The critical difference between investing versus gambling and how you can tip the odds in your favor on stocks. Get your special sign-up bonus when you get started on Wealthfront. https://mystockmarketbasics.com/wealthfront
In this video, I’ll show you how investing IS similar to gambling but the critical differences that make stocks the better bet. I’ll reveal the trap that turns investing into a gamble and three ways to put the odds in your favor.
Now there are some similarities between gambling and investing but it’s in the concept rather than the execution. Both gambling and investing involve risking your money in the hope of a profit. In both, the investor or the gambler, is looking to minimize their risk and maximize the return.
But that’s where the similarities end and the differences come in. In gambling, there are very few ways to minimize or even control that risk. Investors have ways of hedging their bets that just aren’t possible in gambling. In stocks, you can invest in different types of companies so that some do well even if others are struggling. For example, you might invest in stocks of utilities companies that do well even if economic growth slows and interest rates fall while also investing in bank stocks that do better when interest rates rise on stronger growth.
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There’s also no ‘house advantage in investing as with gambling . Every casino game has a built-in advantage for the house. Play enough times and statistically, you WILL lose money. Even for stock traders, which is different from long-term investing, you’re still buying and selling against traders with the same public information as you have.
The key difference though, why investing is not gambling, is that in long-term investing those stocks make you an OWNER of a business and capital creation. You’re not trading your money for one-off bets that win or lose but actually profiting from the growth in a business. That’s the key many people miss…investing isn’t a bet whether you make money or not, it’s every person’s opportunity to get the profits from a business without having to manage it themselves.
That said, investors are sometimes their own worst enemy and there are ways they make investing more like gambling. Many investors are actually trading stocks instead of investing. They trade in and out of the same stock in a matter of weeks or even days, never giving the company the time to generate those profits for investors. If you aren’t holding your stocks for at least a year, you’re not an investor but a stock trader. Now, that doesn’t necessarily mean you’re gambling but you need to be using a trading plan rather than just flitting from stock to stock.
Another way investors fall into the gambling trap is they jump from hot stock to hot stock , buying on the recommendation of some Yahoo in a Bow Tie without doing any research. They put all their money into just a few stocks they hear about online and eventually they lose it all.
Joseph Hogue receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for sponsored advertising materials. Joseph Hogue is not a client and this is a paid endorsement. Joseph Hogue and Wealthfront Advisers are not associated with one another and have no formal relationship outside of this arrangement. Nothing in this communication should be construed as a solicitation, offer, or recommendation, to buy or sell any security. Any links provided by Joseph Hogue are not intended to imply that Wealthfront Advisers or its affiliates
endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. Investment management and advisory services are provided by Wealthfront, an SEC registered
investment adviser. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance.
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.