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Is Investing in the Stock Market Gambling?

Carrie Schwab-Pomerantz on

Dear Carrie: My boyfriend is on his phone all the time trading stocks. Sometimes, he makes a lot of money quickly, and other times, he gets upset because he loses. Overall, though, he says it's fun and that I should invest too (right now, all of my money is in savings). To me, it all feels like gambling and scares me. Am I missing something? -- A Reader

Dear Reader: I can't say for sure what your boyfriend is doing, but I think you're onto something important, with the recent GameStop episode being the latest and most extreme example of stock speculating gone awry. Online tools have made it very easy to trade stocks with a simple click, often at no cost. Although this is convenient, it also allows people to buy and sell stocks without carefully thinking through their decisions. And therein lies the potential problem -- and the distinction I make between sound investing and wild speculating (or as you say, "gambling").

Your question also brings me back to when I was in my early 20s. Like you, I had always been a good saver, but I was at a loss when it came to choosing investments for my first IRA. I turned to my father, whose advice was simple: "Pick two broad-based equity funds and split your money."

Like your boyfriend, I wanted to see a quick profit, and was sorely disappointed. It took me years to understand the wisdom behind my father's words: Building wealth through investing isn't about hot stock tips or fast trades but about starting early and participating in the markets consistently throughout one's lifetime.

I was fortunate that my father got me started on the right foot. True investing isn't like gambling. And it's much more than saving. It's serious business, for sure, but it can be immensely rewarding and potentially a great way for both you and your boyfriend to reach your long-term goals.

Saving and Investing Work Hand in Hand

 

Saving and investing are completely different animals. But despite their differences, they work hand in hand in building long-term wealth and financial security.

Saving money is spending less than you earn and setting that money aside for the future -- whether that's for an emergency or for a specific goal such as a vacation or a new home. Most savings are held in conservative accounts that are safe and easily accessible but have minimal growth potential. That's appropriate for short-term goals, but your savings are likely to lose value over time when taking inflation into account.

When you invest, on the other hand, you're using money to try and make more money. As your investments grow in value, that growth can compound. Over time, this can lead to significant gains. Time is an essential ingredient, helping to smooth out market volatility. That's why when you have a long-term goal such as a child's education or retirement, investing is especially important.

Gambling and Investing Are Totally at Odds

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