The core principle of investing is the allocation of funds into a certain asset with the expectation that its value will grow over time. While this definition can apply to many things, investors focus more on financial assets that change in value over time. There are many different types of investment assets often differing in risk and yield.
Most may be more familiar with low-risk investments such as savings accounts which grow based on its interest rates. However, more experienced investors with a high risk appetite tend to be more interested in more volatile investments that fluctuate in value due to events that affect the industry. Predicting these events to catch the highs is what makes them speculative investments.
To understand further what speculative investments are, here are a few examples that illustrate how they work.
Although it is a relatively new market for investors, its volatility is exactly what makes it a perfect example of a speculative investment. Many younger, tech-savvy investors are particularly attracted to this type of investment, prompting them to set up digital wallets, like an XMR wallet that can hold Monero, to safely store their coins. Various external events, related industries, and other markets can easily affect the value of cryptocurrency and make it a high-risk, high-reward kind of investment that many find exciting.
Cryptocurrencies can be viewed as investments in ideas. Therefore, speculation is often based on scenarios that are relevant to these ideas. For example, if global consumers raise concerns over privacy in their tech, cryptocurrencies built on financial privacy will likely skyrocket in value.
The stock market is considered a hotbed for speculative investments by many investors. While it is relatively stable compared to crypto, it still fluctuates in value with great opportunities for speculation. These can be easier to foresee as stocks are mostly associated with companies, products, and services. Consequently, their value is affected by identifiable figures and industry trends.
Investors will often keep tabs on the CEO of a company in which they own stocks. On the other hand, they may also sell at a peak if they foresee that the company’s product is set to fail. A good example is in technology, in which global chip shortages or mineral scarcities may affect the stock of a smartphone company.
Land, Real Estate, and Property
Technically, real estate is not as speculative as it used to be since its value nowadays depends on luxuries and conveniences within its vicinity. However, there is still room for speculation even when evaluating the worth of an empty stretch of land. A savvy investor will try to find out if a piece of real estate has any constructions and improvements–such as malls and other commercial commodities–planned in the near future. Such a scenario makes the property a good investment to speculate on.
Likewise, nonresidential properties that are rich in resources are also ripe for speculation. Of course, it is important to verify that the land is indeed empty for ethical and tax-related reasons. But if these are covered, an investor may speculate its value to rise due to resources that are already valuable such as oil, minerals, and other similar resources.
Commodities and Natural Resources
On that note, investors can also put their money on the resource itself. There are many ways to go about this. For instance, most investors are familiar with gold, which already costs a lot with little reason for its value to fluctuate. They may decide to own and store physical gold, or they may invest in its value through digital platforms.
The focus however is on the global demand for these resources and how that may change. Other investments in this space, for example, include oil, silver, and gas. In the case of gas, investors watch out for price hikes while also taking note of innovations in electric vehicles. A growing commodity in the investment space is actually water which comes as a result of environmental issues around the world.
Investing in art can be a bit more complicated than the more typical market-based investments listed above. Rather than being affected as an industry whole, art as an investment is made per piece, so to speak. The simplest scenario is when an art investor sees a painting that they feel will cost a lot more at an auction.
In other cases, modern art may be produced by an artist whom investors believe will become popular, increasing the value of their old work. It may also be that the art piece projects a message that investors believe will become valuable because of socially relevant occurrences in the future.
All that said, it is important to understand that speculative investments are not stable, nor do they guarantee high returns. The risk that comes with these applies just as well to their potential to drop in value. The speculative portion really depends on how well an investor researches the circumstances and factors surrounding their chosen asset, no matter what it is.
Hopefully, this has all proven insightful for those looking at these options to diversify their portfolio. Once again, it is crucial to plan and research as carefully as possible, especially if you’re considering adding speculative investments as part of your portfolio.