This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff.
About the Author. Paul V. Most Popular. Tax Breaks. February 25, Income investors are often all about dividends, but that may not be a smart strategy for retirees.
November 8, The Best T. Rowe Price Funds for k Retirement Savers. Kiplinger's Investing Outlook. A dozen T. Rowe Price mutual funds enjoy a place among the nation's most popular k retirement products.
Find out which ones are worth your invest…. November 4, Not so fast: There are similarities too The greatest similarity between investing and gambling is the assumption of risk, which is intrinsic to both. The good, the bad and the ugly It would be hard to argue that investing is not a good thing, as it benefits both the wider economy and individual investors.
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Measure content performance. Develop and improve products. List of Partners vendors. How many times during a discussion about finances have you heard someone say, "Investing in the stock market is just like gambling at a casino"? True, investing and gambling both involve risk and choice—specifically, the risk of capital with hopes of future profit.
But gambling is typically a short-lived activity, while equities investing can last a lifetime. Also, there is a negative expected return to gamblers, on average and over the long run. On the other hand, investing in the stock market typically carries with it a positive expected return on average over the long run. Investing is the act of allocating funds or committing capital to an asset, like stocks, with the expectation of generating an income or profit.
The expectation of a return in the form of income or price appreciation is the core premise of investing. Risk and return go hand-in-hand in investing; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. Investors must always decide how much money they want to risk. Longer-term investors constantly hear the virtues of diversification across different asset classes. However, risk and return expectations can vary widely within the same asset class, especially if it's a large one, as the equities class is.
For example, a blue-chip stock that trades on the New York Stock Exchange will have a very different risk-return profile from a micro-cap stock that trades on a small exchange. This, in essence, is an investment risk management strategy: Spreading your capital across different assets, or different types of assets within the same class, will likely help minimize potential losses.
In order to enhance their holdings' performance, some investors study trading patterns by interpreting stock charts. Stock market technicians try to leverage the charts to glean where the stock is going in the future. This area of study dedicated to analyzing charts is commonly referred to as technical analysis.
Investment returns can be affected by the amount of commission an investor must pay a broker to buy or sell stocks on their behalf. When you gamble, you own nothing, but when you invest in a stock, you own a share of the underlying company; in fact, some companies actually reimburse you for your ownership, in the form of stock dividends.
Gambling is defined as staking something on a contingency. Also known as betting or wagering, it means risking money on an event that has an uncertain outcome and heavily involves chance. Like investors, gamblers must also carefully weigh the amount of capital they want to put "in play. If the odds are favorable, the player is more likely to "call" the bet.
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