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?
Any time you spend money on the chance to make money, it’s gambling, IMO.
Lottery ticket? Gambling. Buying stock? Gambling. Sports betting? Buying into a poker game? Believe it or not, gambling (which is the only gambling I’ll personally do since the game is still enjoyable even if I lose).
Spreading out stock purchases across the market guarantees returns over the long run.
Buying one stock is gambling, buying a wide spread of stocks (or an index fund that does so) and holding them for years is investing.
I agree in principle, but technically it’s really just very low risk.
Buying into a total market index fund at 90yo could be considered high risk since it’s not unlikely for the market to go down with no time for you to recover.
But does that make it gambling?
The key phrase is ‘over the long run’ and ‘holding them for years’. That 90yo wants to have long-ago moved their investments into bonds because, as you point out, a stock market downturn may not come back up before they die. Waiting out a downturn takes years and they are drawing down on their investments regularly.
Lol.
Buying one lottery ticket is gambling. Buying 1,000 different lottery tickets is investing. Got it.
Buying enough lottery tickets to guarantee a payout just ensures you lose money as the house always takes a cut. Investing, unlike the lottery, has the benefit of not being a zero sum game. There is wealth generated and buying something like an index fund and holding for years puts you in the group making a profit along with everyone else.
Example: If you bought VTI (an index fund) just before the 2008 crash (and subsequently lost a bunch of value during the crash), you would still be up 257% today. And that isn’t some outladish example; do the same with the S&P 500 and you are up 279% today. Purchasing for the long term and with a wide array of stocks is investing.
Edit: And in both of those examples you would be earning dividends the entire time as well, which is not part of the quoted %.
It’s technically not a guarantee, it is certainly possible for the entire market to take a dump at once. Over the long term – decades – it has been profitable to invest in the US stock market even counting these downturns. Like they say in all the stock prospectuses, though, past performance is not a guarantee of future results.
Still, I’ll take my chances with the market. At least if it goes to zero, I’ll have a lot of company at the homeless shelter.
🌎🧑🚀🔫🧑🚀
So emojis like this are the internet equivalent of the cockney rhyming slang, innit? I immediately translated that, but someone, in one hundred years with no knowledge of 2020s meme culture will think it’s complete gibberish.
There’s no agreed threshold. Everything we do in life requires some risk, like driving a car or using the stairs. Some safe things are bad for you and some risky things are good for you.
When you can’t afford to lose what you “invested”
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.
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.
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.
Any investment can be seen as a “bet”, the difference comes from the conditions out of which the return comes. Does it come out of a business’s operations, or a piece of some other source of income? Then even a high-risk investment is still an investment. Even an investment in an asset which is expected to appreciate in the future is still an investment, as long as that appreciation is based on something tangible. Walt Disney bought up a lot of useless real estate in the Florida Swamp, but had a plan as to how to make the investment pay off.
A gamble will have nothing concrete backing it, it will just be down to chance. Like betting on Red at Roulette. Or going to FanDuel and betting that Pete Alonso will hit a home run in tonight’s game. Those odds are made by professional bookmakers to make the chances as close to 50/50 (minus the sports book’s vig) as they can.
Basically, a gamble is up to random chance, an investment can be backed by a business case. But there are aspects of risk to both.
When
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The expected return becomes negative, or
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The risk/return ratio moves away from the efficient frontier with no other motivating factor.
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When it’s not government bonds.
