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Created on: June 24, 2008 Last Updated: April 07, 2009
In many ways, the difference between investment and gambling is like the fable of the ant and the grasshopper. Investing is putting your money to work like ants, working hard and storing up what you will need for the winter. Gambling is using your money like grasshoppers, enjoying the sunny summer without thought of rain or winter. It works, so long as it is perpetual summer. The current wintry climate of the real estate market demonstrates that having your money work like ants might be better in the long term.
We all make investments, if not in the financial markets. We invest time into a relationship or community. If you garden, you put work, water, and money into the garden and, usually, get lovely flowers and vegetables as your return. We invest time, money and work into our education. These investments give returns. Family and companionship may be the rewards of investing in a relationship or community. Fresh flowers and the beauty of our garden reward the efforts of gardening. A more rewarding career, possibly with a better salary, rewards investments in education. These are long-term investments, and the returns are not always immediate, consistent, or as expected. Moreover, not everyone wants the same rewards. Some people don't like weeding more than they like flowers, for a simple example.
So it is with investing in financial markets. The investing takes work, time, money, and the rewards are not always immediate or consistent. It takes time and a long view to reap the full rewards. In addition, not every investment and its return suit every investor.
Many of us also gamble. We might buy a lottery ticket, hoping to strike it rich. We might take a chance that we won't run out of gas when the needle is low and we don't have time to stop. Perhaps the gamble is small, like whether someone will be home when you happen to stop by without calling. Sometimes it is larger. Usually, if we lose a gamble we have chosen to risk only what we could afford to lose. It is when we gamble more than we can afford to lose that we get into trouble. The grasshopper of the fable gambled that summer would stay, and risked starving when winter did, as it had eaten all the food while the sun shone, and stored none.
In the world of personal finance, day traders, short-term investors, and those hoping to catch the latest financial wave gamble with their money. If they have the money, the nerve, and the wits to survive, they might do well on a particular day, or even on most days.
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