Investment vs Speculation 

1.    Investment and speculation are two closely related terms as both of them involve purchase of assets like securities and shares. Traditionally, investment is differentiated from hypothesis with respect to three factors, namely
i) Risk
ii) Capital gain

          iii) Time period.

Risk

It refers to the probability of obtaining a loss in a financial transaction. It comes up from the possibility of fluctuation in returns from an investment. Risk is always linked to return. Higher risk is associated with higher returns.

No investment is completely free from risk. An investor generally invests his funds to low risk investment, whereas a speculator invests his funds to higher risk investments. A speculator, in order to achieve higher returns, is prepared to take higher risks

Capital Gain

The speculator's need is to attain profits through price changes, i.e. he is concerned with capital gains rather than the income from the investment. If purchase of securities is preceded by proper investigation and analysis to get a stable return and capital appreciation over a period of time, it is investment. Thus, speculation is associated with selling high  and buying low with the hope of making large capital gains. A speculator consequently employs in frequent selling and buying transactions.

Time Period 

Speculation is short-term whereas investment is long term in nature. An investor invests his funds for a longer period and waits for his return. But a speculator is concerned with short term trade gains through buying and selling of investment instruments.

Analysis of these distinctions helps us to distinguish the role of an investor and a speculator. An investor is concerned in a good rate of return gained on a rather consistent basis for a comparatively longer period of time. He measures the worth of a security before investing in it. A speculator looks for opportunities promising very large returns earned rather quickly and  interested in market action and price movements. Therefore, speculation is more risky than investment.

Fundamentally, both investment and speculation intend at good returns, but the difference is in methods and motives. As a result, the discrimination between investment and speculation is not very wide. Investment is sometimes considered as  a well grounded and carefully designed speculation

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