25 Apr Speculation vs Investment – Luke Harris
There’s a lot of speculation around property investing, in particular when we start to chase things like hot spots. According to property mentor Luke Harris there is a big difference between speculating short term and investing for the long term.
Kevin: In a previous conversation I had with my next guest, Luke Harris from The Property Mentors, he made the point about having a plan when you invest, when you want to look at creating wealth and setting yourself up for the lifestyle that you like. It led me to think about the difference between speculating and investing. He joins me once again.
Good day, Luke. How are you doing?
Luke: Good day, Kevin. How are you?
Kevin: There’s a lot of speculation around property investing, in particular when we start to chase things like hot spots, and there is a big difference between speculating short term and investing for the long term, Luke.
Luke: That’s right. Look, we’ve the same people speculating for the long term as well. What they’ll do is they’ll make financial decisions based on what’s happening in their life right now. And what we did here at The Property Mentors is really work out “How does the average investor fail so often? Why do most mum and dad investors and most investors who are trying to get ahead, why do they not end up with those 1% or 5% results that they’re after that the high-fliers do in the industry?”
And what we realized was that there a lot of people that are actually going through their life making financial decisions; and they are trying and they do mean well and they’re going out there trying to invest in things, but a lot of the time they’re not making those decisions based on a long-term plan.
And if you haven’t mapped out a plan on what you’re trying to achieve and specifically what investments or specifically what investment returns you need to actually achieve that result, then a lot of the time, you’re probably just speculating. You think you’re investing, but you’re not actually basing that around any long-term plan; you’re actually just trying to get the best result that you can get right now.
And a lot of people are going out there and buying investment properties without having a specific purpose for that property.
Kevin: But there’s sometimes nothing wrong with speculation, is there? Sometimes you have to have an element of that, the quick return?
Luke: A quick return can be risky for some people. The biggest problem that I have with speculating instead of investing is that investing can give you results that you can actually know in advance. So, with investing, you know with a property, you can get all of your tax benefits and you know your loan amount, you know the growth rates of the suburb. You can do some planning around that.
A lot of people are speculating, and they’re going out there in the marketplace and they might see something advertised that you can get a 30% return on something, but they don’t actually understand the investment. And the difference with speculating is that you may not understand the investment but you’ll throw your money into it, anyway.
And that might take a year or two years, and you may or may not get the result one time. But the problem with that is that that’s not making you a professional investor; that’s making you a professional speculator. And you may not be able to replicate that result again into the future to be able to build long-term wealth.
So, you might make some money one time, maybe a second or third time if you’re lucky; but it’s not something that you can do sustainably to build wealth for the long term.
Kevin: So, just in summary, Luke, what is the difference between speculating and investing, and what advice would you give someone?
Luke: The difference between speculating and investing is that if you’re investing, you’re investing for the long term as part of a plan. If you’re speculating, you’re looking for a one-off type of arrangement.
So, my advice today, what I teach people, is if you’re looking to build long-term sustainable wealth, put together a plan and invest according to that plan.
Speculating is not something that you can often repeat; it’s not something that you can actually go out there and replicate over and over again. So, if you are doing one or the other, there’s no right or wrong; it’s just knowing which one you are doing.
And if you’re investing you should be investing for the long term with part of a plan. So, the advice that I give people is start with a plan and invest accordingly.
Kevin: Okay. Check it out for yourself. Go to ThePropertyMentors.com.au. Luke Harris has been my guest. Thanks for your time, Luke.
Luke: Thanks, Kevin.