I once heard the accusation that investing in the market is no different than gambling. You’re putting your money into a portfolio from which you cannot 100 percent guarantee a return. You’re taking at least a modest amount of risk, and you can’t be sure you’ll get anything out of it. So, are you really any different from someone who’s buying a roll of lottery tickets or spending a weekend at the casino? When you’re investing, aren’t you gambling just like them?
If you’re going to define gambling this broadly, then gambling is frankly unavoidable. Think about anything you could possibly do with your money, time, or energy. Doesn’t it also involve some level of risk? You could put your money under your mattress, but your house could burn down. You could spend your time taking continuing education courses to learn your profession, but your industry could become obsolete. Everything you do involves risk, but does that make it gambling?
I think the mistake we’re making here is the assumption that any risk at all is the same thing as excessive risk. One decision is as good as another, because they all involve risk. The fallacy is that just because everything involves risk, that doesn’t mean everything involves the same degree of risk. Some things may toe the line between gambling and sound financial decision-making, but I think most people can tell the difference between a gamble and an investment.
The problem is that there are charlatans in the financial industry who are trying to get people to make poor financial decisions. Sometimes, people may think they are investing when what they’re really doing is gambling. What’s the difference? Expectations. If you ever think you are going to “get rich quick” or get a big score over a small period of time, then you are most likely engaging in gambling. Whenever alleged financial gurus try to get you to buy into stock picking, timing the market, or track record investing, don’t buy into the sales pitch. Remember, if it sounds too good to be true, then it probably is!
It is often the people who can’t see a line between steadily investing into a diversified portfolio and blowing a paycheck on lottery tickets who fall victim to these financial schemes. That’s what makes this “all risk is the same risk” argument so dangerous. People are more willing to throw caution to the wind and engage in more dangerous behavior.
Let’s think about this kind of thinking in some other contexts, though. We could say “all exercise is the same exercise,” but would you call getting off the couch and walking the refrigerator the same level of exercise as running a 5k? We could say that “all reading is the same reading”, but would you call reading a slogan on a billboard the same thing as reading an 800 page novel? We don’t make these kind of false equivalences in other aspects of our lives, so why would we do it with investing?
Investing is not the same thing as gambling. If you ever come across a financial adviser who tries to convince you that it is, turn around and run! There are ways that you can invest your money that minimize risk and can help you slowly become wealthier over time. If you’re interested in learning about how to become a disciplined and judicious investor, feel free to contact us reach out to us for a complimentary consultation. We would love to help you discover what investing is really all about.