Is investing and gambling the same? I heard most of the people saying they won’t invest in shares or mutual funds are they don’t like to gamble. However, investing and gambling are two different things. Gamblers go all in and may win for the risk taken or lose and go empty-handed. Gambling is a result of emotions. Investing, on the other hand, is a well-researched process. Here are the few fundamental differences between the two.
Investing is based on research, while gambling depends on luck.
Investing is an activity which requires much research. Gambling solely hinges on emotions. One needs to do enough research and understand their risk tolerance, goals, and financial situation to invest in the right assets. Gambling, on the other hand, doesn’t require much research. It’s just one news that breaks through in the market, and it’s the emotions that control the market. However, people often invest based on tips or rumors and research to gamble sometimes. To buy a futures contract, one might do more research than buying stock itself. So there is a thin line between the two. Hence, people often mistake investing with gambling.
Investing gives ownership of an asset gambling doesn’t
Investing in mutual funds or shares or any asset for that matter does provide us with ownership of the asset. In gambling, when you put your money, all you receive is more money or no money. There is no ownership of an asset that comes at the end of a gambling transaction. However, in investing, one can claim ownership of an asset.
Investing is long term, and gambling is short term
Investing is usually done in the long run. For a period, more than a year in case of equity. The only exception to this case is investing in debt funds, short term bonds, and money market instruments. Gambling or trading is done during trading hours, and sometimes it can extend to a couple of weeks or months but nothing more.
Investing involves less risk than gambling
Gambling usually is based on a principle of going all in. By taking a risk, the person is either rewarded or goes empty-handed. There are hardly any chances of getting back the money lost in gambling or trading. In investing, one can always switch investments from one fund to another or one asset to another and recover the lost money with it. In gambling, if you lose, you lose it all. One can recover the money lost in trading or gambling through more trading or gambling, but only when additional money is introduced to continue the same. While investing, one can withdraw their investments (even it is a loss) and invest it elsewhere. No one loses the entire money invested. They face losses.
Investing is well planned to reach a goal, gambling isn’t
Investing is done with a goal in mind. To save up for retirement, or child’s college fund or a vacation. Betting is done to earn more money, and most of the times purely for the pleasure of it. One can also plan their future goals based on gambling, but the risk is too high, and it will work only if the luck is in favor of them.
Investing isn’t addictive, gambling is
Gambling is considered a severe mental condition. Some organizations identify compulsive gambling as a problem and also deal with it. While there are no such problems identified for investing. Instead, investing is considered as a sound financial practice for a healthy economic life.
There is a thin line of difference between the two
Gambling is riskier than investing, and gamblers are high-risk takers, while investors risk tolerance levels are slightly lower. Betting can be done on the stock market too, but it’s perilous. Investing is not gambling. Though there are few similarities, there is a thin line that differentiates the two. Gambling is a risk taken under certainty, and investing involves risk under uncertain conditions. Gambling solely hinges on luck and investing hinges on patience, practice, and knowledge. The famous quote said by Bret Harte is true.
“The only sure thing about luck is that it will change.”