Uncertain Times: Speculate, Save or Invest?

What exactly is the right approach to investing, especially when the heat of economic uncertainties is raging? To answer this, let us first look at the three kinds of behaviours people exhibit when making decisions on their money in the financial markets.

Speculation is simply the purchase of a financial asset, solely with the expectation that price will increase in the near future when the asset will be sold to realize quick financial gain. A speculator does not really care about the underlying asset or the need to do a research into the historical performance of the company whose securities are being purchased. All the speculator does is to make mostly unsupported judgement that the price of a security will move in the expected direction when he will make some quick profit.

Saving basically means setting aside part of your current income to meet some needs or financial emergencies in the future. Such funds usually attract either very little or no income and it can be accessed anytime without any major restriction. Given that the intention behind saving is to keep aside some money for transactional or precautional purposes, the saver usually has very low expectation of return on the money.

Investment is simply the process of making your money work for you. Investing is also similar to saving, only that the money being set aside by an investor is for productive use. By this, we mean that the intention of investing is to keep aside money to generate more money either through capital appreciation or financial rewards. An investor is more disciplined than a speculator in the choice of asset selection. While a speculator is mainly driven by the possibility of a quick return from price movements, an investor looks beyond profiting from quick swings in prices by considering and understanding the underlying asset, company reputation, market size, product innovation, among other key variables. An investor does not put his money in assets he does not understand; only a speculator does.

It should be noted that an individual’s disposition can change from one investment decision to the other. The same individual can be an investor in one instance and a speculator in another instance, when his investment decision is driven more by emotion than by careful study and understanding of asset fundamentals.

From the foregoing, you can discern how exactly you have been taking decisions on your finances? Have you been speculating, saving or investing? Have your dispositions been consistent across all decision points or changing based on asset class and time? Whatever that may be, you have a financial partner in FundQuest who can handhold you through every investment decision to ensure you remain a balanced player within the complex world of financial management.

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