Confusing, speculating, and investing are common mistakes. Understanding the difference between the two can help you protect your wealth and plan for the long term.

• What is an investor?

• What is a speculator?

• Can you speculate and still be an investor?

What is an investor?

An investor has done the work. They usually have solid reasoning and detailed research for why they put their hard-earned dollars behind a specific idea, business, or fund. Investors typically stand their ground when prices move lower. They are usually invested long-term because they understand the business model and potential. They have goals, a strategy, and a long-term plan.

What is a speculator?

A non-professional speculator buys based on greed, expecting to make a quick profit, with very little knowledge of the topic. A speculator observes prices moving higher, and they want in. It's common for speculators to think short-term. When the prices decline, many speculators become agitated, confused, and possibly stressed out because they do not fully understand the investment in the first place. Doubt develops quickly. Emotions run high. Typically, this leads to unnecessary and often unaffordable losses. Speculators may even borrow money to buy.

Can you speculate and still be an investor?

Not all speculating is a bad thing. Do what you want with your money. If you have a portion set aside that you can afford to lose, by all means, take a risk. Just understand you are speculating, not investing. Don't let that gamble affect your day-to-day or impede your long-term financial goals. 

"There are many ways in which speculation may be unintelligent. Of these, the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of a past time when you lack the proper knowledge and skill for it; and (3) risking more money in speculation than you can afford to lose." Benjamin Graham, The Intelligent Investor

Speculating can be fun and exciting, as can a day at the track. But don't fool yourself into believing there is a get-rich-quick scheme or that you are more intelligent than everyone else. Taking a chance and getting it right doesn't change your life. A plan and long-term strategy can.