Is the stock market like a rigged lottery for the rich?
Is buying a lottery ticket a good investment? Can it beat the stock market? The record $640 million Mega Millions jackpot seems exciting, but based on statistics, people who gamble lose money. Further, gambling losses are not tax deductible, but winnings are taxable.
Of course some people would say that the stock market is a gamble. The market has not made an inflation-adjusted high since 1998 but investors were subject to excessive volatility, sio investors did not obtain a reward for taking on the risk of investing.
During the 1990’s stocks had a total return of 17% annually but the average investor made far less than that because they panicked and sold inappropriately at the bottom and bought at the top. The higher income investors often use professional investment managers and professional investment advice may have helped to transfer wealth from middle class investors to rich investors.
Trading commodity futures with high leverage or writing naked options is almost a form of gambling. With the failure of MFGlobal and loss of some of the customers’ funds that turned out to be a gamble for futures traders.
An old cliché is “The fastest way to a small fortune in investing is with a large one” (which implies fast reckless trading leads to loss of net worth).
I have written an article about stocks “Market getting riskier” and “MF Global lesson: avoid margin trading”.
Investors should seek independent financial advice.