o3 BLOG | Investing
What is Speculative Investing?
What is Speculation or Speculative Investing?
Speculation, or speculative trading, refers to conducting a financial transaction that has the potential of losing value, but holds the expectation of a significant gain or other major value. With speculation, the risk of loss is more than offset by the possibility of a substantial increase.
Speculative investing demands a hands-on approach for most active traders, favouring short-term swings over long-term players. Examples of this include cryptocurrencies and NFTs.
When an investor has a strong prediction about an outcome in an industry, they make a speculative bet on its asset potential. Many will buy assets they believe will benefit them the most if their prediction comes to fruition.
Some investors choose foreign exchange and bonds through penny stocks or over-the-counter investments, but as we know, some of the best speculative investments exist in gold. We’ll talk more about why below, but first, we’ll walk you through the difference between speculation and investment.
Speculation vs Investing
While investors make speculative investments, there is a difference between the two terms. Investors with more money tend to invest in assets they know will produce a long-term profit.
Understanding that many wins may come with short-term losses, investors with specialized knowledge and more disposable income are likely to have a higher tolerance for risk than the average investor. They can take a multi-year approach and usually have a moderate risk profile. Their portfolios typically include a mixture of mainstream investment vehicles like stocks, bonds, and index funds.
Speculators usually judge positions ranging from a few hours to a few months. It’s a high-risk, aggressive investing style that might include more niche investments like Forex, options, penny stocks, commodities, etc. Many day traders participate in speculative trading.
Speculation is not for the faint of heart. While the allure for big-time gains is present, it may be wise to consult a financial planner to ensure that you are not taking on more than you can handle. Also, consider taking a risk tolerance questionnaire to help prepare and understand how you may react to losses.
Why Gold is Different
When it comes to ways to safely invest cash, gold has proven to be a reliable store of value for your money. As the quantity of paper money being printed increases, the fiat currency’s value drops. What’s more, governments, driven by social pressures and geopolitical events, are forced into ever-increasing financial rescues — and concerns of economic downturn continue to be a factor, especially in today’s political climate.
These crises and the accelerating inflation price will affect most asset classes, except gold, silver, and other precious metals. Bonds, which make up a large part of an investor’s portfolio, would be devalued more than cash if global markets decline. The same can be said for equities if bond yields rise, and casual rent increases can also stall inflation. The truth is that only commodities like gold could be expected to outperform cash as metal tends to be the best performer in times of inflation.
How to Invest in Gold
Depending on your preference and appetite for risk, you may invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts.
As the most speculative form of gold-stock trading, futures and options’ value is based entirely on the price of an underlying asset.
A futures contract is an agreement to buy or sell a security for a set price on a certain date, regardless of the current market conditions. Meanwhile, an options contract is an agreement that gives you the option to buy or sell a security if it reaches a certain price on or before a certain date.
In addition, each of these options includes a certain degree of leverage, or debt, by default, so investors who overuse them and experience market losses can see their losses mount quickly.
Bottom Line
Gold may offer you an investment haven if you’re concerned about inflation and other calamities. Though it might seem to be just as volatile as stocks in the shorter term, gold has held its value remarkably well over a very long time.
Sources
https://www.forbes.com/advisor/investing/how-to-invest-in-gold/
https://www.mining.com/why-owning-cash-is-more-speculative-than-owning-gold/
https://www.investopedia.com/articles/investing/071414/when-and-why-do-gold-prices-plummet.asp
https://o3mining.com/articles/gold-demand-trends-and-ways-to-invest-now/