Several times during a financial conversation, you would have heard people claim that investing in stock markets is quite similar to gambling at the casinos. Is it true? This article aims to answer that question for you. Read on to understand better.
Sure, investing and gambling has a few similarities – they both are acquired with a set of risks and choices. And, both these investment avenues have a potential to produce significant returns. However, gambling is often a short-lived activity. Conversely, investing in equities can take up an investor’s substantial part of life. Also, on an average, there is a negative expected return associated with gambling in the long run. What’s more, the probability to make significant returns is very low – sometimes even in 1 in 100. However, equities if invested for a long time usually produce significant returns to investors. So, comparing investing and gambling is like apples to oranges.
Investing
Investing is the art of allocating funds to an asset or a group of assets that helps you to fulfil your financial objective. The aim of investing is different for different people. Some may wish to accumulate higher returns to achieve their goals, while some may wish to allot their funds to highly liquid asset to create an emergency corpus, while some want to invest to simply preserve their capital. Understand your financial goals, risk profile, and investment horizon and choose the right type of investment that aligns to them. Remember that risk and return go hand in hand. So, higher the risk profile of an investment portfolio, higher is the probability to achieve higher returns.
Spreading your investments across diverse investment options will largely help to reduce your risk profile. This act is known as diversification. You can spread your investments across different sectors, asset classes and/or location. Do not forget to check the performance of the fund at different market cycles to understand how a fund is likely to perform in good and bad market conditions. If you are new to the investing world, you might consider starting your journey with mutual funds. An investor can invest in mutual funds either through SIP investment or lumpsum investment.
Gambling
Popularly known as wagering or betting, gambling is the act of staking something (cash, asset, or anything valuable) on a contingency. Gambling usually involves risking your assets on an event that has an uncertain outcome and involves high probability of significant losses.
Investing and gambling both involve taking a certain level of risk in hopes of higher returns. Both these activities aim to minimise risk and maximise capitals. However, investors have more information on how they can go about it. Also, over a prolonged period, the odds are usually in the favor of an investor than a gambler. So, what are waiting for? Now, that you have understood the importance of investing, make a plan, decide where to invest and begin your financial journey. Happy investing!
