How Much Is Enough for Game Over Won!!

[scrinch]

Having some similarities doesn't make gambling and investing the same thing.

You're right, of course. But having similarities goes a lot further toward making them the same than making them different.

This is a semantic issue to a great extent, depending on how we define the two words, invest and gamble. What I find important to remember (you may not) when I put money in index funds is that I really don't understand the forces that make the indices go up and down on a year-to-year basis very well, and I have zero influence on them. I'm just betting that they will continue to perform more-or-less as they have performed in the past. I read books and try to diversify holdings across sectors and markets, but this is just using historical results to try to hedge bets a little bit. Does this make my investing different from gambling? It doesn't feel too different to me, only like the odds are stacked more in my favor...kind of like being the house at a casino rather than the customer. Both are gambling.

What would feel different to me would be if I were involved with the capital I'm investing...where I had expertise in the actual use of the capital, and where I could evaluate and manage the risks of the use of the capital (not just which stocks to buy). Then the investment wouldn't just be betting on how some stocks perform. In fact that's what I do at w*rk. I help evaluate and manage the risk of the direct investments my megacorp makes. We invest in hundred million dollar projects that may only have a 20% chance of success. An 80% chance of losing one's full investment may seem like gambling to some, but we are expert at identifying the cost of the investment, the chance of its success, and at evaluating the value of successful projects. With a portfolio of projects like this, the numbers can pencil out. The company is over 100 years old and valued at over $100 billion, so routinely investing in projects with an 80% failure rate can be quite an effective investment strategy. To me the difference between investing and gambling isn't so much the level of risk being taken, but the level of control one exerts on the use of the capital.

I now realize that others may have a different view on this.

 

[kcowan]

I am staying in equities to maximize both our spending capacity and the legacy to daughter. I view it almost as an option on a very nice future for daughter. Our future is pretty well assured, I think.

Yes that is the crux of the question. Both my heirs have a high tolerance for volatility so they are on board with taking equity risk in their eventual portfolio.

The other heir, charities, gets their bundle without capital gains tax so they will love the benefits being higher and not taxed.

Even without heirs, we would still have charities. We self-insure for LTC so they understand that downside.

 

[RunningBum]

Yes, fine, semantics and lots of similarities. But gambling has negative connotations compared to investing in common usage. And it seems pretty obvious to me that Car-Guy is purposely using gambling accentuate what he sees as the risks in investing, as he hinted that it's risky to retire and still be dependent on stock market returns (post#45 in this thread). As someone else said, if he views being in the market as gambling, he's doing it wrong.

Many people would view gambling as entertainment, or taking high, perhaps unnecessary risks to make money, often out of desperation. Most of us would not view being in the stock market that way. If he does, fine, he can and should do whatever he feels right with his money, but trying to pass that judgement onto others, (again, as he did in post #45) doesn't sit well with me and I said so.

I'm not interested in a pedantic discussion of the definitions of the two, and how you could tilt your head and call them the same thing. I'm talking about the way the two terms are commonly used, and used here.

 

[sengsational]

So scrinch, if, instead of doing the investing internally, you contracted it out to someone you trust, would that become gambling? Presuming you still had a healthy level of visibility and control, I doubt that would fall into gambling. But some control was relinquished. But you have some rules in the contract and laws of the land that protect your interests.

As a stockholder you become a silent partner, so does that make it gambling? Because you don't have direct control? But your interests are still looked after by the law of the land, and also many times major stockholders that are running the company have a bigger stake than you.

Wondering what level of control would have the investment become gambling.

 

[Whisper66]

Investing is not gambling. Move on already!


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[nun]

Investing is not gambling. Move on already!


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The greater the risk when "investing" the closer it comes to gambling. At one end we would have CDs and I-bonds which are pretty much guaranteed and there is no risk and at the other end we'd have emerging market individual stocks which have a lot of risk and I'd class buying them as a big gamble. In the middle might be US index funds which are a gamble with good odds.

 

[tmm99]

I used to just do index funds without any individual stocks for awhile (after the tech bust), and when I started venturing out to buy individual stocks, I allocated a small amount of money and called it Casino money (the kind of money you take to Las Vegas to blow.). My casino money has been faring rather well for over a decade now, so I am not sure if I should call it Casino money any more.

 

[Mulligan]

The greater the risk when "investing" the closer it comes to gambling. At one end we would have CDs and I-bonds which are pretty much guaranteed and there is no risk and at the other end we'd have emerging market individual stocks which have a lot of risk and I'd class buying them as a big gamble. In the middle might be US index funds which are a gamble with good odds.

Yes, that is the way I see my preferred stocks. The dividends being almost guaranteed are the "investing" part. The "gambling" part is hoping that future purchasers of the stock hold it in the same esteem I do....


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[Whisper66]

The greater the risk when "investing" the closer it comes to gambling. At one end we would have CDs and I-bonds which are pretty much guaranteed and there is no risk and at the other end we'd have emerging market individual stocks which have a lot of risk and I'd class buying them as a big gamble. In the middle might be US index funds which are a gamble with good odds.

By this type of reasoning, we should call everything we do in life "gambling". For example, though no sensible person would agree with calling it "gambling", my next step of getting out of my chair after posting this and shutting down my computer is a "gamble"....there certainly is some small risk that I might slip, fall and ruin a perfectly good retirement.

Would be nice if folks would focus on the OP original question and quite this type of silly debate of how people distort the typical meaning of words. Goodbye!

 

[cyber888]

I already said that your wealth is tied to your expenses. You just repeated it by saying that you know what to spend and that is 75K a year. If you don't control expenses, and go over your 75K a year expenses - that's my point, you cannot know how sustainable your wealth is if you do not know the limit of your expenses. So, your example still falls within the statement I made.

But you also know if for example you are spending 75k a year then 1.5 million in VTI and 1.5 million in VXUS is all you need no matter what happens without any rebalancing, selling or "thinking" and you can live for 1000 years without running out of money......

Increasing withdrawals above inflation rate...hence having more and more money every year.

 

[nun]

By this type of reasoning, we should call everything we do in life "gambling". For example, though no sensible person would agree with calling it "gambling", my next step of getting out of my chair after posting this and shutting down my computer is a "gamble"....there certainly is some small risk that I might slip, fall and ruin a perfectly good retirement.

Well assessing the risk, or the gamble, of stuff is what the insurance industry does and what all ERers should be doing too. Of course if we are to consider whether it's really a gamble at all gets us into the realms of "free will", which I agree is a bit off topic. But the only way to answer the OP's original question is to consider risks and probability. The whole essence of knowing "how much is enough" is to be comfortable with the gamble you are making by retiring.

 

[HadEnuff]

I give my money to a guy, and give him instructions about what I want done with it. He and I agree that the amount he gives me back later will be related to some results that happen between now and then. I have studied the process that my return will be related to...I understand the mechanism of how it works, and I understand the statistics of people who have done similar things with their money in the past. I know that I can take the high-risk, high-reward option or a low-risk, low-reward option when I give the instructions to this guy, and am comfortable with the level of risk I am taking now. This understanding notwithstanding, I have absolutely no control over the outcome and how much I will get back, only a historical record of what has happened previously in similar situations.

So did I give my money to my Vanguard rep and ask him to invest it all in Wellesley with dividends reinvested? Or did I give my money to the croupier and tell him to put it on red, and let it ride two times if I win? Could you look at investing as informed and well considered gambling? The process is pretty similar.

I watched my brother's portfolio get completely wiped out during the dotcom bust, while mine took a 20% hit. I realized then that while I had taken a more conservative (lower risk, lower reward) approach to investing, I had absolutely no more control over the results than my brother did. The mechanism of what he did and what I did were identical. We both could have been completely wiped out. We were playing the same game...I just took less risk than he did. Was he gambling, while I was investing, just because the results turned out the way they did?

the answer IMO to this question lies in what happened AFTER that bust. Did you still have 80% to re-allocate and stay in the game? Did your brother?

I try to keep reminding myself (and I'm a 45-45-10 guy) that I'm not worried about IF the market goes down, but positioning myself for WHEN it goes down. I think there is line between "gambling" and "managing risk"...from your history I'd say your brother was gambling, and you where managing risk.

 

[HadEnuff]

I used to just do index funds without any individual stocks for awhile (after the tech bust), and when I started venturing out to buy individual stocks, I allocated a small amount of money and called it Casino money (the kind of money you take to Las Vegas to blow.). My casino money has been faring rather well for over a decade now, so I am not sure if I should call it Casino money any more.

I think that is an apt reference. During the 90s I "invested" in individual stocks and did great. No bonds (I was young then) and I was a genius as the market kept going up and up. However, the same strategy that made me a genius in the late '80s and most of the '90s made me look like an idiot in the early 2000s...

the fact that your cards have been hot for a decade doesn't change the nature of the game. And the fact that you've allocated a portion of your assets to play the game, and not gone "all in" indicates that you know that.

Well played, sir.

 

[HadEnuff]

By this type of reasoning, we should call everything we do in life "gambling". For example, though no sensible person would agree with calling it "gambling", my next step of getting out of my chair after posting this and shutting down my computer is a "gamble"....there certainly is some small risk that I might slip, fall and ruin a perfectly good retirement.

Would be nice if folks would focus on the OP original question and quite this type of silly debate of how people distort the typical meaning of words. Goodbye!

I see your point, however the OP's question has a premise which can be challenged, and that premise is that one can eliminate risk. I think it's fair to posit that one can't "eliminate" risk, but that one can bring it to a level that is acceptable for one's particular circumstance and temperament.

It is naive to believe we can eliminate risk, other than by dying, perhaps. You wouldn't be the first one to slip and fall and ruin a perfectly good retirement, however not getting out of your chair increases the risks that come with living a life too sedentary.

 

[dallas27]

Gambling is a game of chance where the odds are against you, investing is when the odds are in your favor. But both involve chance.

See
Standard deviation
EMH
Random Walk theory


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[nun]

Gambling is a game of chance where the odds are against you, investing is when the odds are in your favor. But both involve chance.

See
Standard deviation
EMH
Random Walk theory


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Not sure I agree with your definitions, but if we go with them there are certainly things that are marketed as investments that would fall under your definition of gambling.......and of course there's that lovely practice of buying on margin.

 

[sengsational]

The greater the risk when "investing" the closer it comes to gambling. ...

I have to go to the side of scrinch on this one. Consider the oil well scenario where four of five wells will be a total loss. The one that succeeds keeps you afloat. Sounds very much like playing roulette except for 1) the expected payout is greater than 1 in the oil well scenario (for a successful exploration business, of course), and more importantly in the scrinch view, 2) control is not relinquished to the whims of Mr. Market.

But I consider both the oil well and roulette very risky. Yet only one is clearly gambling.

The point I was trying to make earlier was to edge into indirect control of an exploration business. First as a non-silent partner that exercised control over the business' operations, then second as a silent partner (stockholder) of that same exploration business, with visibility into the operations. And stepping farther away, into the owner of many exploration businesses in a mutual fund of exploration companies (where detailed visibility into all companies would be impractical).

At some point in that continuum of control (from personal control to the whims of Mr. Market), some here in this discussion (not me) think it goes from investing to gambling. I'm just wondering where in this level of control/visibility it switches over.

 

[nun]

I have to go to the side of scrinch on this one. Consider the oil well scenario where four of five wells will be a total loss. The one that succeeds keeps you afloat. Sounds very much like playing roulette except for 1) the expected payout is greater than 1 in the oil well scenario (for a successful exploration business, of course), and more importantly in the scrinch view, 2) control is not relinquished to the whims of Mr. Market.

But I consider both the oil well and roulette very risky. Yet only one is clearly gambling.

In your example there is an 80% chance of failure. As long as you can make a profit off the one well that succeeds you are ok. However, if you have a series of wells that all fail you might run into cash flow issues and of course there's always the gamble of oil price. There's a lot of people in North Dakota right now who gambled on high oil prices.

 

[FIREd]

For me "game over won" would be either:

1) to have a lot more money than I already have (enough to get away with a TIPS ladder to cover my needs and wants for the next say 60 years).
or
2) to have a COLA'd pension backed by the federal government covering all my needs and wants
or
3) to have so few needs and wants that they are covered by SS

 

[nun]

For me "game over won" would be either:

1) to have a lot more money than I already have (enough to get away with a TIPS ladder to cover my needs and wants for the next say 60 years).
or
2) to have a COLA'd pension backed by the federal government covering all my needs and wants
or
3) to have so few needs and wants that they are covered by SS

I'll throw in a couple of other low risk income sources....rental income and an annuity.

 

[REWahoo]

I wouldn't put rental income in the low risk category. While not automatically a high risk investment, I've seen a number of unsuccessful attempts at becoming a landlord. Not everyone is cut out to be a successful real estate investor.

 

[Car-Guy]

The greater the risk when "investing" the closer it comes to gambling. At one end we would have CDs and I-bonds which are pretty much guaranteed and there is no risk and at the other end we'd have emerging market individual stocks which have a lot of risk and I'd class buying them as a big gamble. In the middle might be US index funds which are a gamble with good odds.

Just catching up on this thread, interesting perspectives. Some good and some, well..........

Anyway, I pretty much agree with your definition above with regards to investing risks. Of course as some will be quick to point out, CD's may not even keep you up with inflation, but you are probably not going to lose your FDIC insured money either. Emerging markets are probably at (or near) the other end of the spectrum. And there's a lot of stocks, etc and strategies between those end points. Low risks=Low Rewards, probably, High risks= High Rewards, maybe.

 

[Danmar]

For me "game over won" would be either:

1) to have a lot more money than I already have (enough to get away with a TIPS ladder to cover my needs and wants for the next say 60 years).
or
2) to have a COLA'd pension backed by the federal government covering all my needs and wants
or
3) to have so few needs and wants that they are covered by SS

I think the key would be to be sure that your wants would never change. I don't think I could be sure of this at my age (65). Maybe 80.

 

[FIREd]

I'll throw in a couple of other low risk income sources....rental income and an annuity.

I would need a very diversified portfolio of rental properties to feel like the income was low risk. Depending on the rents from 1 or 2 properties would not feel low risk to me. As for the annuity, I think that the counterparty risk is non-negligeable especially over a few decades, and getting a good deal on a true COLA'd annuity - if you can find one- is tough.

 

[Trawler]

Thanks all for the input. I hope to be able to tell you some day we hit Game Over Status!! Defined here as enough cash to live the way we want the rest of our life without playing the market. Weather we choose to play or not we shall see.