomorrow.

For instance, when you invest in the stock market, you bet that your purchase will gain value over time.

You are spending money now in the hopes that, in the future, the money you spend will grow and come back to you.

What you purchase with such bets is a source of security or stability for the future.

Many investments take quite a bit of time before panning out, but even if they don’t work out, the floor is often high enough to offset any real damage to your finances.

For instance, you get a good, high-paying job across town.

You can take the bus or the subway to work every day but run a medium risk of arriving late.

If you invest in a car, you will be less likely to arrive at the office late, but you will have to buy the car now to realize the benefits of owning the car later.

Even if you lose that high-paying job one day, you will still have a car to use to get to your new office.

If it makes more financial sense for you to ride the bus, you can still trade up your car or sell it, recouping some of what you originally spent.

Investments Are Long-Term

The best way to think about investments is that they are best for the long term.

While there is potential for a big payoff, investments are more likely to return smaller but steady gains over long periods.

Investments have high floors—it is exceedingly rare for your investment to return zero or negative value—but low ceilings, generally speaking.

Some examples of investments are retirement plans, stocks, bonds, real estate, jewellery, fixed deposits, hedge fund investments, art, collectibles, and many others.

Investments work well for those who value stability and are content with moderate returns as a price of that steadiness.

If your main focus is solidifying your financial future, you should stick to investments rather than speculation.

Speculations: Low-Floor, High-Ceiling Bets

Speculation can be understood as a kind of investment.

Both activities involve making wagers today to gain a positive outcome tomorrow.

Playing online casino games and hoping to win a lot of money is one method of speculation.

While some people like to throw caution to the wind and will go all-in with their bets to grab a huge haul, others are more cautious and need some encouragement.

Online betting sites tend to encourage players to make a bit and have special offers such as free spins and bonuses.

The easiest way to distinguish speculation is that they are investments that do not prioritize stability.

Instead, speculation is geared toward maximizing your payout, with little regard for long-term stability.

If investments are best understood as a long-term activity that rewards patience and cautiousness, speculation is a short-term activity that rewards quick, decisive action and risk-taking.

In basic terms, if investing is making a bet on something, speculating is adding a side bet to that—namely, that many other people will be betting tomorrow on what you are betting on today.

Speculations And High Returns

A great way of seeing how speculations work is by looking at the cryptocurrency craze a few years back, exemplified by Bitcoin’s meteoric rise in value over a few months.

There was a time when you could buy one Bitcoin for five dollars.

In Nov 2020, one Bitcoin was equivalent to roughly $20,000.

A decent number of speculators who purchased Bitcoin back when it was cheap earned millions of dollars when they offloaded them during its peak price.

Their speculation panned out, and they earned high returns on their initial investment.

However, Bitcoin, like most cryptocurrencies, is very volatile and has fluctuated from $20,000 to $6,000 in 2019.

Several Bitcoin investors who bought at a high rate were disappointed with the drop and ended up selling and losing money.

When you speculate, the ceiling of what you can get back is incredibly high.

You can get massive returns in shorter periods.

The issue is that if it fails, the floor is very low.

Money Talks With Speculations

Those who predicted Bitcoin’s quick ascent and acted on that knowledge immediately were rewarded handsomely.

So even when you speculate, you must learn as much as possible to be rewarded the best.

Speculations work best for individuals who have a lot of money to invest.

With speculations, you can fail nine times out of ten but make it all back (and more) on the tenth try.

The issue is having enough of a bankroll to fail nine times without going broke.

Discussion: Which side are you on, speculative or investments?

Please leave me your comments below, as I value your feedback.

Mr. CBB

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