Think investing is the same as gambling or scratching off a lottery ticket?

Many people are nervous about putting their money in the market and hesitate because they believe that investing has more to do with luck than anything else.

So just what is the difference between gambling and investing, is it really so easy to split the two activities apart? The Dictionary.com web site says: Gamble: “To bet on an uncertain outcome, as of a contest. To take a risk in the hope of gaining an advantage or a benefit.” Invest: “To commit money or capital in order to gain a financial return.”To put simply, the difference is. What’s the difference between investing and gambling? Tim Price looks at the difference between investment and speculation – and where value investing comes into the picture. 'The difference between investing and gambling or speculating is taking calculated versus uncalculated risks,' says Greg Woodard, managing director of portfolio strategies at Manning & Napier, an.

In other words, they believe their ability to earn a return on their investment comes down to pure chance—like the flip of a card or roll of the dice. Investors and gamblers do have one thing in common: They both want to put more money in their pockets.

Investing vs. gambling

Investing and gambling could not be more different.

Investing	Gambling
You control your risk. You can invest according to your goals and timelines: Conservative, moderate or aggressive.	Risky. The odds are always in favor of the house.
Strategy: Slow and steady. Investors plan to make a consistent return on their investments every year.	Strategy: Fast money. Gamblers bet it all for the chance to make a bundle fast.
Taxes: By putting your money in a retirement account, you can defer paying taxes on your investment earnings.	Taxes: You have to pay taxes on any gambling or lottery winnings over $600

Here’s why investing your money is typically a better option for those looking to increase their wealth, rather than buying a lottery ticket, or going all-in with a pair of jacks:

The odds are in your favor

Anyone familiar with gambling has likely heard the phrase “the house always wins.” Since casinos are in the business of making money for themselves, that means the scales are tipped in favor of the dealers.

Investing is generally a much more effective way of making your money work for you. And most importantly, investors have a lot more control in where your money goes and how it can grow.

Gamblers hope for a quick win. Investors want to build wealth over time

For example, if you bet $1,000 that the roulette wheel hits your lucky number, you’ve got one shot at cashing in. Your odds? 35 to one. That’s a risky bet. And there’s a good chance you’ll walk away from the casino with less money than when you walked in.

Understanding risk

Investing involves risk. But by building a diversified portfolio with stocks, bonds, and holdings from multiple sectors (tech, energy, etc.), you can balance out your risk. In other words, you’re not betting it all on one investment—or putting all of your eggs in one basket.

If one investment goes down in value, you’ll have other investments that may hold steady, and keep your portfolio afloat.

For example, numerous advisers say an effective way to manage your money is by applying aspects of Modern Portfolio Theory (MPT). Nobel Prize-winning economist Dr. Harry Markowitz conceived the idea for MPT which formed the foundation for portfolio management by balancing risk and return.

The general idea of MPT is that by investing in a diverse assortment of stocks, bonds, and other securities in a multitude of countries, you can minimize risk.

Invest with a plan

You’ve probably seen news reports about people who win a lot of money at the casino or by playing the lottery. These make it seem like a lottery win is not only possible but probable. Unfortunately, it’s not. Losing is nearly inevitable when you gamble.

Gamblers hope for a quick win. Investors want to build wealth over time. Fast money sounds great but it isn’t an actual plan to get you to your goals.

Difference Gambling And Investments

Rather than just “win big,” many investors have a specific plan as to what they’re investing for in the long term. This goal, whether it’s saving for a down payment or a child’s college education, should align with your investment strategy.

Once you have a plan in place, you can adjust your portfolio according to your timeline.

The power of compounding

By choosing to invest your money with a solid strategy you can allow your assets opportunity to compound over time.

Here’s how compounding works:

Say you start putting away $50 a week in an investment account that owns a variety of stocks, bonds, and cash. If that account earns an average of 5% annually, you’ll have over $159,669 in 30 years when the interest is compounded annually.

For many people, the risk involved in investing can make the whole process feel a bit like gambling. But, truthfully, there is quite a big difference between the two. And that’s exactly why I decided to write this article. In fact, before we get much further, allow me to answer the very important question, is investing gambling?

No, investing is not gambling. While both involve risk, when you invest your money, you receive ownership of something in return. Gambling, on the other hand, is a wager between two parties that depends on a particular outcome and results in a gain for one, and a total loss for the other.

So essentially, the biggest difference between investing and gambling, is that when you invest your money, you are purchasing something of value. Whereas, when you gamble, you only receive some sort of value if you bet on the right outcome.

But that isn’t the only difference.

That’s why, for the rest of this article, I’m going to take a deeper dive into the top 5 reasons why investing is different than gambling.

Let’s get started!

Table of Contents

1. Investments Have Value

As I mentioned at the beginning of this article, whenever you purchase an investment, you receive some kind of ownership in return. For example, when you decide to invest in real estate, you receive ownership of the property you purchase. When you purchase stocks or mutual funds, you receive a portion of ownership in one, or multiple publicly-traded companies. Even when you invest in precious metals (i.e. gold, platinum or silver), which tend to carry a higher-level of risk than many other investments, you receive ownership of the precious metal.

And here’s the thing, in nearly every case, if you invest in something, even if that investment decreases in value, you can still sell it.

That just isn’t the case with gambling.

I mean, if you bet $100 on a particular horse to win the Kentucky Derby, and it doesn’t, you just lost all that money. It’s all or nothing.

Talk about a big difference between investing and gambling.

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2. Proper Investing Puts The Odds In Your Favor

I don’t think it’s any secret, but when you gamble, especially at a casino, the odds are not in your favor. Unless, of course, you are a casino owner.

You see, the odds in gambling are set to benefit “the house” in the long run. So, mathematically speaking, the longer you gamble the more money you are going to lose.

Meanwhile, as an investor, when you put your money into well-researched, strong investments, the odds of earning a return are in your favor.

For instance, at the time of writing this article, over the last 10 years, the S&P 500 has earned an average annual return of approximately 10% (source). As an investor, I can look at that number and know that it is probably a strong place for me to put my money.

When it comes to gambling, however, those kinds of odds don’t exist over the long-term. Sure, you might win a quick buck here and there, but in the long run, the house always wins.

This is also why people that invest consistently usually end up wealthy, and people that gamble consistently typically end up broke.

3. Compound Interest

As an investor, it is easy to take advantage of the power of compound interest. All you have to do is re-invest your earnings into the same investments that are producing gains, and your money will grow faster and faster. It’s a truly awesome thing to experience.

On the other hand, in order to do the same thing gambling, you would have to win money, and then win more money with the money you already won, and so on. And since the odds are not in your favor, this is an extremely unlikely scenario. And by unlikely, I mean nearly impossible.

4. You Can Diversify Your Investments

If you really want to improve your odds with investing, you have the option of diversifying your investments. For example, you could invest in mutual funds, individual stocks, real estate, and much more.

That way, if one of your investments goes down, and another one goes up, you don’t experience as great of a loss. This is a great way to reduce the likelihood of losing money, and increase your ability to build wealth.

This is not an option when it comes to gambling. Since every gamble carries a high risk of losing money, diversifying your bets would likely only make your odds worse.

5. Humans Play An Important Role In The Outcome Of Investments

The fifth, and my personal favorite, reason why investing and gambling are different, is that humans play a prominent role in the outcome of investments.

For example, when you invest in a company on the stock market, you are putting your money behind executives, employees, and other investors that all have a vested interest in the company earning a profit.

And with all those people working hard to reduce costs, innovate, and grow the company, your likelihood of earning interest on your investment is very good. In other words, humans have the ability to influence the outcome of an investment, which is not the case with gambling.

Truthfully, this isn’t something many people consider when it comes to investing, but it is a critical distinction between investing and gambling. And when you take this critical component into consideration, at least in my experience, investing becomes a much less terrifying venture.

Difference Between Investment And Gambling With Comparison Chart

Final Thoughts

Investing and gambling are two very different things. Let’s review:

• With a wise investment strategy, the odds of success are in your favor. Meanwhile, gambling puts the odds against you.
• When you invest in something, you receive ownership in return for your money. Gambling is a high-risk wager, based heavily on chance.
• As an investor, you have the opportunity to earn compound interest. As a gambler, not so much.
• You can diversify your investments in order to lower your risk of losing money. Meanwhile, all forms of gambling come with a high risk of loss.
• Humans play an important role, and can influence the outcome of many investments. Gambling is based on chance.

So there you have it, the 5 key differences between investing and gambling. If you were a little unsure on the subject, I hope this provided you with some clarity. And if you were on the fence about investing, I hope this provided you with a new and positive perspective.

If you found this article helpful, and you’d like to receive similar financial tips, tricks and recommendations, be sure to subscribe to Be The Budget. Our goal here at Be The Budget is to help you save more money, earn a better living, and make the most of your financial life. If that sounds appealing, we’d love to have you join our community!

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Difference Between Investment And Gambling In Tabular Form

How Long Should It Take To Build An Emergency Fund?Zach Buchenau is a self-proclaimed personal finance nerd. When he isn't writing about budgeting, getting out of debt, making extra money, and living a frugal life, you can find him building furniture, fly fishing, or developing websites. He is the co-founder of BeTheBudget, and Chipotle's most loyal customer.

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