Why Investing & Gambling Are Different
Some might think that a night at the poker tables is the same as building wealth through market investments. This comes down to a perception that both fields involve individuals wanting to make money and that both ultimately come down to luck. However, investing and gambling could not be more different.
There are a few key differences to investing and gambling that we’ll address in this article. Firstly, we’ll look at how you can control your risk exposure in investing, as opposed to always being up against the house in gambling. Secondly, we’ll focus on the patient, wealth building strategy of investing as opposed to the fast cash nature that gamblers possess.
If you’re looking to build your wealth, you’re much more likely to succeed by investing your money than by putting a big bet on black.
Managing your risk exposure
One thing is clear when you enter a casino – the odds are not stacked in your favour. On every game that you play, you’ll find that the house has the superior odds against the players.
This is how they manage to make sure that they always come away with making more money than the people walking through their doors, even if some individuals do win big.
Investing, in contrast, tends to be a more effective way to put your money to work. The most important part here is the control investors have in where their money goes and grows.
Instead of placing all of your money into one game, investing allows you to build a diversified portfolio that helps to balance your risk and protect you against market shocks. This means that not all of your eggs are in one basket – if one investment goes down, it doesn’t mean that all others will be doing so too.
The more diverse your investment holdings (across different sectors, countries, or in different investment vehicles such as bonds or ETFs) the more experts consider the risk to be minimised.
Investing strategies trump casinos
Winning big in casinos is unlikely, as is winning in a lottery. The chances of winning the National Lottery stand over 1 in 45 million.
Gambling is all about making a quick win. On the other hand, investors aim to build their wealth in a strategic manner and over a longer time period. It is in this way that investors aim to achieve their goals.
I buy on the assumption they could close the market the next day and not reopen it for five years
- Warren Buffett, Billionaire Investor
By setting risk exposure and a long-term goal, investors can tailor their approach to help them reach their financial goals at a future period in time. Once the plan is in action, this can be adjusted when needed.
Compounding returns vs. quick wins
Investing also offers the benefit of what has often been referred to as the “Eighth Wonder of the World” – compounding.
If you invest £200 a month into a diversified portfolio, and that portfolio returns an average of 5% interest per year, you’ll end up with a massive £168,038.82.
In contrast, going to casino will only give you one quick win every now and then – enough for a short-term thrill, but definitely not enough to contribute to your long-term financial goals.