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Investing vs. Gambling: Here's How to Tell the Difference

Investing vs. Gambling: Here's How to Tell the Difference

October 04, 2021
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People often mix up the definitions of investing and gambling. For example, my nine-year-old son likes to tell me the stock market is gambling. On the other hand, my 12-year-old daughter embraces the idea of investing. To be fair, some investments do look like gambling and can bring about skepticism, anxiety or even fear. Our role as financial advisors is to alleviate the worry and help make your dreams possible.

 

While there are similarities between investing and gambling, there are some key differences.

 

#1. Long-term vs. Short-term

A majority of Americans have some level of investment in the market. We often see this in the form of a retirement account such as a 401(k). Investing in this type of account over a long period of time can help you build wealth and eventually allow you to retire. Despite volatility, the average stock market return is 8%. We often discover you can take less risk and still reach your goals.

 

Past performance is not a guarantee of future results

 

On the other hand, gamblers are looking for a shortcut to get rich quickly. Buying a lottery ticket or going to the casino is a short-term gain or loss. You don’t own an asset, and there is no interest or dividends to receive. While investing can be uncertain, it gives you ownership of an asset, like stocks, bonds or rental property, with the potential to increase in value over time. 

 

#2. Diversification *

One might say gambling is diversified. It comes in a variety of forms from betting on horses or a sporting event to playing poker. That is not the type of diversification we are talking about. When you diversify investments, you are protecting your money from market volatility. The goal is to reduce the likelihood of losing money and increase your ability to build wealth. There are two types of diversification to consider. The first is your asset allocation, **or how much of your portfolio is in each asset class. Investors want less money in riskier asset classes when approaching retirement. Stocks can be more volatile, making you more susceptible to a loss if the market goes south.

* A diversified portfolio does not assure a profit or protect against loss in a declining market.

 

** Asset allocation will not guarantee a profit or protect you from loss however, it may provide a hedge against risk and create opportunities in both bull and bear markets.

 

The second type is diversification within each asset class. For example, if half of your portfolio is in stocks, be sure there is a balance. Consider small-cap and large-cap stocks, international markets or a mix of growth-oriented and value-oriented funds. The same goes for bonds. At Zephyrus Financial Services, we can help you come up with a strategy that provides an opportunity for growth while taking on an appropriate amount of risk.

 

#3. A Goal-oriented Approach

Zephyrus Financial Services was founded on integrity. If you’re comparing advisors, we are going to look different, and that is intentional. Our relationships with clients are built on trust and transparency. Our focus is not on selling you products, and we don’t have quotas to fill. Instead, we listen to your unique retirement goals so we can build a financial roadmap that helps you reach your dreams. You can trust we will put your needs first, at all times and in every decision.

 

We do all our investment research in-house. We use our own models, review accounts every day and rebalance quarterly. Our passion for research means we consistently analyze your returns. Our attention to detail allows us to adjust different aspects of your financial roadmap to keep you on track.

 

Ask for Help

Investing does involve risk, but if it feels like you’re in a high-stakes poker game, it’s time to ask for help. Working with a financial professional can help mitigate those risks with proper planning. Whether you are still working or nearing retirement, we can create a customized financial roadmap built around your goals and dreams. It’s not too early or late to start! Contact us to get your retirement on the right track!

 

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