One of the most common errors that people make with their finances is that they think they’re investing, when in fact they’re speculating. Speculating is not investing. They’re two completely different things. They look and feel the same, but they’re quite different.
Speculating vs. investing is something I talk a lot about in my paid podcasts, but today I’ll give you the basic overview.
Investing is when you invest money to make the average rate of return of the typical, normal return for current market conditions. Historically, and for most of my life, this number has been around 7% or 8%. Today, in our slowly darkening, uncertain world, most good financial planners agree this number is around 5%. Therefore, investing means you plan on making about 5% on your investments and not much more than that. It means you’re investing in normal things, to make a normal return, without taking too much risk.