Isn’t Investing Just Gambling | Your Money, Your Choices with Susan Daley

Isn’t Investing Just Gambling | Your Money, Your Choices with Susan Daley


Frequently I’d overhear friends talking
about the next hot stock that they were planning
on buying and how it was going to take off
and make them lots of money.
It’s no wonder 51% of Canadians agree that
investing is like gambling according to a
BlackRock survey.
You have to buy the next big stock in order
to reach your retirement or other goals…Well
I’m here to tell you that’s not true,
so you can relax and start thinking strategically
with your money.
I’m Susan Daley and this is Your Money,
Your Choices.
Let’s take a step back.
If investing isn’t like gambling, what is
it and why should we partake in it?
Our economy consists of companies and governments
who borrow your money (excess cash that you
don’t need right now), and use that money
to fund their business or projects.
The return you get on your money is their
cost of being able to access your savings.
Say I want to start up my own cupcake store
in Waterloo.
In order to start my cupcake shop, I’ll
need some money.
There are two main ways I can get this money
(assuming my family isn’t a bunch of millionaires
willing to give it to me for free…)
The first way is through borrowing that money
through debt.
I can take out a loan.
In return for loaning me this money, the bank
or lender will get an annual return, say 5%
until the loan is repaid.
The second way is through equity.
My uncle has extra cash that he willing to
invest.
He’s tried my cupcakes and thinks they are
fantastic and that my store is going to knock
it out of the park.
Rather than asking for a set interest rate
on the loan, he is willing to provide the
money for a share of the profits in return
(which are going to be large, since my cupcakes
are so awesome).
In the public markets, anyone can loan companies
or governments money in the form of debt.
There are multiple terms for this in the finance
world, including bonds, and fixed income.
When you lend your money, you receive a fixed
percentage return for that money you lent
and receive the initial loan balance at maturity.
The interest you receive won’t be higher
than what’s stated in the terms, but there
isn’t a large chance that you’ll lose
all your money.
On the other hand, say Amazon needs money
to launch their drone delivery service so
they issue new shares to fund this project.
You like Amazon, so take your extra cash and
purchase some shares.
When you buy shares, you are buying a piece
of the company, and now own a little bit of
it.
As an owner of that company, you do well when
Amazon does well and are eligible for a portion
of their profits.
You take a hit if Amazon’s profits start
to fall and the company isn’t worth as much.
Now you might be thinking investing in Susan’s
Cupcake shop, Amazon, or even bonds is risky.
In general, buying shares of a company is
more risky than buying their bonds simply
because the debtholder has a legal obligation
to pay you back.
With shares, there is no obligation to pay
a shareholder, and the company does not control
what their shares are worth at any given time.
These individual corporations could go under
at any time.
If that happens, bond or fixed income holders
are closer to the beginning of the queue to
get their money, while shareholders are at
the back of the line and are paid whatever
is leftover once all other interested parties
get their money.
I know I just told you that you could lose
some or all of your money if the company doesn’t
do well.
Isn’t that the same as gambling?
My answer is no.
In order to be an investor, rather than a
gambler, you need two things: 1. Time
2. A reasonable expectation that the organization’s
use of your money will create value.
If you’re looking for a company to earn
you a huge return in a short period of time,
with little effort, then that’s gambling,
since there is no time for value creation.
There is still risk involved with investing,
but it can be managed.
Only investing in Susan’s Cupcake Shop is
risky – what if no one likes my cupcakes,
or what if I get a bad batch of flour and
someone gets sick after eating one of them
and as a result my business goes under.
This is where diversification comes into play.
Diversification is just a fancy word for not
putting all your eggs in one basket to make
sure you don’t lose everything.
I’ll cover diversification in more detail
in a future video.
In contrast to gambling, it isn’t the case
in investing that when one person (or company)
wins, the others lose.
Because more people are buying GM cars doesn’t
mean no one is buying Ford vehicles.
Both companies in the same industry could
(and often) do well at the same time.
If you believe that companies will continue
to operate in our economy (and others will
emerge with new products and services) and
earn profits, then you will earn a return
on your money.
Unless the entire world economy goes bankrupt,
you’ll be wealthier over the long-term (and
long-term is the key word here).
Investing is risky, so why should we invest
in the first place?
Because NOT investing is also risky.
You heard that right.
It’s risky to not invest your money too.
What do I mean by that?
I’m going to leave you with that cliffhanger
and explain what I mean in the next video.
If you want to get notified when it comes
out, subscribe and click the bell.
I’m Susan Daley and this has been your money
your choices.

3 thoughts on “Isn’t Investing Just Gambling | Your Money, Your Choices with Susan Daley”

  1. Hi Susan. Thanks for the educational video. Simple and easy to understand. In your profession do you find that most of your clients make the majority of their money from 1 or 2 activities. I work as a CPA in California and we find that most of our clients make the majority of their money from one source. For example. It is hard to get a farmer not to invest in his or her farm, and invest in other markets such as stocks or real estate, because to the farmer his farm is his best investment. Although I agree with diversification I think the majority of my monthly income will always come from one or two sources, however, It is up to me to diversify and spread out my risk.

  2. thanks for the great video. I can't wait fir future videos. you and dave ramsey are my favourite financial YouTubers. keep uo the good work.

  3. I feel incredibly blessed to have come across you channel while looking for investment advice. Educational, informative and super easy to understand. I'm 22 (turning 23 in a couple of weeks, getting old haha). I'm looking to start investing myself before it's "too late". Your videos have given me some solid ideas on where I can start. Thanks!

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