It’s commonplace today to hear people say investing is just gambling on the stock market. If I’m being honest here, it irks me every time I hear these two words interchanged because of just how different they are. Gambling is all about the short-term and trying to beat the odds. Investing is about playing the long game and building wealth over time with the odds on your side.
Gambling vs. Investing
Gambling is the exchange of money from one person to another with the winner taking advantage of the loser. In gambling, there is a winner and a loser every time, and the odds are always in the house’s favor. This means you are taking on a massive amount of risk simply by playing the game. When you gamble, you are hoping to be a part of the tiny percentage of people who actually beat the odds. In a game that is mostly based on luck, just ‘hoping’ isn’t enough.
In fact, research done by The Wall Street Journal found that just 13.5% of gamblers ended up ahead in the long term. That is a relatively low chance of success in my book. If you want to gamble, that is totally fine. Just make sure you understand that gambling’s greatest benefit is the entertainment it brings. It is not a true way to build wealth.
Now, investing is a different story. Investing is when you allocate some sort of resource, usually money, with the expectation of generating income or profit in the future. You can invest in businesses, real estate, assets, etc. all with the hope to sell later for a profit. Back to the false notion that investing is ‘gambling in the stock market’, the odds of investing in the stock market are actually opposite of gambling. The longer you invest, the more likely you are to see a profit when investing in the entire market itself. However, it is important to note that there is still risk when it comes to investing, but you can have some control over the amount of risk you are willing to take on through your risk tolerance.
Note: Do not get investing and day trading confused. Investing is focused on the long-term and typically involves little trading. It is all about holding on to a diversified portfolio based on your risk tolerance. Day trading is short-term focused and involves constant buying and selling securities as small changes in the market price occur.
Odds in Gambling vs. Investing (using blackjack since it has the best odds at a casino)
To break it down even more, let’s compare the odds of making money in gambling vs. in investing by looking at Blackjack, the game that has the highest odds of winning in a casino. If you play by the rules, hit when you are supposed to, double when you are supposed to, stay when you are supposed to, ect., you will win 47% of the time. That is less than half the time!
The Odds of Making/Losing Money in The Market
As you can see, when investing in the stock market as a whole, your probability of success continues to go up the longer you are invested. In a 1 year period, you have a 68% chance of making money (this is already way higher than gambling), but in a 25 year time frame, you have a 100% chance of making money based on the history of the stock market. I know history does not guarantee anything, but I still like those odds much better than gambling.
When you look at the odds, it is so clear why you should play the long game when it comes to your finances. The best way to do this is by creating an investment plan that fits your risk tolerance and goals, and then just stick with it for a very long time. Then, it’s a waiting game that will almost certainly pay off.
Key Takeaways
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Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.
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