What is speculative trading vs. long-term investing?

Written by Eric Ebbert CFP®, MBA

On March 5, 2021

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The recent GameStop craze has generated a lot of interest in the stock market. Many new investors are flocking to the market in hopes of getting aboard the next “squeeze,” but many will find out that the market is not a forgiving place in which to be reckless with your money.

Yet we do not say this to frighten off new investors or anyone who is considering investing. We believe investing is a great way to grow your wealth. However, we want you to understand what you are getting into, so we will start by explaining what speculative trading is and why it is different than long-term investing.

What is speculative trading?

Speculative trading is the practice of making a financial investment or trade that has a high potential of gaining value but also a high risk of losing value. These trades are made based on trend analysis and an analysis of the fundamentals of a company. However, as the name suggests, these trades are always speculative at best because no one can truly know for certain what the future will hold for an investment.

Generally, speculative trading focuses on making short-term gains rather than generating interest or dividends from long-term investments.

What is long-term investing?

While speculative trading is technically a form of investing, when people refer to investing, they are usually talking about long-term investing. Investing usually takes place over years and is used to grow your wealth to reach a long-term goal, such as retirement. 

Investing is available through many different channels, such as opening a retirement account, buying bonds, and investing in exchange-traded funds (ETFs) or mutual funds. You can make a wide range of investments with varying risk levels that have varying opportunities for gains. This helps keep your portfolio balanced and at lower risk for completely falling apart from an underperforming investment. 

Talk to a ProVise CFP® professional about speculative trading and investing

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about speculative trading and investing? Contact ProVise today to schedule a complimentary consultation.

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