Step right up and take a chance. If you have money, you’re taking chances. Bury it or burn it. Spend it on assets or experiences. Money involves risk, even when we treat it as a boring piece of paper. The trick in personal financing, however, is to manage that money without it spending too much of your time, your emotions, or your energy. What we do with our money can be frugal or frivolous, necessity or luxury. Within that slice of money that we label as savings, it is easy to label all stocks and bonds as money spent on investments. Even there though, we can be investing, speculating, or gambling. Unfortunately, it’s hard to know which you are doing until years after you’ve done it.

First, if you are paying all of your bills and have enough money left over to buy stocks and bonds, congratulate yourself. “62% of Americans have less than $1,000 in savings.” You’re already in the 38%. I can almost pay all of my bills, and shortly will probably cross that threshold, but I have managed to maintain at least a small portfolio because I understand the power of using money to make money. Strange as it sounds, that means more than 62% of Americans are in worse financial shape. Such a majority in a representative democracy is an interesting thing to witness.

If folks ask me about my investments, I know that most are talking about stocks and bonds; so, I don’t get particular about the nomenclature. Even within the stock discussion boards on Motley Fool, Silicon Investor, and Investor Village, I only make the distinction during my semi-annual portfolio review. There are those, however, who rightly make that distinction in private emails, comments, and replies.

The distinction is made because the more people know about a topic, the more words they have to describe the nuances within the continuum. I buy stocks in small companies, with the intent to sell the stock when a large portion of the financial community thinks the company or the stock is worth a lot more than what I bought it for. Buy Small. Sell Large. It’s a slight variant on Buy Low. Sell High. The former is about the company. The latter is about the stock. Stocks aren’t companies; they’re merely the continually changing prices tags.

We’re told to invest. We’re told not to gamble. They’re treated as if they are different things, but to me, they are regions in a continuum and are reflections of perceived risk. A ‘solid investment’ is something that is probably boring, but if you give it thirty years can beat inflation and maybe help you retire early, or at least comfortably. ‘Gambling’ is usually exciting, or should be because it is probably more entertaining than profitable. The distinction, however, is really only risk. An investment supposedly has less risk than a gamble, but also a smaller near term return. Gambling at the extreme is pure chance, unless you believe in higher powers that will win the lottery for you. Speculation sits between, with risks that are higher than are expected with investments, but rewards that are smaller than pure gambles.

In money management, risk is mostly a function of information. The more you know about the probable outcome, the lower the risk; and because others probably know about it too, the lower the reward because the expectation is already accounted for.

Buy a bond and you are provided with a guarantee of a small reward. Sometimes they fail, but not often.

Buy a share of stock in a mature and large corporation, and eventually its value will probably rise as long as nothing dramatically changes. There is less certainty, but a greater reward. Both of those are considered investments.

Buy a share of stock in a company with great potential and promise, but without a history of making money and the risk is that they’ll never make money. They haven’t made much in the past. Maybe they won’t in the future. But, and it’s a big but (have fun with the puns on your own) if they succeed, the rewards can be headline news and a reason for celebrations. So much guess work in involved that buying such stocks is considered speculating, even if the word ‘investing’ is used in conversation. The risks are higher, but the rewards are much higher.

Buy a lottery ticket (come on PowerBall!) and there’s no information about the potential outcome except an estimate of the jackpot. The only way to increase your odds of success is to buy more tickets, and doing so doesn’t change your chances significantly. Buy one ticket and the probability of winning goes from zero to at least greater than zero (and someone will eventually win, right?). Buy two tickets and you’ve only improved the probability of winning by a few millionths of a percent. Welcome to gambling.

I invest; but as I wrote in my book, Dream. Invest. Live.,

“My style could also be called speculating. It is riskier than conservative investing, but the strategy works when my portfolio contains enough successes to more than pay for the losses. Diversification, owning more than one stock, helps make the risk manageable.”

Notice, I used ‘Invest’ instead of ‘Speculate’ in the title of the book because most people don’t make the distinction. The more important message from the title is that to get from dreaming to living frequently involves investing. For a while, that worked for me (until my Triple Whammy), and I suspect it will work for me again.

Scroll back through my blog posts about stocks and find several posts that are about conference calls, earnings reports, and stockholders meetings. Those three sources are three of the primary sources of information for stockholders. Reliable substantive information reduces risk. Information is one of the key distinctions between an investment and a speculation. Speculating happens because stockholders have to fill in information gaps with suppositions, estimates, and guesses.

As a company progresses from a gamble to a speculation to an investment, its risk diminishes and its stock usually rises. When that information becomes suspect or decreases in credibility, the risk increases and the stock usually falls. I suspect (which is a speculation) that partly explains why MVIS dropped instead of rose after the recent earnings report and conference call. My perception, and apparently that of others, was that despite an agreement of the company’s great potential, the report and call were more obfuscation than information, that rather than knowing more we know less than we thought, and that what we do know diminishes the near term potential. A company that has the potential to attain a value of multiple billions of dollars is considered to be worth less than some houses in America. Those houses don’t have the potential of MicroVision, but the buying the house can seem like a low risk because it will probably still be a house and land in a year or a decade.

If you bury your money, there’s the risk it loses value from inflation or because a gopher ate it. If you burn your money, you’re certain it doesn’t have any value; except for the story you get from the stunt. Between those two extremes are many possibilities and probabilities. Unfortunately, within the endpoints of that great continuum, you won’t know for days or decades whether the way you spent the money was an investment, a speculation, or a gamble. Risks and probabilities are statistical abstractions that hope to suggest order. Any single event, like buying a stock, a bond, or even a house, is one bit of randomness that doesn’t have to fit into the rest of the order. It would be comforting to provide labels that made sense ahead of time, but reality isn’t interested in providing us that comfort.

Are you investing, speculating, or gambling? No one really knows; but I’m reasonably sure that ticket for a $240,000 jackpot is a gamble – unless I win it, then it’s may be some of the best money I ever invested.