MyMoney Online

3 things that turn investing into speculating

Investing is a deliberate approach to making the most of your money over a specific period of time. Your investments should be balanced against your lifestyle needs – both present and future.

For example, if you have a life changing event in the short term such as a retirement then you should be investing far less aggressively than someone who is 35 who has just paid off all his debts and wants to save for the next 20 years.

Speculation is betting on returns. Particularly in a short space of time.

Here are three things to avoid which will keep you on a path of investing rather than one of speculation.

Using past performance to predict future returns

The big mistake is to take the historic returns of a fund over time and draw a straight line into the future. Returns are affected by many variables and

no one can predict these. If one could just imagine how easy it would be to make a lot of money. Economies and markets follow cycles and assets are affected by these swings over time.

Timing the market

Investing is all about compounding the returns achieved over time. Speculation is about trying to time the top and the bottom of the cycles of various markets. There is a lot of evidence using historic data that clearly shows that if you try and time the market you will get it wrong more times than right. Investors understand how markets move over the long term term maintaining the course through the ups and downs benefiting from the compounding along the way.

Borrowing to invest

Inestors will be aware of their exposure to debt as the cost of borrowing neutralises the returns they get from investments. If you have a credit card debt of 20% and get a return from your unit trust of 15% then effectively you are negative 5%. Investors will deliberate over short, medium and long term objectives ensuring their exposure to debt reduces sooner than later. Speculators will ignore debt believing that they can outperform the cost of borrowing over any time horison.

Investors realise that it all about time in the market. Speculators will bet that the can achieve high rates of return without losing capital – especially in the short term.

Read more from Paul Roelofse at www.investforlife.co.za


Recommended

by THE NEWSROOM
Read More
How to plan financially, considering you’re poorer after Gigaba's hectic Budget

How to plan financially, considering you’re poorer after Gigaba's hectic Budget

The Money Show’s Bruce Whitfield interviews Galileo Capital Financial Advisor Warren Ingram.

Pick these 3 stocks right now, make a killing (by Sasfin Securities)

Pick these 3 stocks right now, make a killing (by Sasfin Securities)

These are the three best shares to buy right now, says stockbroker and portfolio manager Nesan Nair.

3 best JSE shares to buy, right now (by Ashburton Fund Managers)

3 best JSE shares to buy, right now (by Ashburton Fund Managers)

Hot investment tip, anyone? Fund manager Jason Forssman shares his stock picks of the week…

How to best invest a financial windfall (e.g. an inheritance)

How to best invest a financial windfall (e.g. an inheritance)

Personal Financial Advisor Warren Ingram advises a listener who inherited some money, and wants to work well with it.

3 shares you’ll do well to buy this week (by Mia Kruger)

3 shares you’ll do well to buy this week (by Mia Kruger)

Bruce Whitfield asks Mia Kruger of Kruger International Asset and Wealth Management for her stock picks of the week.

Robots are already replacing financial advisors right here in South Africa

Robots are already replacing financial advisors right here in South Africa

But can they be trusted? Are they independent? Bruce Whitfield interviews Personal Financial Advisor Warren Ingram.

Popular articles
I was not introduced to Ajay Gupta - Grootes

I was not introduced to Ajay Gupta - Grootes

Stephen Grootes says he believes former Eskom CEO Brian Dames when said he was not formally introduced to the Gupta family.

Minister Zwane confirms trips to Dubai and Switzerland

Minister Zwane confirms trips to Dubai and Switzerland

EWN parliamentary correspondent Gaye Davis says Mineral Resources Minister Mosebenzi Zwane received detailed and tough questions.

Zweli Mkhize 'taken by surprise' with latest cabinet reshuffle

Zweli Mkhize 'taken by surprise' with latest cabinet reshuffle

The ANC treasurer-general confirmed Mantashe’s comments that the President did not consult the ANC leadership on the reshuffle.

Who is Advocate Tembeka Ngcukaitobi?

Who is Advocate Tembeka Ngcukaitobi?

The EFF lawyer stole the show during the state capture report court battle.

How to make your first million

How to make your first million

Warren Ingram discusses his new book in which he shares practical ways for ordinary people to achieve financial freedom.

'Collect experiences, NOT possessions!' - Paul Theron (Vestact MD)

'Collect experiences, NOT possessions!' - Paul Theron (Vestact MD)

Bruce Whitfield interviews the razor-sharp tongued Vestact MD Paul Theron about his money hopes, fears, successes, failures, etc.

3 easy questions could bag you R2000!

3 easy questions could bag you R2000!

WIN R2000! But only if you can prove you're a whiz of the MTN Biz Quiz by answering the following three questions...

Meet Errol Musk - father of Elon, the most innovative entrepreneur of our age

Meet Errol Musk - father of Elon, the most innovative entrepreneur of our age

Elon Musk, as you’d expect, hails from an exceptional family. Bruce Whitfield interviews his Capetonian father.