Gambling Vs Investing – What’s the Difference?
Since the financial crisis of 2008, many consider investing in the stock market a form of gambling. I was among this crowd that developed a negative view of investing. I felt like the stock market was one big online casino and that your money wasn’t safe. At least if you head to a casino to go gambling you’ll get free drinks…
Gambling Vs Investing – Gambling Pros and Cons
One thing that gambling has going for it is that the odds of each game are fixed. You know exactly what you’re getting when you approach a game to play. Most online casinos that have slots, poker, black jack, etc. are all required, by law, to implement the appropriate odds in their games to match their physical counterparts.
Another pro of gambling and online casinos are that they are fun – some times a little too fun 🙂 They can become addictive in a way – much like active day trading in the stock market.
What are the cons of gambling and online casinos? Well, in the long run the game odds are stacked against you. Ever heard the saying that the house always wins? Unless you work to develop some sort of gambling skill (counting cards, card playing systems, etc.) you WILL come out behind in the long run.
Can you make a lot of money gambling? I know a friend’s brother that made ~$75,000+ one year by gambling through an online casino at Texas Hold’em poker (before online gambling and online casinos were outlawed in the US). He also was invited free of charge to a Texas Hold’em 7-day cruise! So yes, you can make money with online casinos IF you know what you’re doing and you have a lot of practice!
Gambling Vs Investing – Investing Pros and Cons
When I talk about investing, I’m mainly discussing investing in public equities through the stock market. What investing has over online casinos and gambling is that over the long run, the market rate of return for the stock market is ~8%. This means that over the long run, if you keep your money invested long enough, you will come out ahead! Another pro of investing vs. gambling is that your dividends and capital gains are taxed as long term capital gains. This means that you’ll pay only 15% taxes. Gambling proceeds are generally taxed as income at a much higher rate. An additional pro that investing has going for it is that if you just decide to invest in market index funds, you’ll find it pretty easy to get started. And, you’ll net yourself some great returns.
Now, what about the cons of investing vs. gambling? Well, investing is pretty boring if done properly. Compared to online casinos and gambling, investing is about the most boring thing in the world – almost like watching grass grow. Also with investing, you may be limited by the liquidity of your investments. This means that if you’re investing in a thinly traded stocks that crashes, you may have a very hard time pulling your money out. Another con of investing is that there is a bit of a learning curve to get started if you decide not to use market index funds. With gambling and online casinos, you can login, click the slots, and be playing for free or with real money in less than a minute – it’s hard to beat that in terms of simplicity!
Gambling Vs Investing – Comparison Table
Here’s a simple table that brings a lot of the concepts discussed here together:
Gambling |
Investing |
|
| Long Term Rate of Return | Depends on skill | + 8% |
| Fun Factor | High | Low |
| Taxes | High | Low |
| Fixed Odds | Yes | No |
| Requires Skill to Come Out Ahead | Yes | Not Really |
Gambling Vs Investing – Final Thoughts
Which is right for you? While gambling with online casinos can be a lot of fun, it really isn’t a strategy that I’d personally recommend to develop your wealth for the long run. Sure, online casinos and gambling are fun, but unless you’re willing to put in a lot of time to develop your gambling skills, you’re very likely to come out behind over the long run 🙂
This post published by Tom Shannon
Coming from Sheffield, Tom’s hobbies include writing, recording music, and creating video games. He also runs events to do with video games where people come to watch tournaments. Tom is currently studying in his final year at university
Great post! I always hear that investing is like gambling, but there are certainly major differences, some of which you have done a great job of addressing. I personally find investing more fun than gambling – but maybe that’s because I trade options over the period of weeks or months.
Jon@MakingMoneyFastandSlow recently posted…Tapering Out Of The Way, Next Up: Debt Limit
Jon,
Thanks for stopping by. Yes, there are some aspects to TRADING that are more fun. But, for plain old investing it’s pretty boring. I used to trade /ES futures, and let me tell you – that really got my heart pumping!!! I’ve never tried trading options, but I bet it’s pretty fun when things are going your way 🙂
Fun post! Although I think that there is *some* skill in investing….maybe not just to come out ahead (as long as your diversified over enough years you may indeed come out on the positive end), but it takes some work and intelligence to really get the most out of your investment. 🙂
Brock @cleverdude recently posted…Why is the Grass Is Greener On the Other Side of the Fence?
Brock,
Thanks for stopping by! True, it does take some intelligence and skill. But, it seems like there are certainly diminishing returns once you start to get too fancy with investing 🙂 Happy Holidays!!