Source: Create Wealth Through Long-Term Investing ...
- CDs & Bonds (Savings Bonds, US Govt Debt, Municipal, Corporates)
- Asset Backed Bonds (Mortgages, Credit Cards)
- Commodities (Gold, Silver, Oil, etc)
- Mutual Funds
- Hedge Funds
- Private Equity (Small companies)
- Collectibles (Fads, Antiques, Art)
- Real Estate (Outright land, REITs)
- Sports (Teams, Horses, Race cars)
After a while, investors who have become comfortable with stocks begin to buy futures and options. These exotic vehicles allow the persons to leverage their investments by outlaying a small portion of their money and purchasing the underlying stock or bond only when a profitable return is met. The image below is a payout graph for a call option. In this example, the $40 call option would be purchased for $2 only. If the price of the stock rises above $42, then the investor would exercise his option to buy the stock at $40 and lock in a guaranteed profit. However, if the price never reached $42, then the investor would simply lose his $2 investment.
- Lottery (+ Keno)
- Card Games (Poker, Blackjack, etc)
- Craps (Dice)
- Slot Machines
- Sports Games (Outcomes, Scores, etc)
- Racing (Horses, Dogs, etc)
- Games of Skill (Backgammon, Chess, etc)
A secondary difference is that the gambler usually has direct involvement in the game, whether he is a participant or a spectator. Third, gambling payouts are usually all or nothing, win or lose. For example, only one person wins a poker hand or racing event. Investors, on the contrary, do not typically lose their entire investment.
One may argue that the gambler has an advantage over the investor because there may be an individual skill involved. While that is true, a successful investor is also skilled in understanding their own underlying products. Thus, they too have control over their destiny.
Lastly, many may say that gambling only involves luck. That can also be said about investing. Luck has a lot to do with timing and market sentiment as well.