Is Investing The Same As Gambling?

Imagine you walk into a Las Vegas casino with $1,000. If you’re lucky you could make $10,000 tonight. If you’re not, you could lose it all. The thrill of it all is intoxicating. 

Gamblers rely on a little bit of skill and a whole lot of luck. But people are drawn to gambling, despite the very real chance of losing every penny they have, because they might win big. 

This is the complete opposite of investing. 

What is investing? 

Investing, at its core, is putting money into something, with the hope that you’ll get more money out of it later. That’s it. 

In this way, it is similar to gambling, but the way I invest, and the way most money coaches invest, is way more boring than gambling. 

You buy a couple of low cost index funds and some bonds and then sit on your hands for a decade while the money grows.  

You’re not going to “make a quick buck” or turn your pennies into millions overnight. But, index funds are one of the most dependable investments and with diligent contributions they are a very reliable way to build wealth. 

But isn’t investing risky? 

Short answer: it can be. 

It’s true that you can lose money investing. It’s true that no one can predict exactly what will happen in the stock market in any given day or year. 

But, it’s also true that the stock market goes up over time.

So, whereas a gambler might lose hundreds of times chasing the high they got from winning big once, an investor has tiny wins all the time. Investments went up $500 last month? Win! 

But, I get it. You think - cool, I get that the stock market goes up over time and that it’s probably the logical choice for my money, but I’m just so scared of losing money! It’s too risky! 

I totally understand that it’s scary to think about losing money. I’m scared of losing money too. 

But, I have to hit you with a hard truth here: if you do not invest, you will be running on the money hamster wheel for the rest of your life. 

Imagine working for 40 years, only to reach retirement age at 65 and… have to keep working because you can’t support yourself without a paycheck.  

Say goodbye to a retirement of long walks on beaches and leisurely days playing backgammon. 

Saving your money is never going to allow you to support yourself in retirement. 

Look at it this way: if you save $1,000 every month starting when you’re 18 years old, it will take you 83 years to save $1 million. You’ll retire at 101, if you live that long. 

If you save $1,000/month starting at 18 years old, you will retire at 101.

You will never, ever be able to save enough money to retire. The reason? Inflation. 

That pesky little bugger: inflation

Inflation is when the value of $1 decreases, making things more expensive.

If you’ve ever pulled up to the gas station and thought - the price went up again?! - then you understand inflation. 

So, if you focus on saving instead of investing, you may increase the dollar amount in your savings account, but if you’re not keeping up with inflation then the value of your savings is decreasing every year. 

The average rate of inflation is about 3-4% (although that can go up, as we saw in 2021). So, that “safe” money in your savings account is losing 3-4% of its value every year. 

Unfortunately, this is one of those “damned if you do, damned if you don’t” situations. 

Yes, it is possible to lose money through investing. But, you will definitely lose money if you leave your money sitting in a savings account to get eaten away by inflation. 

So what do I do? 

Take baby steps. 

I understand investing is scary and you are terrified that you will lose money. Here are some baby steps to get you ready: 

1. Set up an emergency fund 

The stock market can go up and down. After it crashes, it can take years to recover. This is why you always want to have some money set aside for emergencies. 

Once your emergency fund safety net is in place, you’ll feel better about investing because you know that emergencies are already covered.

Start with an emergency fund of 3 months of living expenses. If you can, make it 6 months. If you’re an entrepreneur or have irregular income, you can even make it 1 year. 

But after that, it’s time to start investing. You don’t want to over-save and risk the wrath of inflation. 

2. Pay down your high interest debt 

Next, if you have high-interest debt, generally considered to be 6%+, it’s probably a good idea to focus on paying down the debt before investing. 

Yes, investing is an incredible wealth building tool. But, if you’re paying 18% interest on your credit card debt, you’re losing a lot of money on interest. 

Focus on paying down that high-interest debt so that you’re in a stable financial place to start investing. 

Investing is for the long-term, so what we do not want is for you to buy an investment, and then have to sell it at a loss because you need to make a credit card payment. 

3. Start with an employer sponsored retirement account like a 401k 

If all investing is new to you, I’d highly recommend starting with your company’s 401k. Your HR team probably already has specific instructions booklets for setting up your account, and if they don’t you can ask them for help. 

Also, 401k plans usually have limited investment choices. In general, I like having more choices but if you’re an investing newbie, less options helps prevent analysis paralysis. 

Your account probably only has about 25 possible investments. You can just choose the Target Date fund and be done!
  

4. Investing money is for 5+ years 

Remember, investing is for money that you are not planning on using for at least 5 years. 

The reason being, the stock market can be volatile and you want to give your money time to recover if the stock market drops. If you put $25,000 into the stock market hoping to use it next year for a down-payment on a house, and the market drops 50%, you’ll either have to sell your stocks at a loss or wait to buy a house until your money recovers. 

Neither of these situations is ideal. For now, consider that investing money “gone”. It’s off working for you somewhere else and you don’t need to touch it for now. 

*Pro tip: If you’re still absolutely terrified of investing, start by just opening an account. Many companies will let you open an account with just a few dollars. Put in $50 just to see how it feels. When I first started investing, I was so nervous that all I did for a few months was just log on and browse the account features. Over time, I became more comfortable with the platform and started actually investing.

Final thoughts 

I know investing can seem scary. Maybe it gives you ostrich syndrome and you just want to stick your head in the sand, forget adulting and watch old episodes of Spongebob. I get it. 

But investing your money is also one of the most important things you will ever do in your life. Investing provides stability, grows wealth and ensures that you have enough money to take care of yourself and your family throughout your life. 

You don’t need to become Leo DiCaprio in Wolf of Wall Street to start investing. You just need to open an account, start putting in money regularly and watch your wealth grow.  

Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.