Investing
Investing

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

Investments

Investments Today Are Part Of Your Financial Goals For Tomorrow

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

Millions of people around the world 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 above all, or are you willing to brave some volatility for a bigger payoff down the line?

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

Whether you’re just starting out, 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 might encounter along the way.

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 make a bet that your purchase stands to gain value over time.

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

What you are, in fact, purchasing 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 amount of 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 that you can 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 on it.

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, it is more likely for investments to return smaller, but steady gains over long periods of time.

Investments have high floors—that is, 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 to solidify your financial future, then 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 in the hopes of gaining 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 in the hope of grabbing 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, a lot of 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 the period of a few months.

There was a time where 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 and dropped to $6,000 in 2019.

A number of 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 of time.

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, it is important for you to learn as much as you can in order to be rewarded the best.

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

You can fail nine times out of ten with speculations, 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: What side are you on, speculative, or the investments side? Leave me your comments below as I value your feedback on CBB>

MR.CBB

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