While you weigh your financial risks with both gambling and investing and essentially put money in a pot, there are critical differences between the two. Investing and gambling are not at all one in the same.
Gambling refers to putting money down and either losing it or winning even more. Investing, on the other hand, refers to purchasing assets that make up a diversified portfolio that’ll ideally appreciate or pay out in dividends over time.
Here are three major ways that gambling and investing differ from one another—and why you should choose to start investing sooner rather than later.
What’s the difference between gambling and investing?
1. Gambling is riskier than investing because the odds are against you.
While you may employ gambling strategies to better your chances, the odds are ultimately against you. Gambling typically comes with the expectation that you’ll lose your capital but, if you win, you hopefully win big. But gamblers are lucky if they even win back what they bet, let alone see a profit. Consider this: Casinos are in business to make money for themselves, not for the gamblers who visit.
Companies, unlike casinos, have a financial interest in making sure that their shareholders are rewarded. This means that, with investing, the odds may actually be in your favor. While you may not see immediate gains like you could with gambling, the chances of you seeing gains at all (or at least breaking even) are much better.
2. Unlike investing, the more you gamble, the more you risk.
Because the odds are against you, the more you gamble, the bigger the risk. If you bet $10,000 on a horse race and your horse likely loses, you lose that $10,000. That’s it. You have no control over what happens after that; rather, you just have to cut your losses.
Unlike gambling, however, the more you invest over a longer-term period, the more likely you are to maximize those returns. In fact, research suggests that investing generally sees annual returns of about eight to 10 percent. Diversification (spreading your capital across asset classes and sectors) can help you minimize potential losses and maximize potential gains should one class or sector take a dip. You even have a choice to sell a stock before things get worse or leave it to see if it rides out the volatility storm. Sure, you may take financial hits when investing but, unlike gambling, you have some choice in the matter.
Plus, in the stock market, investors earn compounded interest just from investing over a longer time period. While the dollar amount may seem small, accumulating a bunch of stocks and reinvesting your dividends can generate larger returns over time.
3. Gamblers take risks based on luck, while investors take risks based on logic.
Gambling is largely rooted in chance and uncertainty. Sure, gamblers can research the teams or horses or candidates on which they bet, but it’s not quite the same.
Meanwhile, investors can make more calculated choices because the law requires that all relevant financial information be available to them. Companies must issue financial reports every quarter, so you can consider companies’ market performances, funds, mission, leadership, any underlying financial data, etc. In other words: Making an investment can be an educated decision grounded in logic, not luck. And you can employ various types of investment strategies, such as value investing or growth investing, based on the information you have and legitimate personal factors like your risk tolerance, goals and timeline.
The Bottom Line
Investing may take longer to provide returns, but it’s certainly safer and smarter than gambling. If you’re interested in getting started investing but not sure where to begin, forward-thinking robo-advisors like Q.ai Invest do all the legwork and number-crunching for you—from diversifying a portfolio tailored to your investment style to auto-adapting it to market swings.
Sign up for our waitlist to give Q.ai Invest a try here. The sooner you start investing, the more you can save for your financial future.