Is Investing Gambling? Key Differences and Similarities Between the Two

As investing inherently involves risk-taking, you may be asking yourself: is investing gambling?

The short answer is no, in gambling you may be making bets with money but the odds are always in favor of the house. In investing, whilst, to a degree, you may also be making bets with money, you are not playing against an opponent who has all the cards stacked in their favor.

Investors are instead participating in a wealth creation engine. Yes, you may lose money if investments fall in value but in the long term you will come out ahead. In marked contrast to gambling, where the longer you play the worse the odds get for you.

Also see: Best Investment Apps

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.

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 to purchase shares in a company listed on the stock market and then either sell them once their value rises above your purchase price, or by earning regular dividends simply by owning them. 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, real estate, and even whiskey!

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 evaluating a company’s recent performance and, based on this data, trying to predict future growth and likely developments on the 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 bets there is no information available for you to make an informed bet. Gambling on casino games, such as on a slot machine or putting everything on black at the roulette table, relies entirely on odds, which, most of time, are entirely random.

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. And this will give them an edge when playing certain card games or in sports betting on the outcome of a certain game or race.

But, be warned. The house does not want you to win. For example, blackjack is the one game where counting your odds can consistently help you to win. As a result, all casinos ban “card-counting”, which if we are being honest, is simply paying attention to the game and noting what cards have already been played. If a casino thinks you are doing something as sinister as paying attention and betting only when you think you can win, it will discreetly kick you out of the premises.

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.

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 retail sector was doing poorly and your investments were losing value, as was the case during the coronavirus pandemic, your losses in this sector would be offset by the investments in the energy and retail sectors. Usually, in markets when one sector goes through a bad patch, other sectors will rise.

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 failproof 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 forecasts. Also, a wealth of different information is available from the company itself and from industry coverage and past market performance. Investors can then use this information to try and predict how financial markets will be affected and if their investments are likely to rise, or fall, 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. The world of sports betting and predicting odds is a world unto itself. For example, in horse racing, the stride, suspension and stance, form, and lineage of a horse are all subject to micro-level analysis. Whilst in basketball, stats such as the rebounding margin/offensive rebounds, free-throw differentials, and ratio of field goals made versus attempted, are the kinds of data that certain individuals will study in minute detail.

That said, Lady Luck is still queen as, come the day, it’s not certain whether a star player is having an off day, or whether the unknown rookie has an all-star game in him waiting to burst out.

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 $1000 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 $1000 on a football game and the bet had returns of $5000, 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 favor 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 that betting companies expect to get from each game. A good example is the “0” on a roulette wheel. This solely exists to tilt the odds, which are already considerably stacked against you, a little bit more in favor of the house.

The odds are usually tilted in favor 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. Time, unlike in investing, is always in favor of the house and the longer you play, the less likely you are to come out on top.

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 is a proven and 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.

There is still an element of unpredictability with investing, much like gambling

While there are ways that 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.