People often use speculation and investment interchangeably. But these two terms are totally different concept. Speculation refers to the short-term commitment of fund to make highest profit. Its intention is only to earn more profit in short period of time. The person involve in the speculation is known as speculator. Like investor the speculator does not analyze the risk and return while purchasing the real or financial assets. The speculator only focuses on the return. While making investment, investor carefully done analysis of all the available information, markets, and industry where as speculator make decision only with limited information.
Read also: Meaning of Investment
Read also: Investment vs Gambling
For example, one of your friend
told you that the value of a bitcoin is $4600 and raising day by day and will reach
to $10000 in few months. If you buy some bitcoin only with this limited
information, then it is said to be speculation. Here your decision is based on
the limited information provided by your friend which may or may not true. And
other point is that you didn't analyze the risk you just buy the bitcoin with
the expectation of earning more profit in short time.
Gambling refers to the
activity or practice of playing a game of chance for money or other stakes. For
example, if you spend some money to buy a lottery tickets then it will be
gambling. Here your chance of winning is uncertain. Gambling is for very short
period of time. In gambling the profit is very high but the chance of winning
is very low. The main objective of gambling is entertainment you. Making profit
is secondary objective.
Read also: Speculation vs Gambling
Some of the main differences
among Investment, speculation and gambling are given in the table below:
Basis of
difference
|
Investment
|
Speculation
|
Gambling
|
Meaning
|
Investment refers to the commitment of fund for
long period of time in the real or fixed assets for the expectation of
receiving higher income in the future.
|
Speculation, in the other hand, refers to the
commitment of fund for the expectation of gaining higher profit in the short
time.
|
Gambling refers to the practice of investing
money in the game of chance for the objective of getting very high profit in
very short time period.
|
Objective
|
Income and capital appreciation is the main
objectives of the investment.
|
The main objective of speculation is to earn more
profit in short period of time.
|
The primary objective of gambling is
entertainment. Earning profit is secondary objective.
|
Analysis of Risk and Return
|
While investing fund for long time period, risk
and returns of the available alternatives are carefully analyzed by
considering fundamentals factors.
|
In speculation, speculator does not analyze the
risk and return while investing fund. He make decision by considering the
rumor, inside information and market behaviour.
|
Gambler also does not analyze the risk and
return.
|
Return
|
There is moderate return in investment.
|
High return.
|
Very high return.
|
Risk
|
Investment create lower risk for the investor
because before making investment investor carefully analyzed all the
available alternatives in terms of risk and returns.
|
High risk due to the availability of limited
information and non-analysis of risk and return.
|
Very high-risk due to the uncertainty of winning.
|
Time horizon
|
Investment is done for long time period.
|
Speculator invests his fund for short time period
especially for a few months.
|
|
Use of funds
|
Own fund is used.
|
Own or borrowed fund is used.
|
Own fund is used.
|
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