BETWEEN SAVING, INVESTING, SPECULATION, TRADING & GAMBLING

It is necessary to cultivate certain habits and avoid others that would affect our future income under economic uncertainties.

1. SAVING
This means setting aside money from earnings, for future purchase or to safeguard against emergencies. Ideally, it is money that is easily accessible with little or no risk. It is a basic and essential skill/habit because it helps create capital, which can fund productivity. An individual or society that spends more than what it earns will eventually meet its Waterloo.

As political, economic and financial activities develop (especially for the worse), it becomes difficult to save, particularly in an inflation-ravaged economy. A critical question to ask is what currency is ideal to save in, considering depreciation in value of currencies over time. Should one save in Naira, Dollars or Euros, and what proportion is ideal?

When you've saved a considerable amount of money, the next action is to put it to productive use so more returns can be generated and wealth ultimately created over time.

2. INVESTMENT
This is the process of making your money work for you by allocating capital to a venture with hopes of securing the principal and gaining additional interest. However, with investment comes risk and the possibility of loss of capital, depending on what asset an individual invests in and prevailing economic conditions.

If the stock of a non-performing company is purchased, an investment thoroughly analyzed at inception can go bust, while enormous returns can be delivered if a company exceeds expectations.

3. SPECULATION
This is the buying of an asset or financial instrument with hope that the price will increase in future. It could also be the process of capitalizing on government-caused distortions in markets.

While an investor is mainly concerned with the fundamental value of his asset, a speculator is only concerned with market price movements. For example, a speculator doesn’t really care if a company is performing well or not, he only cares about whether or not he can make a profit from trading a financial asset.

There are two types of speculators:

A. Bullish speculator: Expects prices of securities to rise, therefore positions himself.
B. Bearish speculator: Expects prices of securities to fall, therefore sells quickly to make profit in order to repurchase at lower prices in future.

Speculators can help improve the welfare of an economy as they are willing to take on greater investment risk than the average investor especially in times of uncertainty. They also add liquidity to markets. However, through their activities, speculators can cause asset prices to be pushed beyond reasonable levels which can lead to economic bubbles and busts.

4. TRADING
A trader is a short term market player who sits in front of the computer trying to buy low and sell high all day, often scalping for fractions just to make a gain. There are certain perspectives trying to compare activities of traders and gamblers, showing how similar they are.

5. GAMBLING
The word gambling leaves a bad taste in people’s mouths as they often imagine greed and reckless spending.
To gamble means to play games of chance for money or to take risky action in hope of a desired result (money or material gain).

SIMILARITIES & DIFFERENCES BETWEEN TRADING & GAMBLING
Let's compare them...

I. AFTER A LOSS: Trader learns & moves on; Gambler blames others e.g. Football team.
II. AFTER A WIN: Trader learns & moves on; Gambler personalizes win & praises self.
III. POTENTIAL FOR IMPROVEMENT: Trader-YES; Gambler-NO.
IV. PASSION NECESSARY FOR SUCCESS: Trader-YES; Gambler-NO.
V. RESEARCH TIME INVESTED: Trader-MUCH; Gambler-LITTLE or NONE.
VI. PSYCHOLOGICAL EFFECT: Trader-DRAINING; Gambler-DRAINING.
VII. ATTITUDE: Trader-I MUST WIN; Gambler-IF I WIN, I WIN.
VIII. HIERARCHY OF NEEDS: Trader-MONETARY, EDUCATIONAL; Gambler-PSYCHOLOGICAL, MONETARY, EDUCATIONAL..

SOURCE (abridged): https://nairametrics.com/2020/03/17/between-saving-investing-speculating-trading-gambling/