The Stock Market Is Rigged Against You

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As an individual investor, the stock market is rigged against you.

SEC regulations are designed to eliminate any information advantages involved in stock trading. That is why it’s considered an efficient market. All information relevant to the price of a stock is assumed to be available to the public in real-time, eliminating the chances of any investor profiting from any information advantage. And the use of non-public information (insider trading) for profit will send you to jail.

So what chance does the main street investor have to make money in the market? Not much.

Well, if you threw your money in an index fund that tracked the S&P 500, you could make what the market on average makes. In the past 20 years, the S&P 500 has grown at an average annual rate of 6.16%, 3.96% adjusted for inflation. For many, 6.16% just doesn’t cut it, so they’ll turn to financial advisors and hedge funds in hopes of doing better, but all they see are gains they might make swallowed up by fees and commissions.

For those who decide to go the market alone, the prospects are just as blah as going with financial advisors or brokers. According to JP Morgan Asset Management, the average annual return earned by a retail investor for the 20-year period between 1999 and 2018 was 1.9%, -.3% return when accounting for inflation.

Well, you’re asking, “What about all those day traders who made all that money and want to teach me to trade on the Internet?” Think about it. Why would someone who has somehow figured out how to beat the market offer to teach someone else to do it and create competition for themselves?

Main street investors make little to no money in the stock market.

That’s one of the dirty little secrets no financial advisor wants you to know. Here are some more of the stock market’s dirty little secrets.

You are at an information disadvantage.

What little legal information that investors could utilize for gain gets swallowed up by computers running algorithms in dark back offices. So when the average investor sees a stock fall, they’re usually selling at the bottom and buying at the height when it rises. Let’s face it, the big institutional players rub shoulders with industry people daily and pick up hints and winks that, although not illegal, allow them to get a head start on the rest of us.

Financial statements are bunk.

If history has taught us anything, it’s that CFOs and their financial statements can’t be trusted. Besides outright lying, many have been caught massaging numbers that make investing based on financial data a completely futile exercise. Understand that most financial statements by public companies are not accurate. There is a lot of data fudging that goes on behind the scenes that, although legal, may push the bounds of being ethical.

Day traders are gamblers.

If institutional investors and computers have a jumpstart on information, what exactly are day traders doing? They’re gambling, acting on hunches trying to beat the stock market with typically the same results as a gambler at a blackjack table in Vegas. They’ll win some, but the house usually winds up ahead.

Wall Street is full of swindlers.

Stockbrokers, financial advisors, financial planners, you name it, are all salespeople – with many paid based on trade volume whether you make money or not. That doesn’t sound right. If their living depends on how much churning they do with your trade account, what do you think they’re going to do? Churn your account and stick you with the fees.

I just don’t get why investors insist on riding Wall Street’s volatile seas. Yes, the stock market may have good years and bad years. If you want to make what the average investor makes on Wall Street, you might as well stick your money in an index fund where you’ll earn 3.9% adjusted for inflation.

If you think you can beat the stock market, think again.

Financial advisors and hedge funds won’t do it for you, and if you decide to take a stab at it, chances are you won’t do better than a -.3% inflation-adjusted return.

Why put your money in something that’s clearly rigged against you? No wonder ultra-wealthy investors are pulling their money in droves this year. Besides getting seasick from all the volatility, these investors know they can do better elsewhere.

So, where do the ultra-wealthy investors put their money? They prefer alternative investments like real estate that offer some of the highest risk-adjust returns of any asset class plus cash flow for building wealth – all backed by a hard asset and resistant to market downturns. UHNWIs have long allocated more than 10% of their investable assets in commercial real estate for these reasons, and some segments, such as affordable housing, are not only resistant to downturns but actually thrive in them.

With recent changes to securities regulations, main street investors no longer have to be slaves to Wall Street. More investment opportunities have opened up to more qualified investors than ever before. Secure, alternative investments are no longer exclusive to the wealthy. There’s no excuse for serious investors not to break the vicious cycle of Wall Street that has long been rigged against them and invest in something tangible and volatility-free like commercial real estate.

If you’re ready to jump ship and discover the world of alternative investments, we invite you to partner with Four Peaks.

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