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


This article first appeared on 702 : 3 things that turn investing into speculating


Recommended

by NEWSROOM AI
Read More
Hottest JSE-listed shares to buy, right now (by Arqaam Capital)

Hottest JSE-listed shares to buy, right now (by Arqaam Capital)

The Money Show’s Bruce Whitfield asks portfolio manager Ashraf Mohamed what he is buying right now.

What it'll cost to educate your kid abroad (and how much you must save a month)

What it'll cost to educate your kid abroad (and how much you must save a month)

Bruce Whitfield asks Galileo Capital Financial Advisor Warren Ingram about the cost of educating a child overseas.

Game over, Tencent (i.e. Naspers)? No, it remains a profoundly good longterm buy

Game over, Tencent (i.e. Naspers)? No, it remains a profoundly good longterm buy

It’s not the beginning of the end of Tencent, says portfolio manager Francois Strydom, despite it losing R3.2 trillion in value.

How Tito Mboweni will impact your retirement fund, tax-free savings account, etc

How Tito Mboweni will impact your retirement fund, tax-free savings account, etc

The Money Show’s Bruce Whitfield interviews Victoria Reuvers, Senior Portfolio Manager at Morningstar Investment Management SA.

Tax Ombud fights Sars for free on your behalf. It’s winning; 99.79% success rate

Tax Ombud fights Sars for free on your behalf. It’s winning; 99.79% success rate

Got a beef with Sars (tax refund, etc.)? Bruce Whitfield interviews Office of the Tax Ombud CEO Adv. Eric Mkhawane.

3 hottest shares to buy, right now (by Aluwani Capital Partners)

3 hottest shares to buy, right now (by Aluwani Capital Partners)

The Money Show’s Bruce Whitfield asks Patrick Mathidi (Aluwani Capital Partners Head of Equities) for his stock picks of the week.

Popular articles
Pieter du Toit on VBS, Malema's EFF and contradicting ethics

Pieter du Toit on VBS, Malema's EFF and contradicting ethics

Malema has accused the rogue unit of still being operational and Pravin Gordhan of working in the background against the EFF.

Zondi tells court that she had to 'look happy' in church out of fear for Omotoso

Zondi tells court that she had to 'look happy' in church out of fear for Omotoso

Cheryl Zondi is testifying against Pastor Timothy Omotoso who is accused of rape and human trafficking in his Durban church.

Callers rally behind Zondi, question support for Omotoso at the trial

Callers rally behind Zondi, question support for Omotoso at the trial

Callers on The Eusebius McKaiser Show with Sizwe Mpofu-Walsh discuss the Omotoso Trial.

[WATCH] A golden buzzer for South African trio on talent show

[WATCH] A golden buzzer for South African trio on talent show

Khabazela shares some of the most popular tweets, posts, and videos on 'What's gone viral'.

'The EFF seems to be trying to find scapegoats'

'The EFF seems to be trying to find scapegoats'

Deputy Editor at Financial Mail, Sikhonathi Mantshantsha, seems to be finding excuses as to why its leaders are in trouble.

VBS gave Zuma R8.5m before any security was provided for loan - News 24 journo

VBS gave Zuma R8.5m before any security was provided for loan - News 24 journo

News 24 investigative journalist Kyle Cowan reports that Zuma was granted the loan despite the fact that he could not afford it.

Woman alleges pastor Omotoso began sexually abusing her at 14

Woman alleges pastor Omotoso began sexually abusing her at 14

Nigerian pastor Timothy Omotoso and his two co-accused face multiple charges, including human trafficking, racketeering and rape.

3 emergency numbers you should have on speed dial and how they work

3 emergency numbers you should have on speed dial and how they work

These are the emergency numbers you should have on your cellphone and this is what you must understand about how they work.