The Difference Between Gambling and Investing

Dictionaries generally define gambling as pursuit where chance decides the result. This isn’t very helpful when trying to differentiate between gambling and investing. People often believe they lack insight or power to influence investment outcomes, inviting the comparison. As a result, it’s not uncommon for people to approach both with an equal level of fear and apprehension.

However, there are some important differences in addition to their similarities that can help tell the two apart and help put some of your investing anxiety at ease.

Planning and Objectives

While both sides can view their activities as business endeavors, investors generally go to much greater lengths to do research and map out a plan to build up assets to achieve a defined objective down the road. Gambling is generally used more as a form of entertainment than a business venture where the objective is an emotional high as well as financial gain. However, select gamblers with the skills to become professionals do research ways to create favorable odds are notable exceptions. With this earned ability to tip probability in their favor, a gambler can strategize in a similar fashion to investors, however they are the exception to the rule. Similarly, investors who forgo strategy in favor of letting emotions dictate their decisions are acting more like gamblers.

Risk Appetite

Both gambling and investing require you to be willing to take risks, but that doesn’t accurately explain the risk appetites of investors versus gamblers. First, all gambling involves a fairly significant level of risk while investing in bonds or fixed annuities are a few examples of the financial instruments you can put your money into that are considered risk-free – though inflation is still a threat even in those cases.

Second, relatively speaking, the enthusiasm to accept risk varies greatly between participants in each activity. Gamblers seek out risk willingly – regardless of the possible payout – while investors generally steer clear of risk unless the potential reward is sufficient. This often means that gamblers accept unadvisable levels of risk, while investors look for worthwhile, calculated risks.

Available Information

In gambling you have no ownership of anything and each transaction takes place over a brief period of time, so there’s really no reason to keep any records. When you buy stock – as with most investments – you’ve purchased a piece of a company. You can then hold on to that stake over time, and if the company is successful you can receive financial benefits – such as dividends – or sell that stock for a profit. This tangible relationship also means that there’s a record of that stock’s activity, creating data that’s available for analysis to help you make informed investing decisions moving forward.

So, while investing and gambling will always involve risking money for uncertain financial gain, digging deeper reveals that there are important aspects that differentiate the two. Thought there are exceptions to every rule, taking the time to understand that sticking to a smart investing strategy is likely to pay off better than playing blackjack in the long run should help you overcome your investing fears.