The other day I was walking down a dirt road in Indonesia and came upon a construction site.
A bunch of locals were laying the foundation for what was to become a family’s house.
The owner spotted me, and we engaged in a friendly conversation.
He told me about the design, the building material, and even the costs (Indonesians are very open about these things).
Walking away, I thought about how much this family will value their new home…
About how much we all care about the things we invest time and effort in…
And then I thought about how most exhibit the opposite behavior when it comes to the stock market.
Rather than investing, which is how you win in the long term, people speculate.
Imagine if my Indonesian friend speculated on the type of building material he used for the house he’s building… went with something less solid and less proven. The house might collapse on him and his family as they slept.
This example might sound severe. However, just like a house, your portfolio can crash and shatter your dreams if you don’t build it with quality stocks.
That is why a critical question to ask yourself when buying a stock is whether you are speculating… or investing.
Are You An Investor Or A Speculator?
The first difference between the two is in the “why.”
Speculators purchase a stock with the sole objective of making a profit. They hope that within a specified time frame the price will change enough to be worth the gamble they’re taking. They are risk-takers.
Investors, on the other hand, are looking for security. They want a safe investment that they can feel comfortable will provide them with a stable income and that has the potential to appreciate in the future.
The second difference between speculators and investors has to do with timing. Speculators operate within a shorter time frame, usually less than a year. They want to get rich quick. For them, market timing is everything.
Investors are much more relaxed in this regard. Because they have a longer investment horizon, they don’t need to be right about their picks to the hour. A percentage point one way or the other has little impact on their long-term returns.
Finally, investors sleep better and are generally healthier overall.
Speculators take many risks and see their wealth fluctuate wildly week to week, even day to day. Moreover, because they trade on a shorter time frame, they’re more affected by daily news, political developments, and sudden market reactions. These issues cause considerable stress that most people can’t handle.
If you’re investing, on the other hand, you don’t have to worry about day-to-day market moves. You can sleep soundly, confident that your wealth is in no danger of disappearing overnight.
How To Build True Retirement Wealth
That is not to say that speculation doesn’t have a place in this world. Speculators can see big returns.
However, this approach is best left to the professionals. To those who have spent thousands of hours studying the art of trading and whose sole focus is analyzing the market.
I was a forex speculator for a while. It was one of the most demanding, most stressful jobs I’ve known. I can tell you based on that experience that investing for the long term is the far wiser choice for most of us.
That is why I’ve created True Retirement Wealth. In this monthly advisory service, I recommend long-term, nest-egg-building stocks….
The kinds of investments that make for a safe and wealthy retirement.
Good investing,
Leon Wilfan
