Some people don’t want to try investing simply because they think it’s very similar to gambling. Even some investors are pausing to consider the risk they are taking with their investments. Here are some of the key things to know if you want to know if you’re being a real investor or a speculator.
Your Money and Decisions
Some people are in the market for the feel and thrill of gambling—that feeling of elation when they feel like lady luck is in their side. This kind of approach surely isn’t the kind you want for your retirement savings.
The difference between trying to predict the future of the markets and portfolio engineering is that the latter requires you to secure and hold stocks that are suitable for your portfolio, and the former is simply you looking for a thrill or hoping for the best without preparing for the worst.
Those who speculate approach buying and selling in the market with an emotional eye, and they usually do so without having a plan. A true investor puts their money into the market with purpose and a big-picture strategy based on their wealth and financial goals.
Investor or Speculator?
If you can relate to the following, chances are you’re not taking a calculated approach to your investing practices.
You love to hear the latest “tips” and take guesses.
We’ve all heard that there is really no crystal ball when it comes to investing, and literally no one can predict the future of the market. Trying to predict what will happen with individual securities is futile, and making investing decisions based on the next big stock trend you hear on TV, on the radio, or online will not serve you well in the longer term.
You are emotional when it comes to your portfolio.
Fear and greed are basically human instincts that drive our emotions and steer us to make decisions. While these traits serve us well in some areas of our lifestyle, there is basically no place for them in the world of investing. Having a strategy for your investments and portfolio puts a barrier between you and your money.
Your prefer get-rich-quick schemes.
In the space of digital currencies or “cryptocurrencies”, there are a lot of people out there looking at the short-term and are thinking it would be great to find a get-rich-quick scheme that will grow their money in almost no time. Even though there are a lucky few who benefit from this kind of behavior, the majority of people would be better off with a strategy that maintains steady growth over several years or even decades.
You aim to “beat the market”.
Efficient market theory tells us that stocks are always accurately priced. Those who think they can beat the market believe that they can see something the market itself cannot. Using this “information”, they try to pick stocks they think are accurately priced and bet on either the losses or gains in these stocks to make a profit. Again, with some amount of luck, this strategy might work once or twice, but the possibilities are very low that you know more than the millions of other market participants combined.