1. Difference Between Gambling Investment And Speculation
2. Difference Between Investment Speculation And Gambling In Tabular Form
3. Difference Between Investment And Gambling In Tabular Form
4. Difference Between Gambling And Investments

For many people, the risk involved in investing can make the whole process feel a bit like gambling. But, truthfully, there is quite a big difference between the two. And that’s exactly why I decided to write this article. In fact, before we get much further, allow me to answer the very important question, is investing gambling?

No, investing is not gambling. While both involve risk, when you invest your money, you receive ownership of something in return. Gambling, on the other hand, is a wager between two parties that depends on a particular outcome and results in a gain for one, and a total loss for the other.

While Murkco noted that many aspects of gambling and investing might appear similar, there were several distinct and easily defined differences. For either investing or gambling, the beginning of Murkco’s definition is the same: An activity in which money is put at risk for the purpose of making a profit. According to one definition, investing is, “the act of committing money or capital to an endeavor with the expectation of obtaining additional income or profit.” What this definition lacks is the real difference between investing and gamblingresearch.

So essentially, the biggest difference between investing and gambling, is that when you invest your money, you are purchasing something of value. Whereas, when you gamble, you only receive some sort of value if you bet on the right outcome.

But that isn’t the only difference.

That’s why, for the rest of this article, I’m going to take a deeper dive into the top 5 reasons why investing is different than gambling.

Let’s get started!

Table of Contents

1. Investments Have Value

As I mentioned at the beginning of this article, whenever you purchase an investment, you receive some kind of ownership in return. For example, when you decide to invest in real estate, you receive ownership of the property you purchase. When you purchase stocks or mutual funds, you receive a portion of ownership in one, or multiple publicly-traded companies. Even when you invest in precious metals (i.e. gold, platinum or silver), which tend to carry a higher-level of risk than many other investments, you receive ownership of the precious metal.

And here’s the thing, in nearly every case, if you invest in something, even if that investment decreases in value, you can still sell it.

That just isn’t the case with gambling.

I mean, if you bet $100 on a particular horse to win the Kentucky Derby, and it doesn’t, you just lost all that money. It’s all or nothing.

Talk about a big difference between investing and gambling.

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2. Proper Investing Puts The Odds In Your Favor

I don’t think it’s any secret, but when you gamble, especially at a casino, the odds are not in your favor. Unless, of course, you are a casino owner.

You see, the odds in gambling are set to benefit “the house” in the long run. So, mathematically speaking, the longer you gamble the more money you are going to lose.

Meanwhile, as an investor, when you put your money into well-researched, strong investments, the odds of earning a return are in your favor.

For instance, at the time of writing this article, over the last 10 years, the S&P 500 has earned an average annual return of approximately 10% (source). As an investor, I can look at that number and know that it is probably a strong place for me to put my money.

When it comes to gambling, however, those kinds of odds don’t exist over the long-term. Sure, you might win a quick buck here and there, but in the long run, the house always wins.

This is also why people that invest consistently usually end up wealthy, and people that gamble consistently typically end up broke.

3. Compound Interest

As an investor, it is easy to take advantage of the power of compound interest. All you have to do is re-invest your earnings into the same investments that are producing gains, and your money will grow faster and faster. It’s a truly awesome thing to experience.

On the other hand, in order to do the same thing gambling, you would have to win money, and then win more money with the money you already won, and so on. And since the odds are not in your favor, this is an extremely unlikely scenario. And by unlikely, I mean nearly impossible.

4. You Can Diversify Your Investments

If you really want to improve your odds with investing, you have the option of diversifying your investments. For example, you could invest in mutual funds, individual stocks, real estate, and much more.

That way, if one of your investments goes down, and another one goes up, you don’t experience as great of a loss. This is a great way to reduce the likelihood of losing money, and increase your ability to build wealth.

This is not an option when it comes to gambling. Since every gamble carries a high risk of losing money, diversifying your bets would likely only make your odds worse.

5. Humans Play An Important Role In The Outcome Of Investments

The fifth, and my personal favorite, reason why investing and gambling are different, is that humans play a prominent role in the outcome of investments.

For example, when you invest in a company on the stock market, you are putting your money behind executives, employees, and other investors that all have a vested interest in the company earning a profit.

And with all those people working hard to reduce costs, innovate, and grow the company, your likelihood of earning interest on your investment is very good. In other words, humans have the ability to influence the outcome of an investment, which is not the case with gambling.

Truthfully, this isn’t something many people consider when it comes to investing, but it is a critical distinction between investing and gambling. And when you take this critical component into consideration, at least in my experience, investing becomes a much less terrifying venture.

Final Thoughts

Investing and gambling are two very different things. Let’s review:

• With a wise investment strategy, the odds of success are in your favor. Meanwhile, gambling puts the odds against you.
• When you invest in something, you receive ownership in return for your money. Gambling is a high-risk wager, based heavily on chance.
• As an investor, you have the opportunity to earn compound interest. As a gambler, not so much.
• You can diversify your investments in order to lower your risk of losing money. Meanwhile, all forms of gambling come with a high risk of loss.
• Humans play an important role, and can influence the outcome of many investments. Gambling is based on chance.

So there you have it, the 5 key differences between investing and gambling. If you were a little unsure on the subject, I hope this provided you with some clarity. And if you were on the fence about investing, I hope this provided you with a new and positive perspective.

If you found this article helpful, and you’d like to receive similar financial tips, tricks and recommendations, be sure to subscribe to Be The Budget. Our goal here at Be The Budget is to help you save more money, earn a better living, and make the most of your financial life. If that sounds appealing, we’d love to have you join our community!

You May Also Like:10 Reasons Why Passive Income Is So Important10 Effective Strategies To Save More Money10 Best Ways To Diversify Your IncomeHow Long Should It Take To Build An Emergency Fund?Zach Buchenau is a self-proclaimed personal finance nerd. When he isn't writing about budgeting, getting out of debt, making extra money, and living a frugal life, you can find him building furniture, fly fishing, or developing websites. He is the co-founder of BeTheBudget, and Chipotle's most loyal customer.

Difference Between Gambling Investment And Speculation

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Difference Between Investment Speculation And Gambling In Tabular Form

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With more free time due to the Covid-19 quarantine, access to superannuation funds and accessible low-cost brokers, many Australians have started investing in shares at a time when markets are particularly unpredictable and volatile. Internet stock chat rooms are buzzing with stories of substantial investment gains in a short time.

In the past three months, the S&P/ASX 200 has recovered almost half the losses of the February/March sell-off. Some shares have led the recovery with staggering gains, which has led to frenzied speculation among investors who are searching for 'the next big thing'.

So, what's the problem? Both ASIC and the Reserve Bank have recently warned retail investors about the potential pitfalls of share investing, on the heels of the number of retail broking accounts and trading volumes increasing two to three times over the pandemic period.

Difference Between Investment And Gambling In Tabular Form

Why the warning? ASIC has the ability to see how retail investors have performed. As it happens, most retail investors are actually losing money. Average investment holding periods are down from around four days to one day. So, literally, many new retail investors are 'day trading'.

The problem is that day trading is more akin to gambling than investing. Here's why:

• The casino always wins. In day trading, there are winners and losers. Historical data suggests that day-trading retail investors lose more often than they win, as there are professionals who know more than the typical retail investor playing the same 'game' (selling when others are buying, and vice versa). So day trading is like walking into a casino of sorts. In gambling, the casino is there to prevent you from winning. The house edge may vary between games, but ultimately it always wins.
  
• A big difference between investing and gambling is concentration risk. Like gambling, day trading typically involves a 'bet' (investment) on one or a small number of companies over a short time. As such, the upside may be high, but there is also the risk that underperformance by only one of the 'bets' can significantly drag down the returns of the overall portfolio.
  
• Timing the market is hard. Sharemarkets can be highly unpredictable and irrational in the short term, as we've seen in recent months. Remember, each time you make a decision that buying a share of Company X will pay off, someone on the other end of the trade (who has probably done a lot of research) is 'betting' that it's best to sell the stock. Even so-called experts have a hard time timing the market, so the average punter stands little chance of winning in the very short-term.

So if picking stocks and timing the market are so hard, how do you grow your wealth over time? That's where investing is different from gambling.

Difference Between Gambling And Investments

Successful investing is built on several foundations that differ from simple gambling:

• Time and patience. Investing is a long-term process. When you invest, you're betting that the global economy and sharemarkets will grow over time, and history shows that over the medium to long term markets generally rise.
  
• Diversification. Successful investors typically do not put all their eggs in one basket. Or even a couple of baskets. They tend to spread their investments across asset classes (growth/defensive), regions (domestic/international) and sectors (broad equity, infrastructure, technology, health care, etc). This smooths out volatility and investment returns over time, as there will be times when part of a portfolio falls while another part rises. ASX-listed exchange-traded funds (ETFs) can be a cost-effective way to achieve prudent investment diversification.
  
• Low costs. Day trading by definition can rack up transaction fees, which eat into investment returns. By investing for the long term, there are fewer transaction costs to erode returns. In this regard, ETFs are also effective investment vehicles given their low costs.

There are no guarantees in life or investing. While it can be tempting to try to pick winners, the volatility we've seen in markets over the past few months shows just how quickly things can change. Rather than gambling on short-term guesses, take a long-term approach - make an investment plan and stick to it over time, review it if your life circumstances change and avoid emotional decisions. That's a surer bet.