The stock market is trending downwards, and all signs are pointing to another economic recession. This might sound bad, but if you know what you’re doing, this could be an opportunity to invest. It’s risky to think about stocks during an economic downturn, but it isn’t gambling. That’s because there is a key difference between investing and gambling that you might not know.
The key difference between investing and gambling
What separates investing from gambling is intent. When you gamble, you do it with the intention of having fun. Getting lucky and earning big money gives you quite a hit. Even if you end up losing money, you just spent money on a lively experience.
There are better experiences to spend money on, like luxury travel. If that sounds like a good time, check out my guide to luxury travel on a budget.
On the other hand, you invest because you believe it will benefit you in the long run. Investments aren’t always stocks, bonds, or funds. They can be in the form of a car, apartment, or education. If you spend money on something that will help you secure your future, then it’s an investment.
There are other differences between investing and gambling. Here are some of them:
Gaining assets is a big difference between investing and gambling
If you’re investing in traditional portals, such as stocks and bonds, you’re actually purchasing an asset. For example, when you buy a stock, you’re buying a part of a company. This asset can be sold for a profit or at a loss, depending on many factors. You’re not buying anything that will grow over time when you put $20 on the Yankees to take home the championship.
You can diversify your investments
You can, and should, diversify your investments. This means investing in different things, like the stock market, real estate, and more. If done correctly, this can increase your odds of turning a profit.
Meanwhile, if you try to diversify in gambling, you’ll likely end up at a loss. Gambles have a high risk of loss, so attempting to diversify will be a quick ticket to an empty wallet. Plus, when you gamble in a casino, you’re more likely to lose than to win.
Investing can be researched
Unlike a roulette machine, there are a lot of factors that can influence your investment gains, especially in stocks. When you buy a stock, you buy a piece of the company. You’re placing your trust in the experience and knowledge of that company and its team. This is a human aspect of gambling that can’t be quantified.
Speaking of researching investing, there are dozens of resources on the topic. Here’s my list of the 12 books on investing you need to know about.
Investing isn’t as black and white as gambling
Most bets result in you either winning or losing money on your wager. There are degrees to the gains or losses when it comes to investing. You can end up losing a bit of cash, or you could end up earning your initial investment three times over.
Investing may take longer to profit
When you gamble and win, you profit immediately. This gives you a rush that encourages you to gamble even more since you profit so quickly. However, if you don’t walk away with your winnings, you will likely lose your coins.
However, investing may take much longer to reach similar gains. This depends on many factors, but unlike in gambling, the profits don’t stop once the game ends. In theory, you can invest in a stock, and its value will keep growing and growing over time. This would cause your profit to be much higher than your initial investment.
Three tips, whether you’re investing or gambling
While the two are different, you can’t deny that there are a few similarities between them. Here are three tips you need to keep in mind when you’re investing or gambling.
Don’t put in money you’re not willing to lose
When it comes to the amount of money you should put in, there is no difference between investing and gambling. You should only ever use money that you’re okay with losing. This is because there’s no guarantee that you’ll get that money back, let alone profit. It’s better to play it safe than to risk your food budget for the next two weeks.
A budget binder can help tremendously when you’re organizing your budget. Find out more about this amazing tool by checking out my article here.
Don’t do it unless you have emergency savings
You should only ever accept risk when you have some sort of safety net. In the case of investing and gambling, this is your emergency fund. This is ideally six months’ worth of your monthly expenses. Once you’ve built this, you can start using your money as you see fit.
Having a second opinion always helps
When you’re investing, having someone to talk to about potential investments can give you some valuable insight. When you’re gambling, it’ll be someone who’ll pull you away from the slot machines when enough is enough.
Smart investments are key to growing your wealth, but good financial advice always helps. That’s why you should join the money squad! As a member, you’ll receive personal finance tips and insider information from me. Signing up takes no time and is completely free, so join today!
