There’s A Difference Between Investing and Speculating!

The stock market has been on an ABSOLUTE tear this year. If you live in Japan, you have seen the Nikkei index rise close to 40% year-to-date. According to my readers’ demographics, no one in Japan even knows I exist so I’m not sure why I’m quoting the Nikkei. Nonetheless, even for all my friends in the United States, markets are on fire! The S&P 500 is up roughly 17% YTD while the Dow Jones is “one-upping” the S&P at 18% YTD. Not bad for an economy that’s forecasting sluggish growth and serious fiscal imbalances!

But, just when you think this global “recovery” has legs of it’s own (rather than being propped up by central banks), the Nikkei posts a one-day drop of 7.3%. If you’re a bull (optimist), then you’re seeing this dip as a buying opportunity. If you’re a bear (pessimist), you are running for cover and thinking this is the beginning of the end. Either way, you’re somehow reacting to this news. Right?

Wrong.

You don’t have to do anything.

There is an apparent belief, by today’s financial commentators, that EVERYONE is a bull or a bear. You either believe that markets will rise or you believe that markets will crash. These commentators neglect the most important people of all: investors. You know, those people that:

1. Save their money

2. Invest their money in strong companies

3. Become wealthy over time

Why Do I Bring This Up?

One of my best friends expressed a harmless thought via email that read:

Man! I knew I should have sold Apple!

The comment easily could have been brushed aside, but I decided to dive a bit deeper (and he probably hates me for it). I told him that one of the worst things you can do is look at a rising (or falling) stock and say, “I knew I should have bought (or sold) it.”

(I compared it to a Texas Hold’em Poker Player folding 7-2 and then kicking himself when the flop comes 7-2-2. Folding is the correct play.)

We KNOW that the stock market has risen over the last century, but we do NOT know what day-to-day fluctuations will look like. If analysts, that spend 23 hours a day studying the market’s movements, can’t figure it out; then, I highly doubt a “feeling” or “instinct” will lead us to riches.

In fact, if you are buying a stock because you “have a feeling” that it will rise – you are not investing. You are speculating.

There’s a difference.

Systematically investing your money will create wealth. Speculating might make you some money on one or two trades, but isn’t the best long-term strategy. I’ll warn you, though:

Investing isn’t fun.

As humans, we are not capable of delaying gratification. It’s EXTREMELY difficult to set all of your hard-earned money aside and then sit. And sit. And sit.

Whether you have been officially diagnosed or not, we all suffer from ADHD in some capacity (warning: blanket statement). By recognizing this trait in yourself, you can save yourself A LOT of headaches. You can “have your cake and eat it too.”

Follow These Simple Steps 

1. Calculate how much money you have in “investments” (do not include 401(k) or employer-sponsored plans).

2. Take 10% (maximum) of this total and open a separate brokerage account.

3. Do whatever you want with this money.

By following these steps, you will benefit from the long-term growth of the stock market AND you can entertain your “feelings.”

How Can I Invest My Feelings?

Think about our current environment: stocks have been going up, up, up. A lot of sane people are predicting that a correction (pullback) is just around the corner. If this prediction is accurate, AND YOU KNOW IT, then why not profit from your ability to see the future?

If you’re one of my visitors from the UK, check out a CFD Tutorial.

CFD, Contract For Difference, trading is a way to benefit from market movements. In financial jargon, it’s a derivative which allows a seller to pay a buyer the difference between a current asset price and a future asset price at a specified time. In normal people lingo, you can bet that something will go up or you can bet that something will go down. If you are correct, you’ll make money. You can speculate on stocks, indices or commodities.

Beware of some risks before you begin spread-betting:

1. CFD’s are leveraged products.

2. You can LOSE more than what you put in.

3. DO NOT bet with money that you cannot afford to lose.

Readers: Are you an investor? Are you ever guilty of speculating?