This article was originally posted over at my gold investing blog, under the title What’s the Difference Between Speculating and Investing.
I’m not a big fan of speculating. I’d rather be an investor than a speculator. Being an investor is way less risky, way more consistent, and just makes more sense. But most people don’t know the difference between the two. That’s where this article comes in.
Investing is when your profit comes from income generated by your assets. Speculation is when your profit comes from income generated by selling your assets. Investing is dividend investing with gold mining stocks — speculation is buying gold bullion and gold coins. Here are some examples:
Examples of Speculation
Buying commercial real estate with the purpose of selling it its value goes up is speculation. That’s what got everyone in hot water during the real estate bubble’s popping, and that’s one of the reasons we’re in the recession that we’re in.
Speculation is extremely risky, and includes a lot guess work. If you buy something to sell later, and it’s value goes down, you lose money. If you buy something and can’t sell it — you lose everything you spent. That’s not investing, that’s gambling — speculating is gambling.
Examples of Investing
Investing is when you own something that provides an income while you actually own it — dividend stocks, your own business, part of someone else’s business — that’s investing. For the most part, investing has to do with owning or controlling businesses.
This is way less risky because even if the value of your business goes down, you’re still making income from your assets — you don’t have to sell, and you can still make money. It might be less money than you’d like, but your investment still generally pays.
Of course, it’s possible for an investment to go bad. If you buy a business and the business burns down, or you get into legal trouble, or can’t make payments — then yeah, that sucks, and you’re going to lose money.
But your chances are better with an investment than just raw speculation.
What This Means
I’ve said it before, and I’ll say it again — this means you should buy dividend gold stocks. Check out our gold mining stocks page and look over the best gold mining companies and see which you’d like to purchase.
Stay away from trading gold futures — that’s just too risky for most people, and you can lose your shirt.
Of course, I’m also a fan of owning gold coins — they’re important for a secure portfolio in case things get really bad in the future.
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