PSA: Investing Money Is Not the Same As Gambling
Investing in the stock market is not completely reliable. It comes with a certain amount of risk and it makes some people compare investing to gambling or the lottery. But it is a weak, if not entirely inaccurate comparison that prevents many people from amassing wealth. Here’s how.
I recently talked about this comparison with Lori Itkin , a financial advisor and author . She mentioned that the comparison doesn’t make sense for many reasons, but mostly because of disagreement. If you invest correctly and follow some basic rules , the chances are very high. But this does not apply to gambling. I asked Itkin to clarify:
Let’s say you spend $ 5 a week on lottery tickets for 20 years. That’s $ 260 a year, or $ 5,200 in 20 years. Will you win the lottery? Perhaps, but your chances of winning are extremely low . The US stock market brings on average about 8% per annum. Over the past three years, things have been much better, but there have been several years when things have been much worse, for example, in 2008. But the longer the time horizon, the more likely you are to find out the 8% average annual return. …
If you are still skeptical, consider the ratio of people who amassed their wealth through investment to those who amassed their wealth through lottery scratchers.
This does not mean that investing is absolutely risk-free. And this risk, despite the explanations and the odds, may be too great for some. Maybe you don’t want to be market dependent. But keep in mind that you are still dependent on inflation . Without the investment, it could cost you.
Looking for even more convincing evidence? Check out this long argument from InvestorGuide .
Photo by Lisa Brewster .