Speculative Investments Explained: The Best Guide

In simple terms, investing pertains to the act of pooling together a portion of one’s financial resources in the hopes of multiplying their value in the future. When most people think about investments, examples from popular and well-trusted asset classes—such as stocks and real estate—are typically the first to come to mind. But a certain class of investment activities, called “speculative investment,” is starting to gain traction among millennial traders as well as veteran investors who’ve found more opportunities in the digital age.

How do speculative investments work, what accounts for their current appeal, and how will you be able to make good on a speculative investment of your own? Below is a briefer on everything you need to know about speculative investments, plus some additional considerations that you’ll want to make for investments like Monero (XMR) cryptocurrency in a Monero wallet.

How Do Speculative Investments Work and Why Have They Increased in Appeal? 

First, it’s worth knowing what differentiates a speculative investment from a traditional one. The speculative element of the investment may come from the nature of the asset, the duration of its holding period, or the amount of leverage concerned. All the same, the “speculation” or high level of uncertainty of financial gain from any of these three characteristics distinguishes a speculative investment from more conventional choices like stocks, bonds, and mutual funds. 

In many cases, there’s also a marked difference in the motives of traditional investors versus speculative investors. Most beginner-level or conservative investors prefer pooling their money in investments with low risks and slow but steady chances of turning out profits. Meanwhile, speculative investors deal with just the opposite. They acknowledge not only the high risk of financial loss from their investment but also the relatively short period in which their fortunes can be reversed. 

Knowing the risks that come with speculative investments, what makes speculative forays like cryptocurrency so interesting to a trader? The answer lies with the trader’s focus: rather than the fundamental value of the security in question, a speculative trader has their eyes on price movements. Low-risk investments indeed come with a surer chance of financial gain, though the turnout is usually moderate, at best.

On the flip side, the high risk associated with speculative investment also means high rewards. Speculative traders gain a lot when market trends go their way, and they can sometimes make the best opportunities happen even when the market is volatile.

Speculative investment isn’t the right approach for everyone to take. However, it has found a following among exceptionally gutsy, patient, and resourceful traders. If this fits your investment profile better than that of a traditional trader’s, and if you’re prepared to take on the risks, then you may be in for a rewarding experience as a speculative trader.

Some Important Considerations for Speculative Investments of Your Own

If speculative investing is in your future, what additional considerations should you make for your investments to be fruitful? Here are four questions about your speculative trading journey that you should ask yourself:

Why Are You Pursuing a Speculative Investment over Traditional Investments?

Speculative investments are neither for beginning investors nor the faint of heart. Getting into this kind of investment activity requires extra conviction and thoroughness on your part. Will it serve you better than an investment in the conventional asset classes, or will a traditional investment be able to serve your needs? Only if your answer leans toward the former should you pursue investments of a speculative nature.

How Much Money Can You Afford to Lose? 

You’ve heard the adage that you should never commit money that you aren’t willing to lose. That definitely applies to speculative investments, where there’s a chance that you’ll incur great financial losses. Before you make your first speculative investment into an asset like crypto, be prepared to quantify the amount of money you’re willing to risk. Only push through with the investment if you’ve settled on an amount that you’re comfortable with.

How Will You Develop Your Skills at Reading the Market?

Traditional investors often make the most money when the market price rises, but a particularly shrewd speculative trader may be able to benefit even when prices have fallen. If they can correctly predict that the market will take a downturn and thus sell just ahead of that period, they stand to gain a lot of money.

If you get into speculative trading, you’ll need to decide how to build your skills as a trader and acquire the right arsenal of tools to predict price fluctuations in the market. Do your research and prepare yourself before making any big investment decisions.

What Risk Management Strategies Are You Taking for Your Speculative Investment? 

Many speculative investors do not engage in hedging, or investing in related securities to offset the risk of the speculative asset. But as a fledgling speculative trader, you may not want to start by putting all your eggs in one basket. What are the most viable investments to diversify your portfolio with, and how will these tide you through both bullish and bearish markets for your speculative asset? Having the answers to these questions will surely prepare you for the ups and downs of the speculative market. 

 

In the end, speculative investments are all about what you’re willing to risk in order to get a great reward. These kinds of investments are best for traders who don’t flinch at the prospect of uncertainty and who have a greater fear of the “what ifs” that may span their financial careers. 

In short, get to know the risks of speculative investment and equip yourself for the best chances of success. That’s the ticket to enjoying a trading experience that you won’t get out of conventional asset types.

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