Difference between Investment and Speculation

There is a thin line between investment and speculation and when it comes to money most people tend to cross the line and start speculating instead of investing which eventually may lead to disastrous results. In order to know whether you are the crossing line you must know the differences between the two, given below are some of the differences between investment and speculation –

  1. While investment is a well thought process where the person making investment has look into various factors and understood the risk and return associated with such investment, whereas speculation is impulsive and person doing it performs the action first and then worry (in case of loss) or enjoy (in case of profit)
  2. Investment is not only done for earning money but also for variety of reasons like to save taxes, to insure, to plan for future and so on, whereas speculation is done only to earn money in shortest possible time.
  3. Time horizon for investment is long which usually last from 3 years to 15 years whereas the time horizon of speculation is short it usually lasts from 1 day to 1 month.
  4. Investment is never done with leveraged money which involves taking debt at higher levels of interest, while most speculators take leverage while doing speculation.
  5. Investing requires patience and discipline while speculating is all about timing and willingness to take high amount of risk.

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