It’s never been easier to gamble. Looking to place a bet on who will win the Big Game on Sunday? In many states, you just need to open a sports betting app on your smartphone to make a wager. One online brokerage firm even went as far as to offer the ability to bet on this year’s winner, before quickly reversing course.
Sadly, the lines between gambling and investing have been blurred like never before. Many online brokerage firms are enticing their customers to trade frequently by adopting techniques from the gambling industry, such as flashy graphics and frequent alerts. Many firms also steer customers toward risky trades that can become worthless in a matter of hours.
So how can you tell if you are gambling or investing your money?
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For starters, investing involves owning assets that produce value, such as earnings and dividends for stocks, interest payments for bonds or real assets that generate income or meet consumption needs. Buying assets whose value is solely driven by supply and demand is closer to gambling.
But that doesn’t mean that an investment can’t be turned into a speculation or gamble.
Sound investing involves following these investment principles:
- The first step for investing is setting a long-term goal, like saving for retirement or your child’s education. With a traditional portfolio of stocks and bonds, the more you invest and the longer your time horizon, the better your potential of having a positive outcome. In contrast, the more you gamble and the shorter your time horizon, the more likely your potential of ending up with a negative outcome, given the odds are stacked against you.
- Investing in a diversified mix includes different types of securities so your overall portfolio has balance, which can help to smooth out some of the short-term ups and downs. Gambling often results in an outcome where you win big or lose all the money you bet. Similarly, owning only a single security or trading cryptocurrency increases the risk profile of your financial portfolio.
- Investing provides you with an opportunity to keep your costs low so you can keep more of what you earn, like a low-cost exchange-traded fund (ETF) or a high-yielding savings account. Gambling requires you to make frequent trades to either time the market or reinvest an expiring option. And just because a brokerage may not charge a commission for a trade doesn’t mean that it’s free — on top of spread costs, most brokerages receive payment for order flow (PFOF), a practice where the brokerage pockets a slice of your proceeds every time you trade.
- Lastly, investing requires discipline, which can be much easier with investing than gambling. For example, you can set up an automatic investment plan that regularly invests into a diversified portfolio of stocks and bonds that aligns with your investment goals and risk preferences and voilà — if your goals and risk preferences don’t change, you probably don’t need to change your investment mix. Or as Vanguard founder Jack Bogle used to say, “Don’t just do something, stand there!”
Tune out the noise
Gambling takes a lot of work to monitor your positions and manage your overall portfolio — presenting more opportunities to let your emotions get the better of you.
However, not all brokerages design products and experiences for their success at your long-term expense. Again, most, but not all, brokerages accept payment for order flow, in which the brokerage essentially gets a cut of your proceeds every time you trade.
Of course, all investing is subject to risk, including the possible loss of principal; diversification does not ensure a profit or protect against a loss; investments in bonds are subject to interest rate, credit and inflation risk; and no particular asset allocation can guarantee you will meet your goals.
That said, the more you tune out the noise and focus on the things you can control, the better chance you have for investing success.
Related Content
- Is the IRS Coming for Your Gambling Winnings?
- Are You Betting on Super Bowl 2025? Don’t Forget Gambling Taxes
- Taxes on Gambling Winnings and Losses: 8 Tips to Know
- Want to Get Rich and Stay Rich? Avoid 10 Investing Mistakes
-
4 Career Moves to Make Now if You're Worried About a RecessionWorried about a recession? These steps to protect your job prospects will help you professionally whether a downturn develops or not.
-
How StoryCorps Works and How You Can Tell Your StoryStoryCorps has recorded conversations between thousands of people, and anyone can participate. National facilitator Alan Jinich explains how to share your story.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRAMillions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
9 Warren Buffett Quotes for Investors to Live ByWarren Buffett transformed Berkshire Hathaway from a struggling textile firm to a sprawling conglomerate and investment vehicle. Here's how he did it.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest RatesWith potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
-
Simple Ways to Save on Back-to-School Shopping This YearSet a budget and stick to it, scour the house for what you already have, decorate backpacks and lunch boxes with your kids and consider buying some items during holiday sales.
-
Stocks End Strong Month on a Down Note: Stock Market TodayThere was likely a bit of profit-taking ahead of a historically weak September.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages – until it wasn't.
