Many people look at surging stock markets, and especially hot stocks like Amazon and Netflix, and think that they can make it big investing in stocks. Yet very few investors are actually able to make market-beating stock gains, let alone even match the market. The sooner they understand that, the sooner they’ll be able to make investment decisions that can benefit their bottom line.
The annual return for the average investor is less than the average return on the S&P 500. Even those investors who invest in S&P 500 index funds earn less than the index, due to the various fees imposed upon them. That should make it clear that being able to match stock market performance is very difficult if you’re investing in stocks. Many investors try and fail, which is why the average investor performs worse than markets. But that isn’t the only thing holding back Mom & Pop investors.
Ordinary investors just don’t have the ability to engage in the same type of trading as the pros do. They can’t just call up a broker and execute a trade immediately. In many cases they’re investing in stocks through some sort of mutual fund or 401(k) program, meaning that any purchases and sales are happening at the end of the trading day, after all the professionals have made their money.
Now we’re finding out, too, that some trading platforms were disadvantaging ordinary investors even more. Online platform Robinhood, which brought free trades to the masses, was fined by FINRA regulators for failing to ensure that its customers received the best possible prices for their stock orders. The company was executing purchases through broker-dealers that may very well have been mining the purchase information, allowing them to see which stocks were in demand and which therefore would be rising in price, allowing them to get ahead of the inevitable rise in price once purchases were executed.
Unless you’re incredibly talented at stock picking, and incredibly lucky too, the odds of you getting rich through investing in stocks are slim. But many investors think that stocks are their only option. They couldn’t be more wrong.
Many investors may only know gold as a hedge against inflation and financial crisis. Few know that gold is a growth asset in and of itself. Since the gold window closed in 1971, gold has outperformed both the S&P 500 and the Dow Jones Industrial Average. And over the past 20 years, gold has significantly outperformed both of those indexes.
While you can’t go back in time and change your investment decisions from back then, you can still make the decision to invest in gold today. With stock markets at all-time highs to end this year, the consensus for 2020 is that a major correction is in the works. Will you be ready for it by investing in gold?