The Difference Between Investing and Speculating (and Why It Matters)

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Whether you're investing or speculating, you'll want to know your risk tolerance.
Photo : Freedomz ( Shutterstock )

You could say the difference between investing and speculation is simply a matter of risk tolerance, with speculation being closer to gambling. The truth, though, is that there's no clear cut line between them, as all investing carries risk. Still, there are differences worth knowing about, no matter what your financial goals might be.

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Investing is usually a long-term play

Definitions vary, but investing is most commonly thought of as an attempt to profit on transactions, stocks, or assets. Often, there is a "safety first" approach, as the most conservative-minded investors will trade off potentially higher returns in exchange for the reduced risk of losing their principle. Safe investments can include bonds, buying property, loans to low-risk borrowers, or investing in blue-chip stocks.

To ensure the highest margin of safety, investors evaluate different assets, industries, and market trends, and try to pick an investment that best is their chance of bringing back consistent returns. The most conservative investor will avoid short-term market volatility by investing in assets or stocks over the long-term,…
Mike Winters
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