Question: What Is the Difference between Gambling and Investing?
Answer: Investing is a much more “acceptable” way to risk one’s money. If the two were even comparable, investing would be illegal in as many states as gambling is. Regardless, comparisons are often made between gambling and investing, especially in reference to high-risk investments. To determine the difference between the two, it’s best to start at the root and define them.
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According to merriam-webster.com:
: to play a game in which you can win or lose money or possessions : to bet money or other valuable things
: to risk losing (an amount of money) in a game or bet
: to commit (money) in order to earn a financial return
The main goal of each is to commit money and risk losing it to make more money. It’s understandable that these are equated with one another. How often have you heard a high-risk investment being called a ‘gamble?’ The main difference is that gambling is more fun!
Going to the tracks or hopping on a plane to Vegas doesn’t ensure that you’re immediate future will be filled with a newfound fortune, but you will almost certainly have fun while you try to win. Investing, on the other hand, is not meant to be entertaining, not to mention that you typically need some sort of financial degree to do it well.
To whittle this argument down further, there is also almost no expectation that goes into gambling. Because the odds of winning are typically low, the player can only hope to win, but he or she cannot really expect to win. If you do win, however, the win is immediate and can be life changing.
When investing, you’re not throwing your money at a casino and hoping the odds aren’t against you this time. You invest money in companies that have a reputation of increasing profits steadily and returning that money to its investors. The grey area is where investors end up jumping in and out of stocks with high-yield investments. The risk, reward and adrenaline rush can become a game to them just like gambling.
According to InvestorGuide.com, “Investing is widely regarded as the engine that drives capitalism. It tends to put money in the hands of those with the most promising and productive uses for it, and drives the economy gradually upward. Investors aren’t merely betting on which companies will succeed, they’re providing the capital those companies need to accomplish their goals.” This is essentially why investing is typically seen as a more moral activity. Contributing money to firms that are hiring people and producing goods and services makes the capitalist world we live in go round. “Buying and holding results in a positive contribution to the economy, but buying and selling quickly, the way day traders do, results in no net contribution,” according to the same InvestorGuide.com article.
There are too many arguments to be made on the morality of gambling, which is typically the reason given as to why investing is more acceptable. A number of states have outlawed gambling, and the ones that haven’t are making boatloads of cash on statewide lotteries. Although gambling doesn’t have as much of a positive effect in the grand scheme of the economy, on a micro level it can be really beneficial to local economies.
It’s easy to say that the odds are against you in gambling and in your favor in investment, but that’s simply not always true. “There are plenty of investments where the odds are against you: futures, options, and commodities trading (where you get hurt on commissions and the bid/ask spread), frequent stock trading (for the same reason), and selling short (since the market goes up rather than down in the long run), to name just a few examples,” according to InvestorGuide.com. Similarly, in gambling the odds don’t always have to be against you. Players who are experienced or who are playing against each other rather than the house can make a bit more cash. There are also plenty of times when you can simply break even in either activity.
Typically, investing is done with specific limits and discretionary income, while gambling isn’t. Unless you’re an incredibly sensible player, it’s difficult to stick to a limit. Taking into account all the differences and similarities between the two, the most important distinction between the two is the fact that investing is done for economic gain while gambling is a form of entertainment.