The Three Faces of Risk : Speculation, Gambling and Investment Explained.

All of us earn money by different means in our economy, and we spend it fulfilling our desire. Sometimes income exceeds their expenditure, and they wish to utilize the surplus money for future saving or returns. For that they may use boxes, piggy bank, or  mattresses. But the thing is will your Money be the same in the future ? The answer is NO. Because due to factors like inflation the value of Money always decreases.

For this particular reason people invest their savings for future return. In simple words the sacrifice of present Money for future return is called Investment.

INVESTMENT :

People or institution with surplus Money can purchase securities like bond,debt and debentures, equity shares, preference share or in real assets like gold, silver, real estate or can deposit in their bank for provident fund, insurance, pension etc. All above activities are called investment.

RISK AND TIME :

Investment involves two factors. Will to invest your money or putting your money on the line for returns includes risk and to get future returns needs time. Investing your money is certain but future returns are uncertain. 

SPECULATION AND INVESTMENT : 

Both investment and speculation involves the sell and purchase of securities yet they are not the same. Investment is a long term activity usually from one year to a few years, but speculation is shorter and differs from days to a few months. 

In investment reviewing and studying company performance for evaluation on a daily basis is a must. Whereas speculation includes insider information, hearsay and market behaviour. 

Investors avoid borrowing funds and mainly depend on their own funds but speculators use borrowed funds to supplement their resources.  

Investor bears limited risk with moderate rate of return, speculators walk on principal of high risk high return.

GAMBLING AND INVESTMENT : 

Gambling is very different from speculation and investment, it's primary purpose is entertainment, money is secondary. It's time horizon is even shorter than both of them. It is done in games or chances. 

ELEMENTS OF INVESTMENT : 

Return: The objective of any investment is to drive return. It may be regular return like dividend and share or can be the increase in your asset value when selling it. The nature of return from ( Risky, less Risky and non-Risky ) is the deciding factor. 

Risk: It is the basic attribute in investment. It works as a variable in your investment for profit and loss. As the traditional principal says the higher the risk the higher is return.

Safety: Safe measurement in investment means getting back your principal amount on maturity with no loss in value or any hindrance. 

Liquidity: It is about selling your investment in the market when a need arises without taking much time,effort or any cost. Higher the liquidity is easy to sell. 

Thank you.