By Frank Holmes via Iris.xyz
As the stock market bull potentially nears the end of its run and we head into the last two months of 2018, many investors are making adjustments to their portfolios. Over the course of my travels and in conversations with other industry experts, I’m constantly reminded the importance of: 1) understanding the difference between investing and speculating, and 2) understanding risk tolerance.
These are two primary points for any investor seeking to make sound decisions with their money to understand.
1. Know the Difference in Investing vs. Speculating
All definitions vary slightly, but most are along the same lines. An investment is an asset or item acquired with the goal of generating income or appreciation in the future. Speculation is a financial transaction that has substantial risk of losing all value, but with the expectation of a significant gain.
Notice how the definition for investment doesn’t include the word “risk.” Of course, every investment carries some level of risk; however, the potential of losing the entire principal investment amount is largely what differentiates investing from speculating. Other factors to consider include time horizon, decision criteria and investor attitude.