Rate this post

Is The Stock Market Rigged?[This is a guest post by Jon Dulin who blogs at Money Smart Guides and is the author of 7 Investing Steps That Will Make You Wealthy.]

A little while back, there was a piece on 60 Minutes that was talking about high frequency trading.

Without going into the minutiae of it all, high frequency trading is essentially large investing firms trading at a fraction of a second. By being able to trade shares this quickly, they can earn a few cents (or fraction of cents) on each trade. While this sounds insane, know that when you do this millions of times, the fractions of pennies turn into real money (and many times into millions of dollars).

To grab your attention to this trading, there were headlines everywhere talking about how the stock market is rigged. Many younger investors buy into this claim simply because they were told to invest for their future and then the stock market crashed with the bursting of the housing bubble. Most overreacted, fled the market, and haven’t been seen since.

Today I am here to tell you that the stock market is not rigged. You should be investing in the stock market if you want any hope of retiring or being financially well off. You need the higher return that the stock market offers you over time. Interest rates on savings accounts are less than inflation, meaning that even though you are technically not losing money, you are losing purchasing power to inflation every year. In other words, although the value of your savings account never drops, you are in fact losing money each and every year.

Why The Stock Market Is Not Rigged

When it comes to high frequency trading, I will admit that it is not a good thing. These large firms are exploiting the system and making loads of money. But all of this is being done in the short-term. To be a successful investor, you are concerned with the long-term. What happens today or next Wednesday will have little significance on your investing career when looked at in its entirety.

This is one of the reasons why I tell investors to stop worrying if the market is currently at an all-time high. In 20 years, today’s all-time high will not be the high of the market. In fact, odds are the market will be higher. If you invest today, you will make money in the long run.

Additionally, there is no correlation with high frequency trading and the stock market as a whole. High frequency traders do not manipulate all of the stocks on the exchange. They pick and choose which stocks have the most to offer them. These change every day. So over the long-term, they will not be “playing” with the same stocks or be able to effectively impact the prices of the entire market as a whole.

The Recent Past

I know that the stock market crash in 2008 was traumatic for many people. But market crashes happen all of the time. It is how the stock market works. It is cyclical in nature. This means that the stock market will rise for a period of time and then decline, then rise again, then decline, and so on.

It’s the same with the economy. There will always be good times and bad times. Some will be better than others and some, like 2008, will be worse. Knowing this provides some comfort.

Also understand that no one knows when the market will rise or fall. Because you can’t time the market, all you can do is invest, both in good and bad times. When times are bad, view the stock market as if a sale is going on and you are getting to buy stocks at a discount. I did exactly this in 2001 and in 2008.

Dow Jones 10 Year Chart

I had some money on the side and invested when the market dropped. I didn’t invest at the bottom, since no one knew when that would be. But since that drop, I’ve doubled my money.

Don’t read this as you should just wait for stocks to drop and then invest. You should always be investing your money, in both good times and bad. Have some extra money lying around though so that when stocks do drop in value, you can buy more at a discount.

The Wall Street “Fat Cats” Aren’t Running Things

Don’t let the media fool you. The 1% do make a lot more than you or I when the stock market moves. But this is because they have a lot more invested. For example, let’s say you have $1,000 invested and I have $10,000,000. The market moves up by 1% today and as such, so does the value of our investments.

You made $10 today. I made $100,000. It’s not because I knew something you didn’t or I controlled the market in one way or another. It’s simply because I had more money invested in the stock market. The more you have saved, the more it can compound upon itself and grow.

Final Thoughts

The stock market is not rigged against you. There is not a controlling party pulling the levers so that things work out in their favor. Do some make more than others? Yes, but that is how everything in life is: some have more, some have less.

If you still doubt and think the stock market is rigged against you, I offer you my personal experience. I have been a buy and hold investor since 2005. I have a handful of investments that I invest in on a regular basis, regardless of what the market is doing. In the 9 years I have been doing this, I have earned 17% on my money. This includes the crash of 2008 when I lost 35% of my money. I stayed invested in both good times and bad because my time horizon is many years in the future.

The stock market is not rigged against you. You need to invest in the stock market if you want any hope of having a strong financial future.

See The List of 15 Things I’ve Sold To Make Money. #12 Had A 600% Return on Investment.
None of these were "big ideas" but I made money from ALL of them and so can you.