Is the stock market a rigged game?

My Aunt Roberta stashes money everywhere:  coffee cans, coat pockets, c ouches, her mattress, make up bags, etc.  She’s not the one in family who controls the money, but she managed to skim $20 here and there from the grocery budget, gas money, bills, lawn mowing allowances, etc.  She might even have embellished a bit here and there on how much they owed on their bills.  All this cleverness so she can buy that Louis Vuitton special edition handbag without asking!  That way when her husband asks her if that handbag is new, she can reply, “Why no, I’ve had this for years!”.   Although she’s the one scheming and skimming money here and there, ironically, her husband’s a stock broker! 

This scenario is basically what many people think of the stock market - it’s a rigged game with someone scheming and conniving to make money dishonestly and the only people who make money are the brokers themselves.  The stock market has a way of invoking a wide variety of emotions, mostly negative, fearful and suspicious.  It’s like getting your car repaired.  You usually don’t know anything about the motor of a car leaving you at the mercy of some car repair guy telling you it will cost $800 for a new catalytic converter.  It makes you feel vulnerable.

Here are some general facts that should make you feel better about the market itself:

S&P 500 Statistics from 1980 – 2013:

 Years Positive: 28 of 34

 Highest Return: 37.58%, 1995

 Lowest Return: -37.00%, 2008

 Average Annual Gain: 13.92%

See, it’s not so scary!!!!  Even with a massive drop in 2008, the market is positive by far more than it’s negative.  If you invested in an S&P 500 Index fund since 1980, you’re account would be up by almost 14% without having to worry about anyone trying to cheat you out of your money.  Keep in mind though, that investing in the S&P 500 means you’re investing in all stocks which is aggressive.  The money you put in this should be for the long term. 

Here are some simple common sense steps to help safeguard yourself and your money:

KNOW WHAT YOU OWN!!!!!! Ask questions - make sure you know how risky your investments are.  Penny stocks are incredibly risky whereas US Treasuries are probably the safest investments out there.  As a general rule, it’s better to take more risk with long term investments versus money you need to use in the next couple of years.

Try not to work with a private company that is not backed by a major broker like Fidelity or Charles Schwab.  These are the Bernie Madoffs and Donahue/Donahue’s of the world who like to put your money in their company’s propriety accounts. 

If you’re not going to spend the time to research and monitor individual stocks, try using index mutual funds or ETFs like the S&P 500 Index fund we just discussed.  They have very low expenses and in general, you can just leave them alone to let them grow.

If it sounds too good to be true, it probably is.  Find out about fees, costs, and loads (front and back end).  Make sure you know how liquid your investment is in case you need to cash it in.  If you’re getting a complicated answer to a simple question, that’s not a good sign.