Investing Basics

Investing the Difference between Speculative Risk and Pure Risk



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The difference between pure risk and speculative risk is that one promises financial loss and the other guarantees loss or gain. A speculative risk is the type of risk an investor usually takes with investments like real estate, businesses, stocks, mutual finds, and exchange traded funds. These types of investments are often subject to high volatility which can produce financial uncertainty. An investment like stocks are a great example of how volatility can increases the chances of financial loss or gain.

Pure risk is totally different. A pure risk is subject to loss because of an unexplained event. For example, if someone buys a house on the beach where there are high waves and strong winds, they put themselves out risk for water damage and the possibility of losing their house altogether. Pure risk is out of a person's control. The person who buys the house does not have control over the weather or what might happen in the sky. They are potentially buying into a risky investment.

A speculative risk would be gambling $3,000 dollars at the casino. A person has the chance of losing or winning. He could lose all of his money or gain twice as much as he came in with. It is a more controlled risk. The person could take more control by gambling half of his money. He could increase his skills before arriving at the casino. There are a number of things he could do to increase of his chances of success.

When it comes to investing, it wise for an investor to expect to win or lose. If one goes in with the expectation of gaining or losing money, it will not be so much of a surprise if things do not turn out well. Once thing about investing is that a person must not invest with the heart. It should not be an emotional decision, only a rational one. When emotions get involved, this often gets in the way of a person's strategy.

Speculative risk and pure risk are for ever ingrained in the world of investing. It is a flip of the coin. It is a matter of chance. However, with speculative risk it is more of a calculated risk than anything.

If you are thinking about becoming an investor, take the right steps to become the best you can be at it. Do not enter into any investment that you are not comfortable with and stick to what you know. It is better to remain in the familiar realm of things and do well, than to venture off into unknown territory.

More about this author: Angela Diggs

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