With so much news around the ups and downs of Bitcoin, it has raised the issue of investments, gambling and speculating.
One pundit on a radio programme I was listening to said that all investment was essentially gambling, and Bitcoin was no exception.
While there is certainly risk associated with investing and gambling, I take strong exception to the inference that they are the same and that it is just as risky to invest in stocks and shares as it is in something like Bitcoin.
Of course, whilst none of us knows exactly what will happen to our investments there is a rich history of data and experience that very strongly suggests investors in traditional asset classes, like equities and bonds, should be rewarded over the long-term.
Who honestly has any clue what the odds of success are with Bitcoin?It is also possible to select investment strategies by blending these asset classes that meet all risk profiles.
Gambling and speculation are, however, quite distinct from investing.
Unless you are 'the house', gambling usually leads to losses in the long-term as the odds are against you.
But at least here the odds are knowable.
Speculation, on the other hand, takes uncertainty to a whole new level.
One of its defining traits is that there is no history or past experience available as a guide.
Who honestly has any clue what the odds of success are with Bitcoin?
The 'get rich quick’ brigade will always favour speculating on new ideas but in the early days it is often those who can afford to take a leap into the unknown, knowing they aren't betting the family silver and that they will be fine should they lose out.
The sad reality for many ordinary investors is that, by the time they wonder into the realm of speculating in something like Bitcoin, after it is already soaring and the media is highlighting the big gains made by the early adopters, it is often the worst time to pile in to grab a piece of the action.
Savvy speculators know that getting in early before something is popular and in the press and selling to late adopters when it hits peak media exposure and before the wheels come off is the way to make a killing in the speculation game.
This is where financial advisers and planners have such a crucial role to play.
They know the difference between investing, gambling and speculation.
Those who seek advice from qualified experts are far more likely to be steered away from unprofitable bets and fads and towards proper long-term investment strategies that align to their individual risk appetites and, more importantly, their capacity for loss.
Crazes like Bitcoin will come and go with the vast majority imploding spectacularly.
A lucky few - usually very early adopters who manage to cash out - will make stellar gains, but the wise will not pile in at a late stage.
Instead they will ensure they have not over-stretched themselves and instead have a well-diversified investment strategy that will help them keep the wolf from the door over the long-term.
Nic Spicer is portfolio manager and UK head of research at PortfolioMetrix
