Tuesday, 17 April 2012
Is Investing Gambling?
I recently returned from a vacation in Las Vegas, Nevada and while I was out there, I received an interesting e-mail from a lawyer in Texas who was hesitant to let his teenage son begin investing because he thought it was just a legalized way for his son to gamble away his college savings. Now, I've heard many reluctant people refer to investing as "another legalized form of gambling" and I usually shrug it off with a smile but the fact is that investing is NOT gambling.
Webster's dictionary defines gambling as "to engage in a game of chance for something of value". In that sense, I suppose you could say investing is gambling but there is a more to it than just a dictionary definition.Gambling, for the most part, is simply a game of chance where the odds are in the house's favor. You hear amazing stories of how people have won thousands of dollars on a single slot pull, but the fact remains that you aren't expected to win. You enter a casino and you hope to win big but the odds of it happening are slim to none. That's the reason why a city like Las Vegas can grow so large. After all, the town wasn't built on winners.
Investing, on the other hand, is something in which the investor has the odds in their favor. One invests with the expectation of increasing the value of their portfolio. The reason is because the stock market has historically returned an average of 13% each year. Granted, there are risks involved and you don't always earn a positive return but, with the proper research, you can tip the odds even more in your favor.There are some professional gamblers who are successful but I doubt that they were successful from the very start. They probably lost money when they first started out and then learned from their mistakes in order to become as successful as they are now. But with investing, you don't have to lose money in order to invest properly. You can educate yourself before you begin by learning how investing works and then invest for the long-term. Investing for the short-term or daytrading can be considered gambling because it's virtually impossible to see the very near-term future of a stock, but if you educate yourself and then take a long-term perspective, there is an excellent chance that you will earn a great return on your investment.