To many people, investing in the stock market is akin to playing the lottery. To these people, the stock market is rigged, and only the insiders or the big institutions have the ability to consistently make money in stocks. According to Gallup, the numbers bear this out.* In the spring of 2016, 52% of U.S. adults were invested in the stock market, and 49% admitted to playing the lottery during the past year!
I understand the allure of the lottery. It is hard to drive by those billboards showing the Powerball jackpot of $100 million dollars without daydreaming about what you would do with that kind of money. What are your odds of actually winning that jackpot? When the Powerball hit its largest payout of $1.5 billion in January of this year, the odds of winning were 1 in 292.2 million. To put that in perspective, each person has a one in 2.3 million chance of being killed by lightning, and a one in 10 million chance of being struck by falling airplane parts!** Despite the odds, the number of lottery players goes through the roof when the jackpot gets large.
Why are there just as many people playing the lottery as there are investing in the stock market? One reason has certainly been the low returns and volatility of the stock market over the last couple of decades. My career in the investment industry started in 1985. The average annual return of the S&P 500 from January 1, 1985 through December 31, 1999 was 19.10% per year. The average annual return of the S&P 500 from January 1, 2000 through December 31, 2015 was 4.02% per year. Investors who started investing in the stock market in the ‘80s and ‘90s experienced fantastic results, but a whole generation of investors hasn’t experienced the 10% average annual returns that the stock market has provided over the last 100 years.***
How can you potentially increase your odds for success investing in the stock market? We believe there are a number of strategies that can help. Developing a financial plan that is realistic and based on your personal objectives is a great place to start. Diversification, dollar-cost averaging, and a long-term outlook are a few of these strategies that we believe in. Try to keep your expenses low and focus on managers with a long-term record. Although these strategies don’t guarantee success, they certainly can stack the deck in your favor and could increase your odds while pursuing your most important financial goals, without having to bother with buying a lottery ticket!
*Gallup Daily Tracking, April 2016 and June 2016.
**Investopedia, The Lottery: Is it Ever Worth Playing, updated January 12, 2016.
***Average annual returns provided by moneychimp.com. S&P 500 returns calculated from data provided by Robert Shiller. You cannot invest directly in a stock index.
Disclosure: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.