Investing vs. Speculating

Investing vs. Speculating

Today we are going to talk about the difference between investing and speculating.  

We have all heard about GameStop and some of the other companies. There were meteoric rises, significant drops, and prices went right back up. There is a lot of speculating and manipulation going on with this company. At the end of the week, it caused some extra volatility in the stock market.

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We want to cover a couple of different things today. First, let’s talk about the difference between investing and speculating.

Investing vs. Speculating

Investing is a long-term process that we use to build wealth over time.

Speculating is a short term bet to pursue a big payoff.

Investing —if you avoid key mistakes, and ride through some of the setbacks—has a high probability of success over long periods of time.

Speculating has a high probability of failure. But a big return potential.

Investing is a boring, uneventful process—most of the time. There are periods of absolute terror, like last spring.

Speculating is an adrenaline-pumping game. It is exciting and exhilarating.

Most of us want to be investors and pursue the long-term accumulation of wealth. It is fine to speculate from time to time. But understand you could lose everything you bet very quickly.

If you make big bets trying to time your entry points in and out of something like GameStop, you have a low chance of doing it well. You may have some temporary success, but at some point, things are going to go against you. Things can get very ugly before you have a chance to react.

If you want to be a speculator, go for it. Keep your bets small and only bet what you can afford to lose.

Anxiety in the Stock Market

These events are causing some temporary anxiety for the stock market. But there are big differences in what’s going on with these few companies and what most people try to do. The trading activity in companies like GameStop does not decrease the value of the other great businesses.

We’ve seen many temporary setbacks over the past 100 years. This may be another one.  For investors who own shares of good companies, stick with it, and don’t panic, things tend to work in their favor.

Talk to a Certified Financial Planner™ Professional


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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