There is a difference between investing and speculating. Speculating is like buying a lottery ticket, and investing is putting money to work and getting a rate of return for future expenses.
Some people might counter this by saying they purchase speculative assets/crypto currencies with money they really can afford to lose. If it’s money they can truly afford to lose, that means it has a chance of going to zero. This is called a lottery ticket.
Consider this though: a diversified investment portfolio has never yet lost anyone all of their money.
When you see people make lots of money (“get rich”) from cryptocurrency trading, they’re just like the people who bought winning lottery tickets. So, the news reports on those people. The media likes to report on outlying events, or “fat tails.” And just like lottery tickets, notice that the news never makes mention about all the people who buy lottery tickets and lose.
How Many People Lose The Lottery Daily?
A mistake that many people make is that they think that by participating in the crypto trend, they are investing — and they take comfort from that.
However in reality they are just buying lottery tickets — which isn’t bad per se , providing that they know what they are buying.
It’s important to know that it’s okay to speculate or buy “lottery tickets” in the financial marketplace with money one can truly afford to lose. However, one must not confuse this speculation with investing, where one expects to get a return on their capital with the capital back.
Know that you may or may not get lucky while speculating. When investing, you are expecting to fund future expenses which requires a different strategy than speculating.
The challenge is that younger investors these days see a lot of stories detailing how someone turned $25,000 into $500,000 which is great, however it is not necessarily repeatable. Investing will get you towards your goals , while speculating may not.
I worry that these young speculators, and maybe even older people too, are going to get in the habit of buying lottery tickets rather than investing. If they invested, they could get to their end goal — but if they buy lottery tickets and none of them ever win, then they may never get there.
Jeff Holland | VIAIV