Investing vs. Gambling – What’s the Difference?

Despite the common association of investing and gambling, they are very different activities. For many years, I thought that since I was good with money, I'd be naturally good at gambling too. Then I learned the truth about investing vs. gambling. What’s the difference between investing vs. gambling? Well the simple answer is math, but there’s more to it than that. 


In my mid-teens, I went to Atlantic City with my family for an evening on the boardwalk. I was deeply interested in money for someone my age so the idea of gambling was intriguing, to say the least.

Of course, you must be over the age of 21 to enter the casino floor in Atlantic City. But kids are allowed inside the hotels. We entered one of the glitzy hotels owned by a certain famed politician at the time, and my parents went to play a few slots.

Back at the beach house, I gave my Mom $3 in quarters and asked her to play them in a slot machine for me. I gave her strict instructions to play one quarter at a time and to walk away with the proceeds after playing all 12 coins.

I watched from a distance as she followed my precise instructions. She came back with about $5. I was disappointed to not hit the jackpot but proud that my strategy returned a profit.

Since I thought I knew a lot about money, I naturally believed I’d be good at gambling too.

Clearly, I had a lot to learn about investing vs. gambling.

Math

After a decade of attending bachelor parties in Atlantic City and Las Vegas, I’ve learned that I’m bad at gambling.

I lack the discipline to play “like you’re supposed to” in blackjack.

The one time I tried craps, I crapped out to the tune of $100 in less than five minutes.

Slots are fun. But terrible outcomes are inevitable.

Almost everybody sucks at gambling. Because of math.

The longer you spend gambling at a card table, roulette wheel, craps table, slots, or whatever floats your boat, the more likely you will lose money.

Now before some of you get defensive, I’m talking about gambling against the house. I understand that there’s an element of skill for certain card games such as Texas Hold’em Poker when you play against other people.

The biggest sucker at the table loses.

There’s also some card counting and stealth partnering skills that can be applied to blackjack that may give a very small minority of players a slight advantage over the house. But that doesn’t apply to 99+% of gamblers.

There’s a certain kind of machismo you see at casinos. “High rollers” dress nicely and look as though they know how to win. That kind of behavior might attract an audience for the evening, but probably not a profit.

Nearly all of us lose eventually. So the key is to gamble for fun, set a firm limit, know when to quit, and not develop an unhealthy addiction.

But despite being bad at gambling, I still love casinos.

I love the aromas piped into the lobby, the free drinks, the extravagant bars and nightclubs, the bustle, and the camaraderie at the pai gow table.

I enjoy a visit to the horse betting room, knowing that I’ll walk out with more money in my pocket than nearly everybody else without placing a bet.

Casinos are the perfect vice for a night of drinking, gambling, and entertainment without the kids. That’s my kind of fun every once in a while.

Investing vs. Gambling

Investing is not gambling if it’s done properly. Gambling is certainly not investing.

Here’s how the Merriam-Webster dictionary defines investing:

To commit (money) in order to earn a financial return. To make use of for future benefits or advantages.

The same dictionary defines gambling this way:

To play a game for money or property. To bet on an uncertain outcome. Take a chance.

Gambling games have odds. Those odds are calculable and become more accurate the longer a player plays.

Investing in the stock market is often compared to gambling, but investing is not a game.

Certain strategies are akin to gambling, like trading penny stocks, short-term speculation, and unprotected option strategies.

Those strategies should be avoided.

Properly investing in stocks, on the other hand, involves the thorough analysis of real-world data.

The stock market favors long-term investors and there is no house. The longer the period of time you invest, the more likely you’ll make money, unlike gambling.

From day-to-day, who knows what the market or any individual stock will do. But the long-term average annual increase of the S&P 500 Index is about 9%.

As your investment time horizon increases, so does your chances of earning 9%, especially if you’re investing in low-cost index funds and Dividend Aristocrat stocks in retirement accounts.

Another major difference between investing and gambling is ownership. When you buy a stock, you become a part-owner of a business. That business sells products and services, earns revenue, pays dividends, and has intrinsic value.

The company trades on a marketplace which fluctuates day-to-day, sometimes dramatically. But if you consider your investments as part of a long-term business instead of a risky bet on daily stock directions, you’ll be more likely to succeed.

With gambling, you’re nearly guaranteed to eventually lose. The math tells us so. Investing vs. gambling are, ultimately, not like each other at all.

Your Money or… Your Life

A giant $1.4 billion casino recently opened not far from my house. The evening of the grand opening, helicopters from the local news stations hovered all night above the massive traffic jam keeping awake nearly every child in our zip code.

Mrs. RBD and I waited a few months before visiting one of the casino restaurants on a rare date night.

For three years, I commuted past the construction site monstrosity almost every day as it was being built.

Knowing my love of casinos and gambling (and respect for the math), I declared that I would never bet a dollar in that place. It’s too close, and gambling addiction is too dangerous.

I recently learned that someone I know ruined his financial life by spending it all at a local casino. At his age, he should be retired.

At this stage in my life, I’m confident that I have enough self-discipline to avoid becoming a gambling addict. But why risk it when the casino is so damn close by? I’ve lost money at the blackjack table and quit, only to return a few hours later in hopes of winning it back.

I didn’t.

The Force is strong in casinos. An addiction would quickly become the greatest risk to my early retirement goal. It’s not worth testing the waters so close to home.

I’ll save my strict gambling budget for the next time I’m in Las Vegas or Atlantic City. As a suburban Dad with zero single friends, I don’t expect that invitation any time soon.

Do you like to gamble? What’s your take on investing vs. gambling?

Photo by ThomasWolter via Pixabay

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6 Responses to Investing vs. Gambling – What’s the Difference?

  1. Steveark October 18, 2018 at 11:15 am #

    I’ve never understood the lure of gambling. Maybe as an engineer the fact that the math shows it is nonsense in terms of any real chance at profiting turns me off. But I have had at least one friend who was a gambling addict. He was brilliant and hard working and utterly incapable of overcoming the temptation to gamble away his paychecks. So I know it is real, and like all addictions is a horrible disease that destroys lives. You of course don’t suffer from that but you obviously have seen others that do and are very cautious because of that. I thought this was a thoughtful and interesting post well worth reading.

    • Retire Before Dad October 18, 2018 at 11:19 am #

      Thanks Steve. I guess I’ve felt that addictive urge to continue gambling a few times to know it’s real. Going down that path would be devastating. Back when online pocket was a thing, I saw a few others wasting their time on it. It was assumed they were winning, but who knows.

  2. Oldster October 18, 2018 at 2:43 pm #

    I counted cards for a bit in the mid-80s (remember, I’m an Oldster). It worked and I made some money, but it was hard work. Harder than the job I had at the time, so after a few months, I gave it up. I still gamble occasionally, but look at it as an entertainment expense. Going to the movies, dinner, a show or concert all cost something and my very rare casino trips fall into that category. And sometimes I win, which I never do at the movies or at a concert.

  3. Joe October 24, 2018 at 10:39 am #

    My dad likes to gamble. It’s not good for the family life. That’s mainly why I don’t.
    Gamblers think they’re smarter than everyone else, but that’s not necessarily true.
    I’m with you. Math doesn’t lie. It’s better to invest in the stock market over the long-term than gambling.

    • Retire Before Dad October 24, 2018 at 11:58 am #

      It’s definitely fun. But I hear about too many people making too many trips to the casino when it moves into town. Not to mention the lottery that’s always there. It’s all a tax on people that don’t need to be taxed any more.

  4. Miguel November 13, 2018 at 12:09 pm #

    Great article! Whether skills impact games of chance like poker aside, it can be a bit dangerous to equate gambling with math, because sometimes math actually supports gambling. That’s usually the case in certain lottery formats where the cost of participating is fixed and the odds of winning is constant, but the prize that can be won varies and sometimes reaches astronomical levels. Even if the odds of winning are exceptionally low, if the prize money is large enough, then the math would gambling because the potential returns (prize money x odds) would be more than the cost of the lottery ticket, so in a purely mathematical model, lottery tickets become a very sensible investment because you are theoretically expected to receive more then it costs to participate. You need more than math here to stop you from wasting all your money.

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