Investment and Asset Planning, LLC: Specializing in Estate Planning and Asset Management

Investing NOT Gambling
As more and more people are interested in stock market day trading, I am having discussions with a lot of people about several issues of investment philosophy. Such as: What is investing and how is it different from gambling?

Investing is putting your money to work in the business world. You can loan money to business or government organizations by using instruments such as bonds, notes, CDs, fixed account annuities, or savings accounts. Or you can be an owner of a business which provides goods and services which people need. Stock ownership is a common way to be an owner or shareholder of a corporation. This business is then working to earn a profit and grow as it serves the good of our society. If the business prospers then the owners will likely share in the business success by dividends and growth of share value. Investors are then putting their money to work serving society and looking for profits.

Gambling is the effort to take money away from someone else. In gambling one puts their money at risk in the hope of winning and taking money from the losers. Short term traders and many option and future traders are trying to use knowledge, skill, and luck to take money away from other short term gamblers. They can be gambling about sports, cards, slot machine numbers, or the direction of a stock price, bond prices, gold prices, cattle prices, or other investments. Their efforts are directed at the goal of taking winnings from someone else who is the loser.

People confuse these because they both contain risk, and may be using the same stock or bond markets as instruments. However, they are a lot different. The large majority of investors make nice profits over the years. These profits are not guaranteed, but if one uses the principles of sound long term investing, such as broad diversification, careful selection, professional management, and investing for the long term, then profits should be a realistic expectation. However the short term traders mostly lose money. In gambling, the casino is the almost sure winner or the brokers are the almost sure winners. Studies show that the costs of day trading or futures trading (commissions and such fees) take very large parts of the gamblers' principle. This can add up to 40% or more per year with active traders. So at the end of a year the brokers end up as winners and almost all of the gamblers end up losers.

I believe in investing and using the business world of capitalism to help ourselves and society. I believe in using the many methods of investing wisely and reducing risks. I do not believe in gambling. For some it is a sport and fun even when they lose, and the recreation may be fine. But gambling is not a good and sound way to try to live our lives or prepare for the future or to prosper.