An ideal investor versus a speculator

An ideal investor sacrifices his current expenses for future benefits. An investment means commitment of funds to one or more asset classes and holding it over for future. There are many investment avenues and you may be confused to choose that suits you the best. Some of these offer you attractive return with high risk and some give low return with low risk besides varying taxation aspects. In the modern financial system, an ideal investor likes to maximize his return with moderate or minimum

Investor vs Speculator

An ideal investor or a speculator invests or speculates to make money! Of course you understand and admit this, but you need to be more precise. You invest to improve your welfare; this is your purpose and can be defined as monetary wealth for both current and future.

From people’s stock market activities, you can divide into two separate disciplines –trading and investing.

Investors certainly like to trade off between risk and return. We may categorize the following financial and non financial avenues according to risk and return:-

Lowest Investment risk with low return comprise of Bank Deposits, PPF, Government Bonds etc.

Moderate risk avenues are Mutual Funds, Exchange Traded Fund, Corporate Bonds, Real Estate and Gold etc.

High Risk avenues are Direct Equity, Futures, and Foreign Exchange Trading etc.

Your achievement towards your financial goals very much depends on how wisely or foolishly you invest!

Differences between an ideal investor and a speculator:

An ideal investor first sets his objectives, makes plan and then invests depending upon his risk tolerance, time horizon and preference. An ideal investor is unlike a speculator. An ideal investor has investment time horizon defined and he knows about his purpose of investments. A speculator goes for short time horizon.

An ideal investor takes moderate risk while a speculator goes for high risk.

An ideal investor diversifies and reduces risk to generate moderate rate of return and hedges inflation; a speculator takes high risk to earn high return.

An ideal investor depends on the fundamental analysis, i.e. basically depends on the supply and demand of underlying commodity, but a speculator follows technical charts and market sentiments.

An ideal investor purchases either income producing assets or appreciation in value and holds for longer period. Whereas a speculator usually tries to profit from short-term price volatility from trading and this may be from several seconds to several weeks.
An ideal investor invests his own fund and a speculator borrows money to invest, which may be substantial amount.

An ideal investor has a fundamental to buy and hold for long term and he does not bother about the daily market movements. A speculator speculates so he buys and holds and then sells.

Benjamin Graham once told about speculation as “a rat race of trying to get the highest possible return in the shortest period of time.”

Do you know what kind of investor are you, a speculator or an ideal investor? It is important for you to know this as you will make your strategy for present and future accordingly. We all can witness that, knowingly or unknowingly some investors behave like speculators. So make the basic distinction from the above discussion and act accordingly, better not to mix yourself with a speculator while you are an investor and vice versa. Don’t mirror others.  Your risk tolerance ability depends on your personality.

Ideal investors seek to manage their wealth effectively; they protect their wealth from inflation, taxes and other factors. They are keen to accomplish the objectives, i.e. to be monetary wealthy both at present and in future.

To conclude, long term investors don’t lose as compare to speculators and sleep well. So, do you want to be a speculator or an ideal investor?

This article is written by me and is my own original creation. If there is any claim to the contrary, I am solely responsible and I indemnify The Financial Planner’s Guild, India ( FPGI ) and any other publication that carries my article.