While these two words might seem like they belong to two different worlds, investing and gambling do have a lot in common. The primary factor associated with both of these activities would be the risk factor. For example, you’ve got cryptocurrency and American Football exact scores betting, which are both high-risk, high-reward options. In this article, we’re going to look at these commonalities as well as the characteristics that make them different from one another.
Investing is the process of spending your money on various things such as stocks, starting a business, or assets like real estate. Now, this doesn’t come without a profit. The fact that investing is statistically significant lures financial analysts and investors to run data-driven strategies. Statistical significance means that results are a direct result of a particular cause. This, in turn, makes market fluctuations non-random and, with enough information, predictable.
Investing shouldn’t be confused with speculation. While these two terms are relatively similar, the difference is considerable. Speculation consists of a short-term allocation of money, for example, on quickly-growing stocks, for rapid profit. Conversely, investing is a long-term process that is sometimes measured in years. With speculation, the risk factor is much larger as well. The source of profit may differ, too. With investing, dividends can play a significant role in the profitability of a transaction, whereas with speculation, what matters is the price appreciation.
There are multiple types of investments:
Investment funds gather the money of many investors and invest following a strategy. The main advantage of these funds is the fact that they offer professional management and the possibility of diversification of your assets. Now, there is no guarantee that you will come out on top of putting money into a fund. And, while these are subject to the SEC most of the time, private funds (hedge funds) are non-registered which makes for another risk factor in terms of security.
When you buy stocks of a particular company, you become a partial owner. Stock investors gain profit through dividends — an annual distribution of a business’s profits to its shareholders.
Investing in bonds consists of becoming a partial owner of an organization’s debt. These organizations include municipalities, government-owned establishments, and large corporations. Put simply, you give a loan to somebody, and that somebody pays you interest as time goes by.
Commodities are things like gold, currency, minerals, animal products, etc. Commodities are usually traded via agreements that specify the amount you want to buy or sell and the date when it occurs.
The most popular type of alternative investments is hedge funds, whose strategy largely consists of going for short positions. Shorting involves selling an asset with an intention to buy it later on. The strategy is based on the assumption that the price will fall soon and the investor will come out on top after buying it back for a lower price. Conversely, long positions are based on the presumption that the price will rise.
Perhaps the safest form of investment, bank products offer you a guaranteed profit margin, though it’s usually minimal.
An option is a contract that allows the investor to buy and sell their assets freely, but they’re not obliged to do so.
Investment trusts, similarly to funds, operate via pooling the budget of numerous investors and put money into specific industries according to an established strategy. The most popular type of such trusts are Real Estate Investment Trusts, which payout money per a set timeframe. REITs, as the name suggests, invest in real estate property. REITs invest in stock exchange markets, providing an instant liquidation option.
With gambling, the situation is a bit different. It is statistically significant, but the statistics say that you will lose every time. The house always wins. Gambling involves risk with little chance of success. While jackpots do happen sometimes, they’re not as reliable as investments. At times and in particular types of gambling, analysis and predictions are possible.
For instance, a professional gambler who lives off of betting may do immense amounts of research about sports teams, horses, dogs, etc. The data is there; you just need to tap into it. Still, similarly to investing, it requires a lot of dedication.
Now, with other games such as slots or roulette, you’re statistically bound to lose. Typical slots have the house edge at 5% to 10%, whereas roulette at about 3%. This means that for every $100, you’ll come out with $95 with slots and $97 with roulette.
What are the differences and similarities between investing and gambling?
With gambling, there are next-to-none loss mitigation strategies. If you put $100 on a red and black is selected, you’re out of $100. On the other hand, in investing, you can diversify your assets and put that $100 into stocks, options, a fund, and a commodity. Now, if one of your investments fails, you’ve got other ones to back it up.
Investing is a long game most of the time. Gambling happens right then and there — you either win or lose.
There is far more data readily available concerning possible investments. Compare it to a slot machine — you don’t know what happened here 15 minutes ago, whether somebody left with a jackpot. If they did, your chances of winning such are considerably lower.
Both investing and gambling involve a risk factor. You either come out on top, or you sink your budget into a bad blackjack table or a lousy stock.
With gambling, you’ve got safer options in the form of blackjack, which has the lowest house edge of 1.5%, as with investments in, for example, bank products.
Both investments and gambling can be subject to analysis. Consider sports betting where most, if not all of the records, are readily available on the internet.