Improve your odds of a comfortable retirement with smart investment strategies.

Which is safer, investing $100 in the stock market or placing a $1oo bet on a ballgame? With major fluctuations in the market, investing in stocks might sometimes feel like gambling. But while both investing and gambling involve risk, they’re not the same. Let’s take a look at five major differences and show you how wise investment strategies can improve your odds of a future that finds you financially secure.

What is Investing?

First, let’s look at investing. Simply put, investing is the process of buying assets – such as stocks – with the expectation that they will increase in value and provide income. With investing, risk and return go hand in hand. Investments that are low risk will typically yield lower results. Investments that are higher in risk can net higher returns. Investing is about having a long-term strategy for building wealth.

Risk and Return

Every investment involves some risk, whether you’re purchasing stocks, bonds, precious metals, real estate, or other assets.

In general, the lower the risk, the lower the expected return. Lower-risk investments like Treasury notes, Treasury bills, and Treasury bonds are issued by the U.S. Treasury and are backed by the government. When you invest in those, you’ll earn more than a savings account without a lot of additional risk. Corporate bonds and money market mutual funds are also investments that are typically low risk.

Conversely, higher-risk investments can result in higher returns. As an investor, you’ll need to decide the level of risk that you’re comfortable with. You’ll also want to consider how long you’ll be investing. Are you just starting out or are you closer to retirement?

Experts advise choosing asset allocation based on your investment objectives, time horizon, and risk tolerance. As your needs change, you can adjust the mix.

Types of Investments

As an investor, you have several options. Some that feature varying volatility but not necessarily the probability of a permanent loss over time include:

• Stocks and bonds: These include individual company stocks, mutual funds, and corporate and government bonds. Stocks – also known as equities – are securities that represent the ownership of a fractional portion of their issuing company. A bond, on the other hand, is kind of like a loan taken out by a company; they get their money from investors who buy its bonds. In exchange for this investment, the company pays the investor interest at predetermined intervals and returns the principal investment amount on the loan’s maturity date.
• 401(k) or IRA: A 401(k) is an employer-sponsored retirement account in which you regularly contribute a percentage of your paycheck to save for retirement. With a traditional 401(k), the contributors are made pre-tax, the money in the account grows tax-free, and the money is taxed when it is withdrawn. With a Roth 401(k), the contributions are made after taxes, it also grows tax-free, but the withdrawals are not taxed. Employer matching may also be offered with these plans. If your employer doesn’t offer a retirement plan, you can set up and contribute to an Individual Retirement Account, also known as an IRA.
• Real Estate: Many people like investing in real estate because it’s a tangible asset that they physically own. Real estate investments include purchasing property for lease, purchasing houses to renovate and “flip”, and purchasing stocks in Real Estate Investment Trusts (REITs).
• Precious Metals: Precious metals are elements like gold, silver, platinum, and palladium. Like with real estate, precious metals are real assets and hold value beyond investment purposes: Gold, platinum, and silver can be made into jewelry, and platinum and palladium have industrial uses.

What is Gambling?

Now, let’s look at gambling. Gambling is risking money – also called wagering or betting – on an event or activity with an uncertain outcome that is almost wholly dependent on chance. Instead of a long-term strategy to build wealth, gambling is an in-the-moment win-or-lose practice.  In short, gambling is high risk and has a negative expected return.

Risk and Reward

In contrast to investing, the odds are stacked against gamblers. In fact, all it takes is one bad bet and a gambler can quickly lose it all. While it’s true that professional sports gamblers use risk management techniques to help mitigate losses – they might research players and teams or study the betting patterns of their opponents – the average gambler isn’t able to protect themselves against losses. With gambling, the rewards can sometimes be big, but they are short-term gains and lack the stability of traditional investing.

Types of Gambling

There’s no shortage of activities waiting to take your money.

• Sports Betting: This includes wagering on games or teams, as well as horse racing (or pretty much anything else you can think of).
• Casino Gambling: Typical games include slots, poker, blackjack, and roulette.
• Lotteries: In addition to instant-win scratchers, tickets can be purchased for both state and national lotteries like Powerball and Mega Millions.

5 Differences Between Investing and Gambling

Now, we’ll cover the key differences between investing and gambling.

1. Better Value: First, with investments, you have ownership. When you invest in real estate, you own the property. The same is true of precious metals; you have a physical asset. Shares of stock represent ownership of a company, and some stocks reimburse you for ownership through dividends. The key takeaway is that even if the investment decreases in value, you can hold it either until the value increases or you can sell it. With gambling, it’s all or nothing. If you bet on something and lose, you’ve lost that money. It can be as little as a $2 lottery ticket or as much as a $5 million bet on The Big Game.
2. Better Odds: With gambling, the odds are most definitely not in your favor, and most everything is dependent on chance. While there may sometimes be big payouts, those payouts are few and far between, and even professional gamblers lose. As an investor, when you put your money into well-researched, strong investments, the odds of earning a return are far greater. Sometimes this means riding out a volatile stock market and staying focused on longer-term growth. While the market goes up and down, the average annual return is 10%. You won’t find that betting on a football game. Information is essential to making a smart financial move. Both stock investors and gambling study historical performance and current behavior to improve their odds of winning. While information about companies and stocks is readily available, you can’t say the same for gambling. You can find general information about the odds of winning at craps or baccarat, but at the end of the day, gambling is based purely on chance.
3. Dividends: Gambling is based on short-term activities while investing can last for years. With gambling, once the race or game is over, you’ve either won or lost. With investing, on the other hand, if you hold stock in a company, you can earn dividends, a key component to making money over the long term.
4. Diversification: Diversifying your investments can also improve your odds. A well-balanced portfolio often contains a mix of stocks, bonds, real estate, cash, and precious metals. Diversifying reduces the likelihood of losing money and increases you ability to build wealth. This is not an option when it comes to gambling. Because so much depends on chance, gamblers carry a high risk of losing money. As for diversifying your bets, this would likely only make your odds worse and your losses greater.
5. Limiting Losses: It’s important to remember that when you invest, you will sometimes experience losses. However, tools are available to help you avoid excessive risk, such as setting stop losses on your stock investment. For instance, setting a stop-loss order for 10% below the purchase price of the stock will limit your loss to 10%. In contrast, gamblers have few ways to limit their losses. Some online sportsbooks have added features such as in-play betting, which can be changed throughout game play, and partial cash-out options to help gamblers reduce risks and recover part of their bets. But in most gambling situations, if you bet and don’t win, you’re out all that cash.

The Best Investment Strategy

While gambling can be fun and provide momentary excitement and short-term winnings, it’s a risky way to try and build your nest egg. Experts recommend working with a financial advisor to design a thoughtful, well-researched investment strategy that can earn a reasonable return over time while avoiding undue risk.