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Is the Stock Market a Casino?

There is one statement that causes most financial advisors to cringe with disgust. You have probably heard it. It goes something like this: “The stock market is the biggest casino on Earth.”

If you want to get a rise out of an advisor, that’s a great phrase to use. If you want to get rich, though, it’s a real roadblock.

People often lump gambling and investing together. But is that fair? Actually, there is a treasure trove of data on each to objectively compare the two. Spoiler alert! They are about as similar as salad greens and a bacon cheeseburger.

Let’s look at the data.

Your best odds at a casino are at the blackjack table. When playing blackjack, the casino has about a 1% edge on you. That means if you play the game at a skilled level you would be expected to lose one penny for each dollar you bet on average. The longer you play, the more likely you are to experience this outcome, which, to be clear, means a loss of money. Slots are even worse. The casino often has an edge of 6% to 15% each time you pull the lever.

Compare that experience to the stock market. Since 1928, the U.S. stock market has ended higher 54% of the time on a daily basis. So if you plunk down $1 on the S&P 500 on any given day, you have a roughly 54% chance of ending with something more than a dollar at the end of the day.

That’s not all, though. The scales tilt in investing’s favor even more. Unlike gambling where the longer you play the less likely you are to win, investing is just the opposite. The longer you invest the higher the probability of coming out on top. The chart below supplies the details.

To be clear, casinos are in the business of separating you from your money. They play up the possibility of hitting it big to keep people coming back. In the long run, however, the house always wins.

Gambling may be fun, but the long-run outcome is clear. You are likely to lose money over time. Investing in the stock market, on the other hand, is altogether different; over time it is likely to increase your wealth.

When it comes to gambling versus investing, there’s no comparison. The market offers you something no casino ever will: winning odds.

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