Most people who are new to the concept invariably make a claim – investing in stocks is gambling. But, is investing gambling really? So, if you are someone involved in investing in stocks, are you really investing or gambling? We will explain why investing is not gambling- if you handle it properly, that is to say! Investing can be a true means of securing your finances for the future.
But, yes. There is very little difference between investing and gambling. The key is to find the right tips on how to handle investment vs. gambling. So, is investing gambling? Investing is certainly NOT gambling as an investment can help an overall growth of an economy, while gambling takes the wealth from one person to another. Moreover, you can also mitigate the losses to a certain extent in investing, while gaming – if lost – is a 100% loss.
Investing vs. Gambling – An Overview
There is a reason why people equate investing in gambling. Both investing and gambling come with risk elements. Both investing and gambling involve the use of capital with the aim of profit that can secure your future. Both gambling and investing can bring in losses if you are not careful. So is trading gambling or do you think on those lines? We thought of letting you understanding whether investing is gambling.
However, there is one inherent difference between the two. Gambling can be a short-lived activity and may not assure you a really long-lasting benefit or earning. Investment in equities and stocks can indeed last a long lifetime. While gambling has negative connotations to it and can have a negative expected return. In the case of investing, however, you have a positive expected return. The short-term gains may not be reliable or assured; you can be assured of a more positive return.
Investing vs. Gambling – Few Myths Busted
If you are under the impression that investing is gambling, that is perhaps the first thing you need to think of busting. Before we can bust other myths, let us bust that myth – Investing is NOT gambling! Why is what we will explain.
Myth 1 – Investing is Gambling
The impression that investing is gambling has indeed ruined the investment options of most of the protective investors. This can make them truly wonderful investors stay away from investing. If you are one of them, we would want you to shy away from the myth and begin investing.
A stock is indeed a kind of ownership of the company and entails you to get a fraction of the company’s profits. Instead of treating investing as a source of earning money or a trading instrument, look at it as ownership, and we are sure you will stop thinking of investing as gambling.
As opposed to investing in stocks, gambling can be considered to be a zero-sum way. Gambling does not improve the economy, but it simply transfers the wealth from the loser to the winner. There is no growth in the economy observed.
Myth 2 – A Little knowledge is enough for investing
While knowing something about things can be a great option than knowing nothing at all. But, when it comes to investing, having “just enough knowledge isn’t enough.” You need to have a thorough knowledge of what you are up to. Sound knowledge is the only option for winnability if you are investing. In that context, investing in stocks without proper homework can be equivalent to gambling.
The best thing you would want to invest before investing in stocks is to learn and indulge in enough research. If you are not able to invest your time in the research and study, it may be worthwhile to seek the assistance of an advisor. Getting help from an investment advisor will help provide you the best positive way of letting you learn the art of investing.
Myth 3 – Stocks that go up will eventually come down
Well, that is nothing but a myth, and the prospects of a stock do not necessarily follow a definite path. The theory of Karma or gravity law has nothing to do with the stocks and their price. A stock price is always a reflection of the company’s performance and does not have anything to do with the other external factors irrelevant to the company.
As long as the company has been managed well, there is no reason to believe it will not rise and keep rising. If your research finds nothing wrong with the company’s future, you can expect it to keep growing.
Myth 4 – The stock market is only for the rich
Nothing can be vaguer than that statement! Now that you have access to the internet, you should find accessing the stocks straightforward and easy. Of course, during the early days, brokerage firms had exclusive access to the information related to stocks. It is no longer the case these days.
If you are ready to invest in performing the right research, you can access all the info related to the stocks you want to invest in. And then, of course, you have robo advisors and investment advisors that can help you achieve the best results.
Investing vs. Gambling – The Differences
Here are a few key differences between investing and gambling, which should ideally provide you an insight into how to achieve the right proportions in getting access to an enhanced experience.
1. The Time
Gambling is a short time event. Unlike that, investing in stock is can even last a few years. In gambling, You will either win the hand or lose it. But, in the case of investing in stocks, you can continue getting dividends for the investment you have made in the company.
In essence, a stock investment can be an extremely time rewarding experience ever. In fact, whether you want to sell your stocks for profit or not, you will indeed continue getting dividends. This should be one of the excellent options you would find it quite interesting.
2. Gaining information
Whether you are an investor or a gambler, you will find you will look for historical data. Checking the historical data and the current behavior can help understand future performance. However, there is a huge difference between how you gain information in gambling and investing.
Stock and investment-related information are readily available in the public domain. You can access the real data without any ambiguity, such as previous earnings, past performance, financial ratio, and other essential details. In the case of gambling, you do not have such complete and genuine information. All the information available is not quantifiable.
The losses in gambling will be to the level of 100 percent. In the case of stock investment, you can minimize the losses. Imagine you placed a bet on something for $20; if you lose – you will lose your entire amount. There is nothing like you will retain any amount.
In sharp contrast, investing in stocks can help you retain some of your risked capital. For example, if you have invested $100 in some stocks, and the stock prices drop by 10%, you can minimize your risks by saving or retaining 90% of the amount.
You may not be willing to invest since you are not comfortable taking risks, but it should not necessarily mean you are into gambling if you invest. Investment is indeed an excellent option, and you can’t compare it to gambling by any count. The tips shared above should ideally help you understand the differences in an investment vs. gambling debate. If you are wondering – is the stock market gambling, the details shared here should help you find the difference between gambling and investing.