Investing vs. Gambling: 3 Reasons They Are Different

Investing vs gambling, what’s the difference?

The inspiration for this article came from a conversation I was having with a personal trainer that I see at my apartment complex. His first response when I brought up investing was “Isn’t that gambling?” So, I thought I would write a short article explaining the difference

Unfortunately, he is not alone. Many people share the same views, and they are hesitant in putting their money in the market. They believe at the end of the day it all comes down to chance, and they have no control. There are key differences that make them different and why investing is definitely not gambling. So, let’s get to it.

Investing vs. Gambling

The first and biggest difference between gambling and investing is you can control your risk. As the saying goes in the gambling realm “The house always wins.”

One thing to remember with gambling is that, since casinos are in the money-making business someone has to lose, that is either you or the casinos and let’s just say it is not going to be the casinos.

Investing, on the other hand, is a very effective way of making the money you earn work for you, it has more long-term potential to make your money and income earner for you. And unlike gambling, you can control where your money goes and how you would like it to grow.

Don’t get me wrong, investing does involve a certain amount of risk. The difference between investing vs. gambling is that you can reduce or better balance your risk to get more return. This concept in the investing world is known as, diversifying your portfolio. I know, it’s a revolutionary concept, I hope I just blew your mind.

By building your portfolio around various different types of assets, such as stocks, and bonds. As well as holding stocks from multiple sectors of the market (i.e. tech, utilities, energy, and blue chips). You are reducing your risk of losing all your money off one bet.

This way if one of your investment sectors is going down, the other sectors will hold your investment steady.

Value Investing

My favorite way of managing my money is through the concept of Value Investing. Value investing, according to Investopedia, “is an investment strategy where stocks have selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued.”

A good way of doing this for an amateur investor is through Index funds. Index funds vary throughout Market Index funds such as the S&P 500, as mentioned earlier. An S&P 500 index fund invests in the top 500 companies that are selected within the S&P 500 index.

The idea behind Value investing is that by investing in stocks less than their intrinsic value and holding them, you have more opportunities to have your wealth grow in the long term. A big emphasis on the holding.

You have the Option to Choose Your Plan of Attack

When people say they want to get rich they always go to winning the lottery. I never understood why. Maybe it comes from those lucky someone who won millions of dollars at a casino or the lottery. Therefore, I feel as if people think this is a very plausible way of becoming rich

What people don’t understand, or maybe they do, is you have no control over whether you win or lose in gambling. Gamblers are hoping for a quick win, or to find ways to get rich quickly. Investors on the other hand build wealth in the long run.

Trust me I love the thought of getting money fast. But I also know that it is not a viable way of achieving your goals.

The best investors don’t look for the next big money-making stock, they focus on finding ways to not lost money. Depending on where you are in life, your investing goals should align with what you are saving for (i.e. child’s education, retirement)

Once you know how you are going to save, you can start strategizing on what to invest in. Meaning how much to add to your portfolio each month. Which will get you to where you have to be at that certain time of your choosing.

Unleash the Power of Compounding on your Cash (Gambling can’t do that)

Another reason to prove my argument on investing and gambling are different things. For example, since the S&P 500 was brought to life back in 1957. The S&P 500 has grown at an average rate, adjusted for inflation of 7% annually.

Which do the math, investing $5,000 back in 1957, which is 60 years of compounding, would give you: $289,732.13.

That’s assuming you never put any additional funds into it. But if you were to add $5000 every year for 60 years your number would be: $49,100,955.14

That my friends are what compounding is all about.

Takeaways

Even though there are a lot of people that have the perception that investing is gambling. As I have shown you that is not the case.

Gambling doesn’t give you any control over what you can do with your money. While investing allows you to take more control of your money. Which allows it to work for you.

Value investing and adding to it over time will allow your money to grow and thrive. Hopefully, this article has provided you with a better idea of the difference between Investing vs. Gambling.

If you liked this article on Investing vs. Gambling, check out our other investing articles.