2_Speculative Investments_Rev1.00 (1).docx
Speculative investments – what is speculation in an investment? Definition of a speculative investment: When investments attract a high degree of risk and in an area where price fluctuations remain the main focus of the investor- is called a speculative investment. A speculator is a person who attempts to make a speculative investment. Generally, speculative investors believe in profits in the investment of tradable goods and are less concerned with the fundamental value of the instrument. The investor may not be interested in the annual income, dividends and interest payments that the investment may give, either. The saleability of the instrument at a future date is the sole aim of a speculative investment. Some
of the markets where speculative investments occur are: Commodity Futures Stocks Currencies Real estate Fine art Collectibles
Difference between savings, investments and speculative investments: The main differences are: Savings: - These investments are short term, extremely safe and possess a low growth potential Investments: - Planning and funding are long term, involve a high growth factor and are relatively safe Speculative investments: - These type of investments are very risky, have very high potential for growth and are extremely short term Most experts argue that speculative investments are mere investments like any other but only with high risk aspects. Though, the definition varies widely amongst financial professionals. In other words speculative investments are undertaken only with growth in mind while investments are performed with both income and growth in mind.
Types of speculative investments: Here are a few ways to conduct speculative investments: Invest in a high-growth company that is relatively unprofitable Buying stocks of a biotechnology company that may never get an approval of their drug Trading in currencies and commodities Bullish and bearish trade placements Buying penny stocks Shorting stocks of a poor company In speculative investments you can leverage on your experience or intuition to identify potential opportunities. As a speculator you never balance the risk of your investments and you will predominantly buy stocks because they are going up.