5 Speculative Investments and How to Profit from Them
How to profit from speculative investments depends upon the amount of money ventured, what strategies are employed and the level of risk that fits into your personal and financial comfort zone. According to sources at Investopedia, savers are those who hold more money in reserve than they spend and profit solely from the amount of interest paid on the reserve amount. Speculators dare to take a risk for profit while hoping that price fluctuation will work in their favor. Essentially, investors function as the middle man whose main goal is to recoup the original outlay and gain a profit via interest and dividend earnings.
Speculative investors are willing to risk their own money as capital in order to profit from an educated guess relative to capital gains, interest and dividends associated with a financial instrument such as stocks, collectibles, real estate, commodity futures and others.
One form of speculative investment involves sustainable consumption wherein the speculator’s investment goal is to decrease the number of items available which in turn drives up the price and lengthens its marketability. Pork bellies are a good example of sustainable consumption and commodity trade. Since this item is only of interest to hog farmers and meat processors, the speculative investor profits because either the buyer must meet the price agreed upon by the seller and the investor or the farmer has the option to limit the number of pork bellies available. On the other side of the coin, the investor can take a calculated risk by being willing to contract with the farmer for a fixed price he will pay when ready to market.
In the world of today, currency trading most often occurs on the international stage where money is needed to repay a debt or to initiate a foreign purchase. The basic risk involved here is that the monetary value of the foreign currency might experience decrease before the purchasing currency does.
Shares function as a speculative investment for which the speculator calculates that share value will exceed the price paid and that the ability to liquidate quickly will result in profit. In terms of real estate, property purchased for the income it currently generates is regarded as an investment. The speculation factor comes into play at the point when an investor believes that the property can be resold for a greater price in terms of its future use potential.
Ways to Profit
A visit to here gives the opportunity to learn that five ways to profit from speculative investments are:
- Classic Method
- Contrarian Route
- Safe Avenue
- Options Purchase
The best advice when pursuing the Classic Method most often termed as earn slowly is to rely upon what is known as the Rule of 72. To follow this rule, divide the amount of expected profit return into 72. The result will reveal the amount of time required to double the original investment if its growth compounds on itself.
Often referred to as “Blood in the Streets,” the Contrarian Route requires the speculative investor to buy-in at the point when other investors are cashing out. Cashing out action results in the occurrence of overselling. The investor profits because the selling price falls below the established value.
Profiting by pursuing the Safe Avenue predominantly stems from dealing in bonds, especially United States Savings Bonds. This investment involves maturity yield or face value versus interest earnings. For example, a $1,000 bond available for purchase at $500, if held until its maturity, will be worth its face value and yield an additional $500 profit stemming from the purchase price.
According to financial advisors at one of my favorite trading sites, options are the most popular tool for speculative investment. Understanding how binary options work is very easy to grasp since the purchaser is in control of the price to be paid and can specify the date upon which the investment will end. This investment category usually involves shares of stock. Profitability is gained based on the sale price per share times the number of shares held.
Leverage can be created through using various financial instruments. Regardless of whether leverage or some other method is used, the primary goal of speculative investing is financial compensation.