Gambling Vs Stock Trading

Gambling Vs Stock Trading

Think investing is the same as gambling or scratching off a lottery ticket?

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If something terrible happens to the country, like a natural disaster or a terrorist attack, stocks will go down. If the country flourishes and good times prevail, the stock market will most likely go up. By investing in the stock market you might say that you are betting on our future. Gambling in a casino is a whole different scenario.

Many people are nervous about putting their money in the market and hesitate because they believe that investing has more to do with luck than anything else.

In other words, they believe their ability to earn a return on their investment comes down to pure chance—like the flip of a card or roll of the dice. Investors and gamblers do have one thing in common: They both want to put more money in their pockets.

Investing vs. gambling

Investing and gambling could not be more different.

InvestingGambling
You control your risk. You can invest according to your goals and timelines: Conservative, moderate or aggressive.Risky. The odds are always in favor of the house.
Strategy: Slow and steady. Investors plan to make a consistent return on their investments every year.Strategy: Fast money. Gamblers bet it all for the chance to make a bundle fast.
Taxes: By putting your money in a retirement account, you can defer paying taxes on your investment earnings.Taxes: You have to pay taxes on any gambling or lottery winnings over $600

Here’s why investing your money is typically a better option for those looking to increase their wealth, rather than buying a lottery ticket, or going all-in with a pair of jacks:

The odds are in your favor

Anyone familiar with gambling has likely heard the phrase “the house always wins.” Since casinos are in the business of making money for themselves, that means the scales are tipped in favor of the dealers.

Investing is generally a much more effective way of making your money work for you. And most importantly, investors have a lot more control in where your money goes and how it can grow.

Gamblers hope for a quick win. Investors want to build wealth over time

For example, if you bet $1,000 that the roulette wheel hits your lucky number, you’ve got one shot at cashing in. Your odds? 35 to one. That’s a risky bet. And there’s a good chance you’ll walk away from the casino with less money than when you walked in.

Understanding risk

Investing involves risk. But by building a diversified portfolio with stocks, bonds, and holdings from multiple sectors (tech, energy, etc.), you can balance out your risk. In other words, you’re not betting it all on one investment—or putting all of your eggs in one basket.

If one investment goes down in value, you’ll have other investments that may hold steady, and keep your portfolio afloat.

For example, numerous advisers say an effective way to manage your money is by applying aspects of Modern Portfolio Theory (MPT). Nobel Prize-winning economist Dr. Harry Markowitz conceived the idea for MPT which formed the foundation for portfolio management by balancing risk and return.

Sports betting vs stock trading

The general idea of MPT is that by investing in a diverse assortment of stocks, bonds, and other securities in a multitude of countries, you can minimize risk.

Invest with a plan

You’ve probably seen news reports about people who win a lot of money at the casino or by playing the lottery. These make it seem like a lottery win is not only possible but probable. Unfortunately, it’s not. Losing is nearly inevitable when you gamble.

Gamblers hope for a quick win. Investors want to build wealth over time. Fast money sounds great but it isn’t an actual plan to get you to your goals.

Rather than just “win big,” many investors have a specific plan as to what they’re investing for in the long term. This goal, whether it’s saving for a down payment or a child’s college education, should align with your investment strategy.

Once you have a plan in place, you can adjust your portfolio according to your timeline.

The power of compounding

By choosing to invest your money with a solid strategy you can allow your assets opportunity to compound over time.

Here’s how compounding works:

Say you start putting away $50 a week in an investment account that owns a variety of stocks, bonds, and cash. If that account earns an average of 5% annually, you’ll have over $159,669 in 30 years when the interest is compounded annually.

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Sports gamblers have lots in common with stock market investors.

They both believe they can predict the future, and they sometimes fall into the trap of making decisions with their hearts instead of their brains. And of course, they both hate to lose.

But don't let those similarities fool you. Gambling on sports may be more fun, but it's definitely a more risky use of money than putting it in the stock market.

In the long run, investors have the chance to make more money because there are fewer downside risks.

To put it another way, the stock market is a lot more forgiving than the MGM Grand (let alone your local sports bookie).

'A lot of people regard investing as gambling, but I frequently say no. Which casino in Atlantic City, Las Vegas or Macau pays the bettor 73% of the time?' said Sam Stovall, chief investment strategist at S&P Capital IQ.

That's the percentage of time that Stovall's research shows the S&P 500 -- the gold standard in the stock market -- has increased in value during the years since 1926.

Those are pretty good odds.

The betting appeal: Americans bet an estimated $380 billion each year on sports. It's easy to see why fans may be tempted to gamble on their favorite teams and athletes. Gambling on football star Peyton Manning to win might seem like a safe bet, especially compared with picking winners in the stock market.

'You're making a wager based on some facts and some intuitions. And in neither instance can you be guaranteed to be correct,' said Randall Fine, managing director of The Fine Point Group, one of the casino industry's largest consulting firms.

Manning is really, really good at what he does for a living. Heck, even his commercials are funny.

But take it from one person who has lots of experience in both worlds.

'Betting is more difficult and riskier,' said one resident of Hoboken, New Jersey, who bets on illegal gambling sites and also invests in stocks. He asked for his identity to be withheld due to legal concerns.

Sports Betting Vs Stock Trading

'A large, steady company has a low chance of plummeting and causing you to lose all your money, but even Peyton Manning doesn't cover the spread sometimes,' he said.

All or nothing: Gambling on sports tends to be a zero-sum game. A bettor gambling on the Green Bay Packers will instantly lose his or her entire $500 bet if Aaron Rodgers and his teammates fail to win or cover the spread.

However, someone sinking $500 into Apple stock has little risk of losing that entire initial investment, especially in the short term. The stock might go up and down some, but it typically doesn't go to zero.

Investors also have the ability to spread their money out among many stocks. People often invest in funds that buy dozens or even hundreds of stocks, which helps reduce the risk.

And investors have greater access to tools that can minimize the risk of losing money. For example, a stop-loss order instructs a broker to dump a stock when it tumbles below a specific price.

Such hedging tools are not as readily or even feasible to sports gamblers, Fine said.

At the same time, investing in stocks actually carries higher upside potential. While many stocks offer steady returns, investors sometimes hit the jackpot (think: buying Apple back in early 2009 or Tesla in 2012).

Gamblers and investors also have far different time horizons.

A stock can theoretically be held onto for an infinite amount of time, but a sports bet can end in the blink of an eye.

Gambling Vs Stock Trading Platforms

Even the unlucky investors who jumped into the market at its peak in October 2007 eventually made their money back when stocks reclaimed their pre-recession levels in 2013.

The same can't be said for those who bet big on the Denver Broncos last Super Bowl.

Gambling Vs Stock Trading Halted

'You can hold onto your betting tickets all your life, but you're not going to get squat,' said Stovall.

Gambling Vs Stock Trading Stocks

CNNMoney (New York) First published August 31, 2014: 8:14 AM ET