What are investments and their goals? Learn about financial and real investments, the difference between gambling and investing, and more.
Investments and Investment Goals
There are various definitions of investments, stemming from the essence or goal of investing—to increase wealth. This involves allocating available funds into different investment instruments. Investments always involve time. Learn more about investments and their inherent risks compared to savings, which is practically risk-free.
When investing in stocks and other securities, it's crucial to distinguish between investment and speculation. Benjamin Graham, the founder of securities analysis, differentiates the two based on ensuring a reasonable return while preserving principle or invested funds through careful financial analysis – that is an investment. Everything else is a speculation. This seems to be applicable for all kinds of investments.
Every investment is evaluated based on return, risk, and liquidity, forming the so-called investment triangle.
Types of Investments
Investments can be broadly categorized into financial (intangible) and real (tangible). Examples include stocks, bonds, cryptocurrencies such as Bitcoin, real estate, commodities such as precious metals, and more.
Investment vs. Gambling
Is playing casino games considered an investment? In most cases, no. The distinction lies in the player's position compared to the casino. Casinos are profitable in the long term, having an advantage over players. Gambling, unlike investment, is about trying to overcome a predetermined disadvantage.
However, there are exceptions, such as games like Blackjack, where skilled players can gain an edge. In contrast, setting up and operating a casino is a real investment, with the potential for profit, albeit with business risks.
Gambling as an Investment
Exceptions exist, like Poker, where skilled players, in the long-run, can keep on achieving a positive return on investment (ROI) through strategic play against weaker opponents. Though challenging, such players can make a living from full-time Poker, utilizing online platforms and statistical tools.
Other skill-based games or bets include Backgammon and sports betting, where expertise plays a role in the outcome.
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- Commodities: A Comprehensive Guide;
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Based on the original Czech article: Investice vs. spekulace.