Is there a hard threshold? Do high risk investments such as penny stocks qualify as gambling? Do low risk investments? Annuities? Bonds? CDs?
This comment got me wondering.
Is it more to do with the venue? Stock markets and real estate vs casinos and the lottery?
Were the MIT Blackjack Team gambling or investing?
Is this just another semantic hotdogs are sandwiches discussion or is there an agreed threshold?
It becomes gambling when you are going on gut feelings without researching what you’re doing.
If you have an investment strategy that financial advisors approve of, let’s say investing 70% in a US index fund, 20% bonds and 10% high risk mutual funds that you don’t touch for years or decades, that’s investing.
If you’re just randomly picking stocks, buying and selling in order to make a quick buck because of some guy screaming at you on television without any real research into a company other than a few google searches, that’s gambling.
I want to remind everyone that there is no guarantee that the market / index funds continue to go up. It hasn’t happened in the US market, but look at the Nikkei over the last 30 years - if you had invested in the 90s you would only now be getting some of your money back - that is a long time.
I feel you have literally picked the single most unique example for markets not going up. You make it seem like the US’s market will need to experience the same thing eventually, and I don’t think most people would agree with that assertion. Japan’s economy is a very strange and unique case.
You make it seem like the US’s market will need to experience the same thing eventually.
You make it seem like it didn’t already: The US market didn’t reach its 1929 peak again until 1954. 25 years is a long time to hold out on withdrawing your retirement investments.
Here’s two other modern markets:
The Athens Stock Exchange had peaks in the 2000’s that haven’t recovered.
Ukraine’s stock market has ceased operations since the invasion.
These events are rare, but not unheard of.
This is the closest answer to what I’d agree with. It’s a shame the other top comment turned into something of a squabble, because I agree with a lot of what was said there as well.
Investing always comes with some risk. Buying land or a house is typically considered a safe investment in most of the world. But that house/land can undergo a natural disaster and be ruined. Putting money into anything not insured (FDIC in the US, for example) carries a non-zero percentage of risk.
At what point does that risk cross over into gambling? I’d say when you exceed your personal risk assessment level. I have what is typically considered a higher risk portfolio. I am in my 40’s, 90+ % invested in stocks, with a definite tilt to growth stocks. I have been in that same position since I started investing at 16 in a Roth IRA. I’ve been through a few financial crisis periods and have always held firm to my belief that in my investing timeframe that my strategy is sound. Never sweated it for a second, even when my balance was small, so as it went negative before I could afford to actively contribute much to building my balance. Now I am very solid into 6 figures, and I only earn average for my state, which is 58k, but that is fairly recent.
To get the type of growth I feel I need with the pay I get, I went in knowing I would have to assume more risk. So I did a lot of work to understand the safest methods to get that growth in exchange for the volatility that can be involved in that investment approach. I was willing to accept that risk, and I stand by it decades later. If I started playing with riskier fund choices, that’d be gambling. Some mega-big growth funds can be very tempting. But the fees for those funds are guaranteed while the gains are not. So chasing an extra 1 or 2% isn’t worth that added risk to me. Things like options and stock shorting I don’t understand well, so I stay away from them since I don’t understand the associated risks. That stuff is gambling, where you can’t count on yourself to have at least a sensible margin of control over what happens.
If you are new to investing or feel confused, I always suggest the Boglehead’s Guide to Investing. It’s not trying to sell you anything and explains things in pretty easy to digest terms and tells you how to develop a simple investing strategy that you can stick to and be a relatively hands off investor. It used to be free online, but I think that’s caught up in the Hachette vs Internet Archive lawsuit, so you can check out their Getting Started wiki which is an abbreviated version of the book, plus some new and updated stuff.
If its fun or get rich quick. Gambling.
If it’s some boring thing some adviser told you that you are sick of, that you then told your family and they are sick of it. You just going to leave it and forget about it. Then it’s investing.
Short term intent is gambling. Long term is investing.
If you’re trying to make money today, this week, the next quarter, year. You’re gambling.
If you buy into something, intending to stay in it for a long time (think years and decades) you’re investing.This is a bad outlook, there are plenty of low risk investment strategies that are meant as income generation, and it’s generally what you should switch to as you start needing to cash in on your savings, these are things like laddered tbills and dividend stocks.
You can go slightly riskier doing things like wheeling options if your tolerance is higher.
Investment profiles differ for a reason and the term of the investment is just part of the strategy.
I should add that ‘buy and hold’ does not make something not a gamble.
If I told you I bought a random crypto currency or penny stock with no future or fundamentals and plan to hold on to it for 10 years because I just know it’s gonna hit big, would you not consider that a gamble?
Yes. I’d call that an investment in crypto. A risky investment is still an investment.
Maybe we just define the terms invest and gamble differently.
I would say investment is giving your money / time / energy into something with the expectation / belief / hope that eventually in the long run, that thing will become what you want.
Gambling on the other hand, is putting money / time / energy into something with the expectation / belief / hope that it will eminently get you something you want.
Either could be high or low risk. They may not pay money out at all.
You make an investment in teaching your kids to drive, so they will be more independent and capable in the future.
You make a gamble on teaching your kids to drive, that they won’t get them selves into a wreck tomorrow.Gamble = Short term
Investment = Long termBut term is all relative, long term means something different for everyone.
A four week t-bill has the same term as a hugely out of the money long call on a meme stock, and yet one is a tried and true investment strategy and the other is very clearly gambling.
The difference isn’t the time, it’s the risk profile.
That’s what I mean by using different definitions.
I don’t use the terms gamble or investment exclusively as an evaluation or indication of risk; More as a term of intent.While I might not call a four week t-bill a gamble, I certainly wouldn’t call it an investment at all.
I’d be more inclined to call a savings account an investment; as a savings account can be used for more long term financial planing of one’s future.
I’d say that it is always gambling because there is risk involved.
But I would say that both traditional gambling and investments have the same threshold for problematic behaviour, and that is when you spend more money than you can afford to lose. That is regardless whether you win or not.
I do t consider bonds or CDs as gambling. They are guaranteed unless the entire financial institution dies, in which case your investment in ammo matters more than money.
With this approach every purchase is a gamble
I’d go further than that and say that deciding to leave the house or not, are both gambles.
But in the context of spending money with the only net result being you lose money, make money or retain the same money with no other goods or services provided in return. Then gambling is the primary attribute of that spend.
Bookmakers and investments meet that criteria, your other purchases are not.
Feels like it when my blueberries spoil on the way home as if the store used magic to keep them alive.
I’d argue investing is gambling with varying degrees of risk depending on what what you are putting your money into. Even if that risk is very low there is always a chance something crazy happens and you lose everything.
Ultimately it gets to the point of, is the risk higher than the risk of money in a bank account.
Given that (at least in the us) money sitting in a checking account is 100% risk with guaranteed negative returns (over time inflation will outpace interest), there are investments that can generally be considered safer (bonds, tbills, etc) than just holding dollar bills.
When you can’t afford to lose what you “invested”
IMO: When you do it for the entertainment/feeling/rush, it’s gambling. When you do it for the returns, it is investing. I also think the other poster that mentioned investing as being interested in the success of the endeavor, that would exclude shorting and I think might be a useful distinction.
Casino games and sports betting all have lower expected value (probabilistic value) than their cost, so they are not something you can do for returns (you have better expected returns by not participating).
There are plenty of people that are misinformed, dishonest, or stuck finding a bigger fool that will sell you a gamble by calling it an investment, and expected value is not guaranteed value.
If you’re talking about stock picking, hard disagree. Emotion has nothing to do with it whether or not it’s gambling.
If picking stocks was anything but a gamble portfolio managers wouldn’t have such a god awful track record.
Just because you are wrong about your expected value calculations (or were right but the actual return was on the lower end of the range) and have made a bad investment doesn’t change the fact that it was an investment because you were doing it for the returns.
In short, performance doesn’t matter for this distinction, at least IMO.
You can dress it up in whatever language you want but when nobody is able to consistently beat the market it looks a hell of a lot like gambling.
The DJIA (e.g.) isn’t “the house”. It isn’t something you are competing with in that your losses are its/their gain. You are misunderstanding both investing (in general and the stock market specifically) and gambling when you make that confusion/analogy.
Not beating the market but having positive returns is only “losing” when infinite exponential growth is the goal. Beating the market but having negative returns is not “winning”.
Always has been, just has better PR
Agreed, every investment has at least some kind of risk.
Well, investing is technically always a gamble including buying assets like a house or gold. A better question would be “When does gambling become investing” and in my opinion that’s when the expected return is positive.
Expected return for most crypto is negative, some are positive but they’re always a gamble.
MIT team took an approach that has guaranteed success if played enough times by using math. It’s not gambling, just playing a game.
Stock markets are always a gamble and investment, but buying index fund stock is less of a gamble than selecting individual stock because it’s less risk.
Another question to ask is “when does a gamble stop being a gamble?” and that’s broadly when the potential downside is very unlikely. Think buying treasury bonds, housing after housing crash, stocks after stock crash etc.
People also have very different views on “What is very unlikely to go down” so depending on who you ask stock, crypto and real estate can all be both gamble and not depending on which person is looking at it.
Neat question. Hotdogs are sandwiches imo.
That said, some types of investment provide additional advantages over simply appreciating in value. A stock can pay dividends, a house can be lived in, stuff like that. Could probably draw a distinction there. Additionally, some investments are guaranteed, like a savings bond. Could probably draw another there.
If I had to draw some clean line somewhere, I’d probably try define gambling as situations where you’re not intended to be able to “win money” on average, where investments are. The line is drawn via intention though, not anything quantitative. So, pretty inherently fuzzy.
Cube theory clearly established that hot dogs are tacos. It’s all based on the location of structural starches.
It’s always a gamble. What matters if it’s high risk or low risk. If you put it straight in a bank, I guess you’re gambling the entire economy isn’t going to be in shambles. If you’re gambling in companies, you’re gambling they’re gonna be successful.
And if the market collapses your money is useless anyway
Well there are still physical things. There’s gold, silver, precious metals, property, food, water, etc.
A lot of insurance investment came from gambling, so the line is kind of fuzzy.
I would like at it as trying to describe your investment strategy in terms of trying to maximize total expected value and giving yourself enough chances to get close to that expected value.
Investors hedge their risk, gamblers bet on it.
When it’s not government bonds.
It’s subjective… what does “gambling” mean?
Any thing you do has an element of risk, so you could say it’s a gamble.
In my opinion the shortest answer to this would be: When you go from index funds to individual stocks
