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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Invest, Gamble or Speculate; What's the difference?

Invest, gamble, or speculate. John's going to Vegas. Is that to gamble? Invest? something in between?

In this episode of Friends Talk Financial Planning, we talk about the key differences between gambling and speculating.

These include evaluating: John evaluates: What are your odds? Who is the "house?" How random is the outcome?

Bridget thinks more in terms of a continuum with investing on one end and gambling on the other. John may invest in an index fund, speculate on cryptocurrency, and gamble on craps.

Here's Bridget Sullivan Mermel's firm website:

John Scherer's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


Bridget: John's going to Vegas to gamble. That brings up the question, what's the difference between gambling and investing? Hi, I'm Bridget Sullivan Mermel. And I own a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. And I run a fee-only financial planning practice in Middleton, Wisconsin. Before we get started, Bridget, on this topic, I want to remind everybody to hit the subscribe button. By subscribing to our channel that helps other people find this information and helps you keep up to date when new episodes come out. So hit subscribe and then let's talk about gambling and investing. I'm looking forward to this conversation.

Bridget: John, I think it's a question that we get a lot because I think people feel like investing is a roller coaster. And really, what's the difference between putting all your money on a roulette wheel versus investing? And so talk me through it. How do you think about it and what do you think of Vegas?

John: Yeah. I'm glad you're not asking for my underlying psychological compulsion to go to Las Vegas next week. We'll save that for a future episode. But I honestly do talk about this with clients and the idea that, oh, jeez, gamble is like putting your money into the stock market and things like that. And I tell people that gambling actually is like investing in a lot of ways and in one important way in particular. But nobody ever talks about this.

There's one way you can make money in a casino. And it's sort of a trick question. How do you make money in a casino guaranteed? I guarantee you make money if you're the casino, right? If you own the casino and you're on the positive side of the odds, over time, you make money.

And of course, you might think, “How can I do this?” It's that little bit of a math advantage, right? The casinos don't have a 50% advantage over the players. They've got a 1% or a 2% or a 5% advantage. And what the casinos do is just keep you playing and keep you playing. And that 5% over time turns into giant skyscraper hotels, right? Like that's what happens.

Bridget: Yeah. So you're saying that with the odds in Vegas or any casino, about 45% of the time you win and 55% of the time the house wins or the casino wins.

John: That's right. And it changes depending on what game you play. I like playing the dice, playing craps, and the advantage is something like 1% to the house, 1 or 2%, right? So the game I like to play, 48 times out of 100 I win, 52 out of 100 the house wins on average, right? Sometimes I win all the time. Sometimes I lose all the time.

But if people never won at the casinos, they never come back, right? They have to be winners. And so how does that translate into investing? What are we talking about here? In investing, if you take a look at the stock market as a whole, over time, the market goes up. There's intrinsically built into stocks the idea that there is innovation and new technology, and capitalism in some fashion does work over time—these things work.

And you don't need to bet on whether this company or that company is going to be the next best thing. It's that, listen, overall, companies are going to be better next year than they were last year theoretically, right? In my lifetime, there's going to be growth, there's going to be new things that come out. And in order to be successful, all I need to do is be in the game and own companies over time.

This is similar to if I'm a casino. Casinos will have losing days, right? Sometimes the dice roll and other people win. But all I got to do, if I'm the casino, is just keep people playing and keep people playing. And eventually those numbers work in my favor. Those odds, if I just keep investing and keep investing and buy all the companies, eventually the innovation and the growth, that's all going to come down to me in some fashion. So that's how I relate that.

Bridget: Yeah. We talked about that in a previous episode. If you've got a broad, total stock market type of fund, instead of the odds being 45% in your favor, they're 75% in your favor.

John: In your favor as the investor.

Bridget: Yeah, right. And so you can believe what John just stated, which I believe, too. But let's say you don't believe it. You think companies don't add value. You don't believe his whole explanation. The actual fact is that 75% of the time, for whatever reason, the stock market goes up. So those odds are much better than the odds at a casino.

John: It's really crazy. I appreciate that viewpoint that you just said on that, Bridget. Because if you think about what we said about the casino, right, they win 55 times out of 100. And then the stock market, in general, stocks go up 75% of the time. As I said before, you think about those relatively small advantages the casino has.

And that's how they built Las Vegas. That's how they built Atlantic City, all those gigantic hotels and all the things. And here we're talking from an investor standpoint, a 75% chance of winning any given year. And you go, “Holy man, that is a big increase!” But it's so much different to think about when it's my money at risk, right? When I see that market, when I have those one in four years where it goes down, suddenly I go, “Ahhh!”

Bridget: Or those years are for three years. That doesn't feel good. Nobody likes to lose money. And that's a phenomenon called loss aversion, which we can talk about in another episode. There's another factor I want to talk about. I'm going to just talk a little bit about how I see it slightly differently than just investing or gambling. I look at it as kind of a continuum where I've got something in the middle, which is what I think of as speculation.

And so I would put cryptocurrency right now in that middle part. I hear arguments that sometimes persuade me for cryptocurrency. And it might pay off big time or it might just lose money—it might totally lose—I don't know which way it's going. People argue that there is some underlying value there. And it kind of persuades me occasionally. So I see crypto is in the middle.

And I see investing in individual stocks—shares of Tesla or Apple or Starbucks or whatever individual stock—I see that as not quite speculating, but certainly more like gambling than investing in the S&P 500 or in the total stock market. Because with any individual stock, you are getting on the days of our lives’ roller coaster with that stock.

And maybe that's fun for you. Maybe you like every time that Elon Musk talks, you can think, “Oh, that has something to do with me,” or every time Apple comes out with a new product, you think, “Oh, that's going to affect my portfolio.” Maybe you like that. But I think that, again, it's not quite speculation, because there is value in the company.

When you invest in an individual stock, you have this awesome unlimited upside and all you can do is lose your money. So, you have a limited downside, and you have an unlimited upside, which is actually better than gambling in a lot of ways, because in gambling, there's typically a limited upside. If you win the lottery, you can only win whatever the lottery is for. You can't win any more than that. But it's still in my mind, closer on the continuum to speculating and gambling, than to investing in the most prudent, wise way, which is what we recommend.

John: Yeah, that's great. I really like the “One Life to Live” reference. I was more of a “General Hospital” guy myself.

Bridget: I'm a “The Young and the Restless” fan myself.

John: That's great. Well, hopefully that's of some use to our viewers—that “How do you look at this?” And sometimes it does feels like I'm gambling when I'm talking about putting money into the stock market. It, however, doesn't have to be like that. I love that continuum idea of, listen, somebody could choose to be more aggressive, could choose to be speculative, but it doesn't have to be if you sort of look at your investments as being the house in a casino.

So, with that, I think that's a great place to wrap up here. Both Bridget and I are members of the Alliance of Comprehensive Planners, which is a national group of fee-only, tax-focused financial advisers. If you like the things that you hear here on our show, and you'd like to learn more visit to find an adviser in your area that thinks in a similar way that we do.

Bridget: And please subscribe. Thanks, John.

John: Thanks Bridget.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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