Is investing the same as gambling?

Have you heard this before from a friend or a relative? Or maybe that investing is just like crypto - too risky and should be avoided like plague? ⛔️

I have heard this quite a few times and I’d like to dispel this myth.

👉🏼 Why? Because I think everyone should be investing in the stock market to give themselves the best chance at growing their money and the freedom it can provide you.

Times are tough right now, especially for us millennials being squeezed left, right and centre, and investing can really help put our money to work.

Let’s bust this myth about investing

When people say investing is a bit like gambling, they often mean that you could lose all your money, just like at the slot machines 🎰. If you were to day trade and choose individual company stocks, that is certainly a riskier way to invest.

For example -

If you could have invested in My Space back in its heyday in 2007 (worth over $12 billion at the time) and expected to get rich years later, then you probably would have lost big 📉.

If, on the other side, you’ve chosen to invest $1,000 in Facebook shares in 2012, your investment would now be worth $6,863. That’s a whopping 486% return on your investment.

These two different scenarios quite well portray the risk factor when choosing to invest in individual stocks as that not only needs a lot of knowledge of the stock market, but also a lot of luck and good timing. A bit like crypto!

This is one of the reasons I don’t choose to invest in individual stocks - I just don’t know enough and don’t trust I can time the market.

How investing in index funds is different

If we look at the average stock market performance as a whole for the last 100 years (measuring S&P 500, which is a list of 500 large and medium company stocks in the US), it’s retuned a little over 10%.

The stock market has been around for a long time and we have some solid numbers to back its performance. Who wouldn’t want to get average returns of 10%?

If I invest in a global market index that comprises of multiple industries and hundreds of different companies stocks, then this is not much of a gamble as the fund is well diversified.

It’s like a basket within a basket within another basket with your eggs inside 🪺.

One of my Vanguard LifeStrategy investments comprises of the below index funds, geographies and industries. The top 10 investments is further made up of various company stocks.

The stock market can of course fluctuate, so to give the best chance at growing my pot I would want to keep it invested for a fairly long time (10 years or more). This way I can ride out any dips in the performance 🎢.

Based on historical data, If I was to hold my investments for over 20 years, the chance of losing money becomes 0.1%. Very different to the gambling odds!

What if you invest at the wrong time?

Most people who invest do it on a regular basis (also known as the dollar cost averaging method) - this way they buy the investments when they are high and also when they might be lower.

It helps with reducing the risk and averages out the share price fluctuations. As long as we invest for the long term and do it regularly, the risk shouldn’t be a big factor.

If you follow these simple principles below, investing should not seem like gambling at all. 

• Investing in individual stocks or day trading can be risky. We don’t want to do this.

• Investing in global index funds for long term and on a regular basis can really help build your wealth. Your investment would be well diversified.

• There is some risk involved, but it can be managed.

As always, you should do your own research and make the decisions appropriate for you 👊

My weekly recommendation

I have just discovered that Morgan Housel (author of The Psychology of Money) has a podcast! I couldn’t help but binge on multiple episodes.

I love how he breaks down different subjects on how psychology affects our beliefs about money 💸 

Until next time ✌️

Lina at Money Blues