newcomers and unconventional investors by saturating the market with discount online investment companies and free- trading apps, such as Robinhood. Investing vs. Speculation Whether buying a security qualifies as investing or speculation depends on three factors: • The amount of risk taken on: Investing usually involves a lower amount of risk compared with speculation. • The holding period of the investment: Investing typically involves a longer holding period, measured quite frequently in years; speculation involves much shorter holding periods. • Source of returns: Price appreciation may be a relatively less important part of returns from investing, while dividends or distributions may be a major part. In speculation, price appreciation is generally the main source of returns. As price volatility is a common measure of risk, it stands to reason that a staid blue-chip is much less risky than a cryptocurrency. Thus, buying a dividend-paying blue chip with the expectation of holding it for several years would qualify as investing. On the other hand, a trader who buys a cryptocurrency to flip it for a quick profit in a couple of days is clearly speculating. Example of Return From Investing Assume you purchased 100 shares of XYZ stock for $310 and sold it exactly a year later for $460.20. What was your approximate total return, ignoring commissions? Keep in mind, XYZ does not issue stock dividends. The resulting capital gain would be (($460.20 - $310)/$310) x 100% = 48.5%. 48.5%. Now, imagine that XYZ had issued dividends during your holding period, and you received $5 in dividends per share. Your
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