To learn how to invest, you first must understand what investing is. Investing is not the same thing as saving, gambling, trading, or speculating, though these terms are commonly confused with investing. In fact, many so-called investors are actually savers, gamblers, traders, or speculators. Let’s look at all four of these characters in this guide to investing:
Savers are those who simply put away money; their primary strategy for increasing their wealth is to save money. Most “investors” who “invest” for their retirement are in this category. Putting money in a 401k or IRA is not investing; it is saving, because the primary strategy for increasing wealth is putting money away.
Gamblers attempt to increase their wealth by gambling. Gambling means to take chances with one’s money, but chance alone does not make it gambling. Gamblers rely solely on chance to increase their wealth. If you throw money in an investment, have not researched it at all, and pray for it to come back to you in greater amounts, then you are a gambler. Their primary strategy for increasing wealth is to let chance take over and hope for the best.
Many who “invest” in stock or real estate are actually traders. Traders buy low and sell high, or at least they attempt to make the best investment possible on every trade. A trader’s primary goal is to increase money by doing work; they are the “middlemen.” Without their hard work of trading, they do not earn any income. Certainly, though, they are not investors. Their primary strategy for increasing wealth is trading, or to buy low and sell high. Sometimes they use stock option software, and other types of trading software, to help them to determine good times to buy and sell. Other trading types – E currency trading, currency futures trading, forex trading, among others.
Speculators are the closest to investors in that they put money away and hope it comes back in greater quantities. They, however, do rely on chance. In fact, chance is part of their strategy. They try to predict the future by doing research. Sometimes there is little research; thus, making the operation uneducated. The likes of currency futures trading might fall more under this category of investing. Other times, the operations are very educated speculative ventures. Their primary strategy for increasing wealth is predicting the future by means of research.
An investor is somebody who puts money and hopes that it comes back in greater quantities without relying on chance. An investor only puts his or her money into operations that can reasonably assure him or her with safety of principle and a satisfactory rate of return. Anything not meeting these criteria is not investment. For example, if there is a satisfactory rate of return but questionable safety, then the operation is speculative. There is a definitive art and science to investing whether stocks, bonds, ETFs (like the natural gas ETF for example), commodities and other asset types.
All of these have their place, and all of them can make one very rich. Savers, if they live frugally and have a high enough paying job, can save a tremendous amount of money over their lives. Traders can make many great deals to accumulate a large fortune. Gamblers and speculators, if chance is on their side, can make a tremendous amount of money. Investors, however, are likely to make a tremendous amount of money no matter the conditions. Therefore, we advocate investing over all the others presented here.