People frequently say that investing in the stock market is just gambling.
– Is that true?
– Would it be good if that were true? Let’s find out.
– Is that true?
– Would it be good if that were true? Let’s find out.
If you spend $1 gambling, what’s the average you get back?
If you have perfect skill in the game it is:
– Roulette: 94.74c
– Blackjack: 99.37c
– Slot machines: 85-98c
– Blackjack: 99.37c
– Slot machines: 85-98c
Return on U.S. Stock Market over a long period of time:
– Around $1.04 to $1.05 per year (after inflation)
So–is investing gambling?
No. Investing tends to give you money and gambling tends to lose you money.
The difference raises the question, why would you gamble? Isn’t it more fun to get money that lose it? Psychologically, maybe not, but you can probably get used to making money if you set your mind to it.
One caveat on making money in the stock market. Rather than needing perfect skill you need so-so patience and a small amount of humility. Those who imagine they have skill in stock picking do worse than if they just flipped a coin. If you panic (sell low) or get enthused (buy high) you tend to get much lower returns than if you just buy low cost passive index funds and hold them for a long time.
