It’s important to have a clear understanding of the differences between investing and gambling. Most people know that gambling is foolish. For starters, the likelihood of loss is greater than the likelihood of gain. The gambling establishments (they now use the word “gaming”) set the terms of the transaction so that they are favored to win, and you are likely to lose.
Gambling always produces losses over time. You may win occasionally or even frequently, but this only sets you up for even bigger losses. In order for someone to win in gambling, someone else has to lose—that someone is ultimately going to be you if you choose to participate. A good financial steward avoids gambling and its associated risks. Unfortunately, some people look at the fact that investing also involves risk and therefore liken it to gambling. These people don’t understand the fundamental difference between investing and gambling: Investing typically involves the creation of value. Instead of a win-lose scenario, investing should be win-win.
When you invest in a company that is selling a product or service, it provides value to its customer and makes a profit for you, typically paid to you in the form of dividends. Then when you sell your stock in the company, hopefully for an additional profit, the buyer of the stock intends to continue making profits going forward. Win-win. Granted, there is risk of loss if things go wrong. But the intention is to create value and make a profit. Likewise, when you invest in rental property, the tenant pays rent for value received and you enjoy the income and tax write-offs, with the added hope of selling the property for a profit in the future. Win-win.
Investments create jobs, deliver value and create wealth. Obviously this is very different from gambling. Keep in mind, however, that not all “investment opportunities” offer rewards commensurate with their associated risk. Therefore, it is wise to seek the counsel of a qualified investment advisor.