Gambling vs. Investing
Many people conflate investing with gambling, but the key difference comes down to expected value over time — and understanding the basics, your time frame, and your risk profile.
Have you ever had someone tell you they don't invest their money because they're "not much of a gambler?" I've run into this comment on numerous occasions. I've also heard the opposite. "I like to gamble, so I'm pretty risky with my investments." The main difference between gambling and investing is this:
Gambling = negative expected value over time
Investing = positive expected value over time
This is a topic that is more relevant today than at almost any other point in history. With the progression of social media—and now artificial intelligence—there are too many cooks in the kitchen. Anyone with a technological device can now have a platform. There are countless investment vehicles for individuals to "invest their money." There are stocks, bonds, mutual funds, real estate, precious metals, alternatives, and private equity to name a few. For the average person, it is increasingly difficult to know which vehicle is the right one to invest in.
Understanding The Basics
When I was freshly 21, I remember wanting to go to the casino to gamble. Not knowing how to gamble or what I was doing, I put $100 into a slot machine and in just one spin, it was gone. I had walked up to a high-limit machine where the minimum was $100. You can imagine how fun that was for me. In order to invest wisely, an investor should know where their money is going, who is managing it, what the time frame is, the fees involved, and more. By throwing money into something that is hard to understand, it may not perform the way you expect over time. I highly encourage those who are wanting to invest some money to understand the basics of what they are doing. This is true for stocks, rental properties, alternatives, and really any investment vehicle out there. Understanding the basics can not only create a positive expected value over time, but also a positive experience over time. Any investment that causes someone to lose sleep at night probably isn't the best fit for them.
Time Frame
In my opinion, having the incorrect type of investment for one's respective time frame is essentially gambling. For example – John wants to buy a home in the next 6-12 months. He has about $250k in a cash account ready to deploy as a down payment. At work one day, he heard several of his coworkers talking about how great their 401k is doing. John thought that if he could turn that $250k into $300k, his monthly payment will be a bit lower and more feasible. He decided to put that $250k into growth stocks, and within 3 months, the market dropped, leaving him with $100k less for his down payment. He might need to find a cheaper house.
This is the type of example where people say, "I lost everything in the stock market." In this case, John lost $100k because he took a…
