How do you make your money work for you? Do you take it to the casino and bet on black? Do you have fun at the race track? Do you save into your 401(k) and put the money into an index fund? Or do you buy individual companies each week on Robinhood?

Each activity may win or lose you money in the future. Does that make it investing, speculating, or trading? Each word means something different and it’s important for you to understand how you are using your money.

Let’s give a quick breakdown:

• Trading: Exchanging assets of value in the hopes someone will pay more than you did.
• Speculating: A wager that you will receive some payoff in the future
• Investing: Using knowledge and research to make an educated allocation of resources. 

I see a lot of speculating under the guise of investing - and that’s dangerous. The risk of speculation not only includes the potential to lose money but also confusing luck with skill. That can lead to risking too much of your hard-earned money in irresponsible ways.

Make sure that you understand how you are putting your money to work.

Resources

• You Can’t Invest Without Trading. You Can Trade Without Investing