It has often been said that the stock market is a casino. The main difference, though, is if someone is an investor in the stock market, they should understand what type of investment they are investing in. There is a wide range of companies and investment styles for you to choose from in the stock market. It is also vital to understand the differences between investing versus speculating.

Investing Versus Speculating

Executive Summary

Speculation is a higher risk because it is often based more on a theory or inconclusive evidence. You can make money speculating, but it is more of an art than a science. You invest when you understand the fundamentals of your investments. You know why you hold them.


Investing most often refers to holding an investment or an asset long-term. The goal of investing is to make money. You want to find ways to make your money work for you. There are different ways that you could invest your money. The stock market is the most common vehicle for people. This is because it is simpler and less risky than starting your own business.

The two primary reasons someone may invest in the stock market are to generate income or seek profit from a good trade. A more interested in carting income would invest in stocks that pay dividends. This is one way that you could build a passive income stream. Another person may want to take profits after the stock they invested in goes up. They could increase their profits all at once or slowly over time.

Some common ways to invest in the stock market are:

  • Exchange-traded funds (ETS)
  • Index funds
  • Mutual funds
  • Dividend Investing

You could also invest according to cap size:

  • Penny stocks
  • Small cap
  • Medium cap
  • Large-cap

You could invest in a variety of market sectors:

  • Commodities
  • Real estate
  • Market staples
  • Sin stocks
  • Technology

You could focus on one or combine different types of investing styles:

  • Value
  • Growth

You could invest in companies in your home country or abroad:

  • National stocks
  • Foreign stocks

Getting Started Investing

You can start by allocating a certain percentage of your monthly income to invest. You could invest ten percent or more each month, depending on your budget. Two budgeting strategies are the 50/30/20 budget and the 60/30/10 budget. You can only save so much money before deciding where else to invest it. The stock market is one option.

The money you save will help you to expose yourself to the market. According to NerdWallet, the stock market’s annual return has ranged from 7% to 10%.


There is an art to speculating. One critical aspect of speculating is being a contrarian. Doug Casey summarizes an essential requirement to be a good speculator:

“The way to make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.”

Follow trends. You can discover trends by understanding markets, demographics, politics, technology, and other fields that influence the markets. You can then make rational speculation on what will happen with this trend.

Never speculate with money you cannot afford to lose. Speculation is risky. You may be wrong about the trends, the leadership in a company, or something else that could influence the market that you had not anticipated.

The market moves in cycles. Speculators look to profit from cyclical stocks. You can follow the crowd, which buys the hot stocks while they go up. Or you can be a contrarian and go against the crowd. You can buy cheap, undervalued stocks and wait for the next cycle.

3 Critical Differences

Difference #1

There is more risk with speculating compared to investing. Speculators accept more considerable risks but understand that they may be wrong. As the saying says, “The higher the risk, the higher the reward.”

You can make or lose more money when you speculate than when you invest. However, the reverse is true. You can also lose more money by speculating.

Investors take on a lower amount of risk. They usually will invest in companies they understand or in ETFs and index funds that allow them to diversify across the stock market. This is a way for investors to decrease their risk exposure.

Difference #2

Investors want to grow their money over a period of time in the stock market. They will reinvest their dividend or purchase more shares of an ETF, index fund, or individual stocks with each paycheck-to-dollar cost average. Investing is done as a way to build and preserve wealth.

Investing is based on fundamentals and understanding your investment. Speculating is often based on projecting where a sector or the market may be heading.

Speculators base their speculations on where they see the market is going. They do this by understanding culture, politics, the financial system, history, and human nature.

They speculate based on those issues in the market that are overlooked to bet on future outcomes. Speculators do not chase the latest trends. They go in the opposite direction. Many times speculators are contrarians.

Difference #3

Investors are interested in the financial health of a company they want to invest in. The goal of a speculator is to understand the team behind an undervalued company to determine if it may be successful.

An investor analyzes the financials of a company to understand its financial health. They can spend time reading analyses by

Investors aim to generate consistent income and above-average returns to beat inflation. Speculators aim to make the correct speculation to make a high return.

Getting Started As A Speculator

Speculating could be an option if you are good at identifying patterns and understanding market cycles. It comes with more risk. It is best suited for a risk taker compared to someone who wants to mitigate their chances in the stock market.

You would invest no more than you are willing to lose with your speculation. George Gammon recommends at most ten percent for speculative investing with his 10/80/10 portfolio.



Most people refer to investing when they talk about the stock market. However, some people are skilled at reading market sentiment, understanding market cycles, and can speculate. For people lacking that specialized skill set, investing is the best option.

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James Bollen is the Founder and President of Secure Single. He is an entrepreneur and a content creator with the goal of helping all different types of singles to learn to thrive as a single person.
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