Center for Personal Financial Management

Is long-term investing considered gambling?

By Justin Kizer | April 22, 2024

Defining Long-Term Investments

In order to differentiate long-term investing from gambling, we first have to cover some background on each. First, we’ll build a foundation on long-term investments. Most people know that long-term investing is critical for anyone who plans on retiring. Traditionally, an individual’s long-term investments have been managed by a bank or financial planner. The person hands funds over to the investment manager. With that money, the manager buys a mixture of stocks, bonds, mutual funds, and other investments. They do this to build a diverse portfolio and mitigate risk as much as possible. The goal of these investments is to acquire consistent, long-term growth. Usually, a long-term investment is left alone for a minimum of five years. Often times, these investments are left much longer than that. The goal of all of this is to let the investment amount compound on itself and grow large enough to start pulling money out as “income” during retirement.

Defining Short-Term Investing and Gambling

With the quick rise of Robinhood, and other similar apps, people now have easy access to direct control over their own investments. This quick and easy access means that any ordinary person can buy and sell stocks at rates that previously could only be done by Wall Street Day-traders. Having this power with just the download of an app creates more opportunity for misuse as people can buy stocks with one click. This ease of access usually results in people buying shares in companies that they have never heard of, let alone had the opportunity to thoroughly examine the financial statements. This encourages people to hop on trends and buy stocks that are growing fast with the hopes of becoming a millionaire tomorrow. Doing this poses a major issue because the rising prices only occur as a result of the sheer volume at which the stocks are being traded. This causes a temporary upward pressure on the price that is not sustainable for more than a few days. Eventually, the bubble pops as people begin selling the stock quickly. Anyone who holds on to the stock for too long begins to rapidly lose money on their investment. The term for a scenario like this is referred to as a “pump and dump” strategy. These used to be fueled by a few big money investors collaborating together. An example of this is what Jordan Belfort did in “The Wolf of Wall Street.” Now these schemes are usually fueled by social media. This was seen during the Gamestop and “Doge to the moon” trends. In order for somebody to win in a short-term investment scheme such as this, somebody else has to lose. In economics this is referred to as a “zero-sum-game” and it is the precise definition of gambling. The people that almost always end up on the negative end of these schemes are the short-term investors using phone apps. The Bible clearly warns us about situations like this in Proverbs 13:11, saying, “Wealth gained hastily will dwindle, but whoever gains little by little will increase it.” This verse warns us about the dangers of trying to get rich quick and advises us to seek out slow growth over the long term.

Why is Long-Term Investing Any Different?

Long-term investing is different than short-term “investing” because of the mechanics that drive the profit. When investors by stocks looking for long-term growth, they are purchasing a share of that company. The company uses the money that it receives from this to buy things such as capital in order to become more profitable. As the company starts turning more profits, it grows larger, and its stock prices start rising. When the prices rise, the profits are there to be made for the stockholders. This is a positive-sum-game because both the company and the investors become profitable and there is no clear loser. This is the distinguishing factor between short-term gambling and long-term investing. The moral implications and outcomes of each are drastically different.

Final Thoughts

As Christians, we are called to be wise in our investments because the money we use to invest in companies is not ours, it’s God’s money that we are trusted to manage. With the responsibility of managing, we are also called to be good stewards. In other words, we are called to not waste money and to avoid spending it in ways that can hurt others. Two big components of good stewardship are wise investments and ethical investments. The safest option for investing is to do it with the help of a financial planner. They know what they are doing and can explain things that you don’t understand. If you want to directly handle your own investments, you should know that you are adding an extra level of responsibility to yourself and are ultimately accountable to God for the decisions that you make. Before investing in any company, it is important to first research the company’s values, as well as their previous financial history. This is the best way to ensure that is it a positive-sum-game, rather than a zero-sum-game and to ensure that you are managing God’s money in a way that would please Him.

Justin Kizer, Peer Coach, Center for Personal Financial Management

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