Is investing in the stock market gambling?
- Investopedia states that a key principle for both investing and gambling is to 'minimize risk while maximizing reward.'
- The Balance reports that the 'first two and last two hours [of the day] tend to be the best times to trade the stock market,' however, those hours are often the 'most volatile.'
- According to Bankrate, the best investments in 2022 include high-yield savings accounts, short-term certificates of deposits, bonds, index funds, and dividend stock funds.
- A 2022 News Gallup poll revealed that 58% of Americans own stock.
Investing in the stock market is fundamentally different from gambling in that when one buys a stock, they technically own a small portion of the company in which they are investing. The investor is adding wealth to the company in hopes of a strong return. Gamblers don’t own any part of the game when they bet on red, for example. And if a player loses their stakes while gambling, the money is gone. Conversely, in investing, even if a stock price decreases, the investor still owns the share and can wait for the price to rebound. While both gambling and investing offer the opportunity to potentially increase one’s wealth, only with investing does one get shares of a company in return.
While there is uncertainty in investing, it lacks the element of chance involved in gambling. Investors use strategies, research, and analysis to make their investment decisions. When spinning a roulette wheel, there is no way to predict what number will come up. Playing the stock market is different because investors use knowledge about a company, industry trends, and government forecasts to make it much more likely that their investments will pay off.
Whether the stocks in one’s portfolio increase or decrease in value, there is one final significant difference between investing in the stock market and gambling; dividends. Stocks pay out dividends at differing rates and times, but savvy investors can choose stocks that will yield a strong return in the form of dividends even if they are temporarily losing money. There simply is no equivalent with gambling.
Gambling is defined as taking risky action for a desired result, and investing in the stock market is exactly that. In fact, there are many hidden dangers when it comes to the stock market that many do not consider, especially if one has no savings to fall back on or if an investment company goes bust.
Though people try to differentiate investing in the stock market from gambling, there are genuine risks. Even millionaires have lost it all when investing, showing that there are no guarantees, even when you have money to fall back on.
These days, there are an infinite amount of stock market scams people fall for, such as the Enron fraud in 2001. In this scandal, Enron hid an immense amount of debt from its investors and recorded fictitious revenues, confusing and even bankrupting many. Bernie Madoff is also known for scamming many wealthy people, showing that anybody can be fooled while playing the stock market.
One could even argue the stock market itself is a scam, made for people who already have money and insider knowledge. Notably, today’s stock market just isn’t what it used to be, and there is much evidence to support the idea that the modern stock market is rigged with insider training for the super-rich.
In the end, the line between investing in stocks and outright gambling is very thin, especially for people with little knowledge of how the market works. Buying stocks may have been less of a gamble in the past, but technology has fundamentally changed things, creating an unfair market for many. It's quite a gamble to trust your money in such a stacked playing field.