Investing vs. Gambling

If you have been wise about saving your money instead of going into debt to buy flat screen TVs, toys, or cars you may have some money saved. You may wish to invest some of this by buying into a company. For example you may get the opportunity to buy a part of the company you are working for now. Or you may know of a company that has a good product and is well managed. If you do know of such a company, then it may be wise to invest part of your savings in buying into this company.

But be aware that buying shares of a company is much riskier than keeping your money in the bank. If things go well you will earn a much better rate of return. But if things go badly you may lose all the money you have invested.

This long term investing by purchasing a part of a company is what capitalism is all about. The greater the risk of losing your savings, the larger the rate of return that you expect to receive.

Investing is a type of saving and this is good for society. But if you borrow the money from someone else in order to invest in a company this is much more like speculation or gambling. This is negative from the long term societal point of view.

So we are differentiating between investing and speculating/gambling. The difference is fundamental.

In accounting one has to understand the difference between tax avoidance which is both sensible and completely legal, and tax evasion which will get you sent to jail. Fundamental difference.
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