For Mark Roberts’ Use: As an investor, one of your main goals is, of course, building a nest egg for your future. This will involve not only making difficult decisions at times, but also learning a bit about investing itself so that you can make those decisions wisely.
Benjamin Graham, considered to be the father of value investing, offered an interesting insight when he said:“The individual investor should act consistently as an investor and not as a speculator”. These are powerful words to keep in mind as you continue to develop your philosophy as an investor.
The goal of speculating is to achieve a large gain in a short amount of time. Speculation involves a large risk in nearly all circumstances because, as we always say, if something seems too good to be true, it probably is. That’s not to say that speculating can’t pay off; it can, but the trade-off for potential large, quick gains is usually a considerable risk of loss.
Speculators must specialize in researching a particular market, possess extensive knowledge on that market, and have enough experience to justify taking big risks. It’s also important to have considerable resources in other areas, so that one bad decision won’t cause a complete bankruptcy.
By contrast, investors commit to a long-term strategy based on sound investment principles. An investor also seeks to gain money, of course! But the focus is on the long view, not short-term, fast gains. Investors select assets that they believe will increase in value, but then incorporate those assets into a balanced portfolio with risk tolerance in mind.
A balanced portfolio won’t guarantee a profit, nor will it always protect against every risk. The point of diversification is to help you take advantage of market upswings, while controlling losses during serious downswings. An investor hopes to gradually build his net worth over time, and eyes and secure retirement on the horizon.
Generally speaking, most individuals should pursue investing over speculating. Yes, it can be tempting to shoot for fast, short-term gains, but for most of us the risk is simply too great. Call us to schedule a consultation if you’re concerned about your portfolio’s growth, and stay in touch so that together we can continue to balance your portfolio in response to changes in the markets.