Many people say investing in the stock market or crypto is just like gambling at a casino. That’s because both activities involve risk, choice, and reward. But while one can count on investing to last a lifetime, gambling is more of a short-lived activity.
As you can see, there are key similarities as well as differences between the two activities. The problem is, the extent of which people lack the understanding of the lines separating the two is concerning. A study undertaken by the British Columbians Securities Commission’s (BCSC) shows that most people think that no matter how much experience they have, every investment is a gamble.
If you often confuse what the two entail, you may fail to reap the full benefits of either investing or gambling. So, to help explain the logic behind each activity, let’s first go back to the basics and define them in a more comprehensive way.
What is Investing?
Investing involves buying stocks, bonds, exchange-traded funds (EFTs), cryptocurrencies, or mutual funds, in order to sell them later and earn interest. Though there is risk involved in every investment, if you are disciplined enough, long-term strategies will see you grow your portfolio over time. Investors use the principle of diversification to spread funds across different assets, which helps minimize potential losses.
Fees are also a key aspect of investing, and as such, you must always factor them when calculating your expected returns. They could come in the form of paying a financial advisor or broker for buying and selling assets on your behalf. Even if you invest for yourself, there are still trading fees charged by different platforms that you need to take into account.
What is Gambling?
Gambling is where players risk money on an event that has an uncertain outcome and relies heavily on luck. Like investors, gamblers also have to weigh the risks involved and to be successful, they also need to be strategic. If, for example, they’re betting on sports, they’ll need to research athletes or a team’s stats.
When it comes to casinos, regardless of whether you’re playing at a land-based establishment or engaging in online gambling, you’ll be going against the house. Generally, the odds are stacked against players so that the house can make profits. So, even though you might win a good amount in the short-run, the probability of losing an even larger amount increases as you continue to push your luck.
Key Differences between Investing and Gambling
Investing allows you to choose what will happen to your funds while gambling relies on luck. What other differences are there between the two?
- The Risk Involved
A risk refers to the degree you are willing to lose the funds you have placed at stake. The key to making a successful gamble or investment is to minimize risk while maximizing profits. When it comes to gambling, the house will always have an edge over you, which continues to increase as you play.
In contrast, assets like the stock market increase their value over time which in turn reduces the risk involved. But that doesn’t rule out the possibility of a gambler winning a jackpot or investors having a bad day and turning over losses. All it means is that, in the long-run, the odds will favor you if you continue investing and will be against you as a gambler.
- Research Material and Information
Regardless of being a gambler or an investor, you’ll need to do some research to improve your chances of making informed decisions. Getting all the information about both activities is crucial, but the difference comes in the availability. As an investor, you can expect a company to have tons of information easily accessible by the public.
Public companies will disclose their earnings, financial ratios, and management teams for you to research before committing any funds. On the other hand, gambling entails working with strategies and information that can’t guarantee you 100% success. You might know of the best poker hands to play or the safest bets to place, but it all depends on luck at the end of the day.
- The Time Factor
The aspect of time also differs significantly between investing and gambling. While gaming is time-bound and you’ll get the best returns if you do it for a short while, investments can last for years. With wagering, once an event is over, the potential to earn is gone, and you either win or lose.
Investing in crypto, stocks, or any other asset, in contrast, is usually time-rewarding. One of the major investing opportunities is purchasing company shares that pay in dividends. These dividends often pay up to four times a year, or quarterly, making investing the better option for long-term purposes.
Knowing How Gambling and Investing Differ is Crucial
There are many similarities between gambling and investing, including potential profits, exposure to losses, and having a degree of risk. Even so, the two activities aren’t the same and have some important differences.
You might win big at a casino, but unless you have self-control and stop gambling, you’ll probably end up losing more as the odds are almost always against you. If you invest, on the other hand, you’ll get an ownership stake in an asset, such as a stock or a bond.