“An investment is simply a gamble in which you’ve managed to tilt the odds in your favor.” – Peter Lynch.

According to Financial Mentor, both [gambling and investing] are games of change. Both involve probabilities where you put money at risk with hope of a return, and both can make your hard-earned savings vanish if you bet wrong. But there’s a difference and that difference is known as mathematical expectation which “tells you how much profit (or loss) you can expect if you follow a gambling or investment strategy long enough to establish statistical significance.”

Investing is the bonus key to true financial success! When you invest, you force your money to work for you and generate additional cash. Otherwise, you’d have to either work more hours and/or earn more money to generate additional cash. And it’s obvious that you can’t work more than 24 hours a day and there’s a cap on how much you can make an hour.

On the other hand, gambling, including traditional gambling and blindly throwing money at stocks, bonds, mutual funds, real estate and other ventures, relies solely on prayers, luck and wishful thinking. It’s pretty much a raffle where the odds of losing are just insurmountable and probably not calculated.

Investing is not gambling.

Investopedia makes a compelling comparison:

Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a “hot tip” you heard at the water cooler is essentially the same as placing a bet at a casino.

True investing doesn’t happen without some action on your part. A “real” investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.

So before you throw you money at something with the expectation of a return, ask yourself 3 simple questions:

  1. Are you gambling OR Are you “Investing” AT a Casino rather than IN a Casino? Traditional gambling is obvious so need to elaborate (casinos, lottery, bingo, raffles, etc.)
  2. Are you “Investing” just for excitement or just to win?
  3. Do you know the mathematical expectation (probabilities and payoffs) of your investment?

Buying stocks because you think the value will go up, the market will go up, an expert recommended it or because you’re familiar with the company are all examples of gambling because they have no known mathematical expectation. Smart and frugal investors do not put a single dollar at risk unless they know the odds are in their favor and they can make a profit. Otherwise, it’s just gambling. So stop gambling and start investing.

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