Isn’t Investing just Gambling in Another Suit?
There are three key reasons the two are very much from a different tailor, writes Victoria Harris, of the Curve.
23 January 2024
Honestly, I have lost count of the number of times I have been asked, isn’t investing just the same as gambling?
So, I thought I would address it once and for all: investing is not gambling. My least favourite description of the stock market is that it’s just a casino where the house always wins.
Let me explain the three key reasons why:
1. When you invest, you get to own something
When you throw $20 into a slot machine or choose black over red, you’re not buying anything of value. You’re simply buying the opportunity to potentially make money if that bet ends up working in your favour (and that’s a very big IF).
When you buy stocks, ETFs or bonds, you’re buying an asset (or a thing) of actual value that can be measured. If you put $20 into shares of a given stock, you own those shares, meaning you own a stake in the company you’re investing in. This isn’t to say that you’re guaranteed to make money on your investment. Your $20 in stock might end up being worth $15, but either way investing means actually getting to own assets. When you gamble, you don’t own a thing.
2. You can reduce your risks
Investing and gambling carry risk, but with investing you can mitigate your risk by diversifying and taking a long-term view.
Over the past 50 years the stock market has delivered an average annual return of 10 per cent as measured by the S&P 500 index’s performance (the top 500 companies in the US). But this doesn’t mean the stock market has returned 10 per cent every single year during that period.
In fact, during the global financial crisis (December 2007 to June 2009), the S&P 500 fell roughly 38 per cent. So, someone who invested money in November 2007 and sold their stocks two years later would’ve been feeling some pain. However, the market then went on to recover and deliver an average yearly 10 per cent return despite having lost 38 per cent of its value during that period.
In a casino, the longer you play, the higher your chances of walking away a loser because the house has the edge. The stock market is the opposite of a casino. The longer you play, the higher your odds of success. The ability to think and act for the long term is your edge as an individual investor. Patience is key to success.
Now, you can argue that it’s possible to make money by gambling, too, and it certainly is possible. But there’s really nothing you can do to mitigate your risk when you throw money into a slot machine. There are ways to mitigate your risk as an investor, and that’s an important point to keep in mind if you’re the type who insists on keeping all their money in savings because you think buying stocks means gambling your money away.
3. Investing is empowering and positive
Investing helps grow and fuel an economy by giving capital (money) to businesses, whereas gambling is addictive and has a negative impact on society and sucks money from people. Investing can empower you and help you grow your wealth, leading to financial freedom. Gambling increases debt and leads to financial strain and challenges.
Investing and gambling really are two different beasts. And the sooner you realise that the sooner you might get on board with the idea of buying stocks or other assets and growing your wealth over time.
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