Are You an Investor or a Financial Speculator? Let’s Explore the Difference

Like most trends, in the beginning, it's driven by fundamentals, at some point speculation takes over. What the wise man does in the beginning, the fool does in the end." - Warren Buffett

Almost every other ad across television and social media is encouraging us to invest. We see and hear celebrities and experts tell us that we must not miss the bus and put money in stocks, crypto, mutual funds, etc. 

They also tell us that it is safe and good to do so - often implying that we can make high returns in little time. 

The sense of urgency in these ads compels us to try. If that isn’t enough, then often there is an incentive such as cashback, freebies etc. to start transacting. 

As a result, more Indians are beginning to invest every day. Smartphones and the internet have also made investing fast and convenient. And, while more information on investing is available to us, many of us only skim it. 

We are more likely to seek out recommendations than to spend time understanding their basis. This means that we are taking on more risk than we know. 

So, essentially, looking to make high returns quickly at risk levels which we do not understand.

And while we may think of ourselves as investors – we may actually be financial speculators. 

Investor or Financial Speculator | Let’s Understand the Difference! 

The level of risk is the main difference between investing and financial speculation. While investing requires digesting data and evidence to understand the underlying assets risks and return potential often seeking assets that are relatively low risk and often lower return in the short term. 

Speculation, on the other hand, means putting your money in assets or trades that are expected to deliver high returns in the short to medium-term; this expectation of high return comes with high risk too.

Professional market speculators understand this high-risk high-return scenario and use advanced risk management tools while also preparing for high losses.

Many of us are attracted to quick, high returns but we never consider that this makes us market speculators.

Putting money in the hottest new crypto or a stock tip for a new/unknown company are more obvious instances of speculation but even with more credible assets, we often invest for quick gains without understanding the risks a.k.a. speculation.

While investing and speculating are both means of making money, it is important to recognize what path one is taking.

At IndiaP2P, our endeavour is to create a new, technology-first financial institution that lives by the values of transparency & efficiency, delivering financial products that bring you wealth and prosperity. 

We believe that India deserves investment products that enable true economic value without speculation.