As investing inherently involves risk-taking, you may be asking yourself: is investing gambling?
So, if you’re thinking about investing through one of the best investment apps, this article will tell you everything you need to know about the key differences and similarities between gambling and investing.
- Investment returns and gambling odds are both linked to how much risk you’re willing to take.
- It can be harder to mitigate losses in gambling than it is when investing.
- Gambling is set over a fixed period of time, whereas you can hold many types of investments for as long as you want.
- The odds are against you when you gamble due to the house edge, but when you invest over long periods of time you are more likely to profit.
- Investors and gamblers can both gather information and data about their investments and bets.
- Your returns from gambling are fixed, while your earning potential from investing could be limitless.
What exactly is investing?
Investing is essentially the act of contributing money toward a type of asset that you expect will appreciate in value, in the hope that you’ll receive returns from your investment.
A common way of investing is by purchasing shares in a company listed on the stock market and then either selling them when the price is higher than what they were bought for, or by earning regular dividends. These stocks represent ownership, meaning you technically own part of the company until you sell your stocks.
Of course, there are other things to invest in, such as bonds and exchange-traded funds (ETFs), as well as commodities such as art or whisky.
There is risk involved with investing since the value of your investment can go up as well as down. Investors try to counter this risk with different risk management methods, such as by having a well-diversified portfolio or by assessing information about the company’s performance to try to predict how they will do in the stock markets.
What exactly is gambling?
Meanwhile, gambling involves staking money toward a bet of some kind. While many people gamble recreationally, others are professional gamblers that do it for a living.
There is still risk involved with gambling, and much like investing, people gambling weigh risk against reward.
For certain gambles, there isn’t information you can use to influence your bets. Gambling on casino games, such as on a slot machine or at a roulette table, relies entirely on odds.
Of course, gamblers can research certain things, such as the odds of winning a hand of poker or how well a sports team is playing, for example. This could give them an edge when playing certain card games or in sports betting on the outcome of a certain game or race.
The money you earn from gambling is often limited, based on the amount you stake. For example, if you bet £200, you are given odds and know exactly how much you will earn if you win the bet. Meanwhile, you know you will lose £200 if your gamble is incorrect.
This may be different from some other types of gambling, such as spread betting, where your wins or losses may be dependent on the margin of victory/defeat.
There is also a time limit on bets since you know exactly when that bet will come through.
Gambling is typically a zero-sum game, meaning that for one person to win, another person must lose.
Differences between investing and gambling
From the above definitions, you may have noticed some similarities between investing and gambling. The differences, however, are more defined, and it’s important not to go into investing with a gambling mindset.
Continue reading to find out more about these differences between investing and gambling.
You can build a diversified portfolio by investing
As mentioned, investing comes with risk, so investors often diversify their portfolios to try to spread that risk out.
For example, you could invest in companies in the technology, energy, and retail sectors. If the technology sector was doing poorly and your investments were losing value, you may be able to limit the damage to your portfolio since your investments in the energy and retail sectors are subject to different market pressures, and so could still be going strong.
This is unlike gambling, where your gains rely on one single bet to come in and there are fewer ways to try to diversify and spread the risk.
Everyone can win money on an investment
When companies perform well, the share prices of those companies tend to increase. This means that everyone who holds shares in that company can benefit from an increase, not just the “winner”.
Gambling, however, is a zero-sum game, meaning there is a winner and a loser. For example, betting and winning on a horse to win a race means that another horse has to lose.
You can weigh and assess the risks before you invest
There isn’t a completely foolproof method of negating risk with investing, but there are ways people can weigh and assess said risks before they invest so it doesn’t negatively affect them.
Companies provide information about their performance, such as their earnings and so on. Investors can then use this information to try and predict how financial markets will be affected and if their investments will rise in value.
You are less able to do this with many types of gambling, however, as it is more based on odds. For example, you cannot predict where a ball on a roulette wheel will land.
There are a couple of exceptions to this, such as card games or sports betting. In a certain sports match, you could try and predict which team is more likely to win if they have been playing well or have just signed a good new player, for example.
It is still partly based on luck, however, as you never know how they’re going to perform on the day.
Investing is more suited to long-term holds
If you look at the historic performance of funds or company stocks, you will see that they typically rise in value over long periods of time. This makes investing much more suited to long-term holding, especially over many years.
With many investments, there’s no limit to the amount of time you can hold them. For example, when you want to sell your shares, you can make that decision at any time.
This is a major difference from gambling, where your bet has a fixed time period, after which you either win or lose.
Of course, there are some investments that do have fixed terms on them. Bonds, for example, have a maturity date that places a fixed time limit on your investment.
There is no limit to the gains you can potentially make from an investment
This has been touched on previously in this article, but when you invest there is theoretically no limit to the amount of money you can make.
For example, if you invested £100 in a company, and the value of the company kept increasing, so would the value of your shares.
When you gamble, however, you are told exactly how much you will earn if you win your bet. If you bet £100 on a football game and the bet had returns of £500, that is exactly how much you will gain and no more.
The only similarity between investing and gambling in this instance is losses. A company could go bust and you could lose your entire investment, much like if you lost a bet.
The odds are more in favour of the house winning
There is a phrase often thrown around when it comes to gambling: “the house always wins”. This relates to the house edge – the gross profit betting companies expect to get from each game. A good example is the “0” on a roulette wheel that is neither red nor black.
The odds are usually tilted in favour of the betting company; it varies from game to game and bet to bet, but usually, you are more likely to lose than you are to win.
This especially becomes the case when you gamble for longer periods of time, as the more you play the more likely you are to lose. This is why casinos in Las Vegas famously have no clocks inside.
At the end of the day, gambling is usually a game of chance meant for fun, rather than a serious way to earn money. Meanwhile, investing could potentially be an effective way to build wealth for your future.
Ways investing is like gambling
Of course, both gambling and investing involve paying money toward something that carries risk, so there are definite similarities between the two.
Read on to discover what these similarities are.
There is still an element of unpredictability with investing, much like gambling
While there are ways investors can try to predict how the market will move, there are still factors at play that no one can take into account, no matter how much information is gathered.
Covid, for example, was a totally unpredictable event that created serious market volatility.
Gambling is much like this; even if you’ve carefully researched a gamble, there are still too many factors at play to know for sure how a bet is going to go. Even if the odds were in your favour, there’s still a chance you could lose.
Your money is at risk when you invest and gamble
The bottom line is, that there is no form of investment that is totally risk-free.
This also goes for gambling, so you can see why they are, in essence, very similar in this case.
Losing money from investing is entirely possible, just like it is when gambling. Ultimately, both come down to the risk-reward ratio.
Like gambling, investing can be exciting
For some, the pull of investing is the rush and excitement of turning a profit from a smart investment.
Anyone who has gambled will know that there is this same rush with gambling and imagining winning big.
While you shouldn’t treat investing the same way as gambling, there is undoubtedly the same sort of excitement that it brings.
There are ways of investing that behave like gambling
Some kinds of trading and investing even directly mirror gambling. CFDs and other types of derivative trading, for example, are a lot like stock market gambling in that you stake money toward the rise or fall of a company’s value, rather than invest in long-term performance.
Unlike other forms of investing, this is technically gambling, as you are predicting a short-term outcome rather than purchasing a share of the company from the stock market.
Bear in mind that CFD trading is a high-risk strategy. The majority of retail investor accounts lose money when trading CFDs.
Is investing in the stock market similar to gambling?
There are definite similarities to gambling and investing in the stock market, but the differences are more important.
If you go into stock investing with a gambling mindset, like not thinking about the long term and only thinking about turning a quick profit, then chances are your investments won’t perform well.
That’s why, although there are similarities between investing in the stock market and gambling, you should try to keep the differences in mind.
Is the stock market a type of gambling?
If we were going by definition, then technically the stock market is quite like a type of gambling.
There are stark differences, however, that means stock markets offer more financial security and a more reliable source of medium- to long-term returns.
The ability to access company information to learn about your investment before you make it, for example, separates the stock market from gambling, where you rely on the odds.
Is investing in stocks safe?
Although investing may be safer than gambling, there is still no such thing as a completely safe investment.
There are investments that are safer than others, such as those that grow slowly over a long period of time.
Risk management is also possible with investing, like diversifying your portfolio to spread the risk.