Are stock investments less favorable for the smaller investor?
You have got it wrong. The profit or loss for smaller investor or big investor is same in percentage terms. If you are looking at long-term investments then you can look to Dheer's answer and see that it doesn't matter whether the money is large or small, the return will be the same.  When it comes to shorter-term investments, it can actually pay to be a smaller investor. Consider a stock that may not be trading in high volume. If I want to take a position for 2,000 shares, I can probably buy it quite quickly without moving the market considerably.  If I was managing your hypothetical portfolio opening a position for 1,000,000 shares, it can cause the price to go up significantly because I have to execute the order very carefully in order to not tip my hand to the market that I want a million shares.  Algorithmic traders will see the volume increasing on those shares and will raise their asking price. High speed traders and market makers will also cause a lot of purchasing overhead. Then later when it comes time to sell, I will lose a percentage to the price drop as I start flooding the market with available shares.
Its pretty much always a positive to have large institutional investors. Here's a few cases where I can see an argument against large institutional investors: In recent years, we've seen corporate raiders and institutional investors that tend to influence management in ways that are focused on short term gain. They'll often go for board seats and disrupt the existing management team. It can serve as a distraction and really hurt morale. Institutional investors also have rules in their prospectus that they are required to abide by. For example, some institutional investors will not hold on to stock below $5. This really affected major banking stocks, some of which ended up doing reverse stock splits to keep their share price high. Institutional investors will also setup specific funds that require a stock to be listed as part of an index (i.e. the SPY, DJIA etc.,). When a stock is removed from an index, big investors leave quickly and the share price suffers.  In recent months, companies like Apple have made their share price more affordable to attract retail investors. It gives an opportunity for retail to feel even more connected to the company. I'm not sure how much this affects overall sales... Generally, a good stock should be able to attract both retail and institutional investors. If there's not a good mix, then its usually a sign that somethings amiss. More questions!  1.) I thought the criticism of the Dow was that it's much smaller than other indexes and thus less representative of the market as a whole?  2,) When you say private investors are you talking about a few specific people? Or anyone who invests at all?  Thanks "It appears that there's a confusion between the different types of average. Saying ""the average investor"" generally means the most common type of small-scale unsophisticated investor - the mode (or possibly median) investor. However, while this class of investors is numerous, each of them has assets that are quite small compared to some other types of investors; and the market average performance is determined proportionally to the amount of assets held, not to the number of holders; so the performance of large investors ""counts"" that much more. For any measure, the mode of performance can be (and often is) different from the mean performance - in this case, Dalbar is saying that the most common results are lower than the (weighed) average results." The reason diversification in general is a benefit is easily seen in your first graph.  While the purple line (Betterment 100% Stock) is always below the blue line (S&P), and the blue line is the superior return over the entire period, it's a bit different if you retired in 2009, isn't it?  In that case the orange line is superior: because its risk is much lower, so it didn't drop much during the major crash.  Lowering risk (and lowering return) is a benefit the closer you get to retirement as you won't see as big a cumulative return from the large percentage, but you could see a big temporary drop, and need your income to be relatively stable (if you're living off it or soon going to).   Now, you can certainly invest on your own in a diverse way, and if you're reasonably smart about it and have enough funds to avoid any fees, you can almost certainly do better than a managed solution - even a relatively lightly managed solution like Betterment.  They take .15% off the top, so if you just did exactly the same as them, you would end up .15% (per year) better off. However, not everyone is reasonably smart, and not everyone has much in the way of funds. Betterment's target audience are people who aren't terribly smart about investing and/or have very small amounts of funds to invest.  Plenty of people aren't able to work out how to do diversification on their own; while they probably mostly aren't asking questions on this site, they're a large percentage of the population.  It's also work to diversify your portfolio: you have to make minor changes every year at a minimum to ensure you have a nicely balanced portfolio.  This is why target retirement date portfolios are very popular; a bit higher cost (similar to Betterment, roughly) but no work required to diversify correctly and maintain that diversification. One implication is the added fees if you are investing in something with a trading cost or commission, such as your stock purchase. If you pay low costs to trade (e.g. with a discount broker) and don't switch your investments often, then costs overall should remain reasonable .. but always be aware of your costs and seek to minimize them. Benjamin Grahams strategy was to invest in REALLY SAFE stocks. In his time lean businesses weren't as common as they are now and he found many companies with assets greater than the value of their shares. Putting a number figure on it isn't really necessary but the concept is useful. Its the idea that bigger companies are less turbulent (Which is something to avoid for an investor). Most companies in the top 500 or whatever will satisfy this. Foreign stocks tend to be more volatile -- higher risk trades off against higher return potential, always. The better reason for having some money in that area is that, as with bonds, it moves out-of-sync with the US markets and once you pick your preferred distribution, maintaining that balance semi-automatically takes advantage of that to improve your return-vs-risk position. I have a few percent of my total investments in an international stock index fund, and a few percent in an international REIT, both being fairly low-fee. (Low fees mean more of the money reaches you, and seems to be one of the better reasons for preferring one fund over another following the same segment of the market.) They're there because the model my investment advisor uses -- and validated with monte-carlo simulation of my specific mix -- shows that keeping them in the mix at this low level is likely to result in a better long-term outcome than if i left them out. No guarantees, but probabilities lean toward this specfic mix doing what i need. I don't pretend to be able to justify that via theory or to explain why these specific ratios work... but I understand enough about the process to trust that they are on (perhaps of many) reasonable solutions to get the best odds given my specific risk tolerance, timeline, and distaste for actively managing my money more than a few times a year. If that. It's great that you have gotten the itch to learn about the stock market.  There are a couple of fundamentals to understand first though. Company A has strong, growing, net earnings and minimal debt, it's trading for $100 per share.  Company B has good revenue but high costs of goods and total liabilities well in excess of total assets, it's trading for $0.10 per share.  There is no benefit to getting 10,000 shares or 10 shares for your $1,000.  Your goal is to invest in companies that have valuable products and services run by competent management teams.  Sure, the number of shares you own will dictate what percentage of the company you own, and in a number of cases, your voting power.  But even a penny stock will have a market capitalization of several million dollars so voting power isn't really a concern for your $1,000 investment.   There is a lot more in the three basic financial statements (Income Statement, Balance Sheet, Statement of Cash Flows) than revenue.  Seasoned accountants can have a hard time parsing out where money is coming from and where it's going. In general there are obvious red flags, like a fast declining cash balance against a fast growing liabilities balance or expenses exceeding revenue.  While some of these things are common among new and high growth companies, it's not the place for a new investor with a small bankroll. A micro-cap company (penny stocks are in this group) will receive rounds of financing via issuing preferred convertible shares which may include options on more shares.  For a company worth $20mm a $5mm financing round can materially change the finances of a company, and will likely dilute your holdings in common stock.  Small growth companies need new financing frequently to fund their growth strategies. Revenue went up, great... why?  Did you open another store?  Did you open another sales office?  Did the revenue increase this quarter based on substantially the same operation that existed last quarter or have you increased the capacity of your operation?  If you increased the capacity of your operation what was the cost of the increase and did revenue increase as expected?  Can you expect revenue to continue to grow at this rate or was it a one time windfall from an unusual order? Sure, there are spectacular gains to be had in penny stocks.  XYZ Pharma Research (or whatever) goes from $0.05 to $0.60 and you've turned your $1,000 in to $12,000.  This is a really unlikely event...  Buying penny stocks is akin to buying lottery tickets.  Unless you are a high ranking employee at the company capable of making decisions, or one of the investors buying the preferred shares mentioned in point 3, or are one of the insiders of a pump and dump scam on the stock, penny common stocks are not a place to invest.  One could argue that even a company insider should probably avoid buying common stock. Just to illustrate the points above, you mention: Doing some really heavy research into this stock has made me question the whole penny stock market. Based on your research what is the enterprise value of the company? What were the gross proceeds of the last financing round, how many shares were issued and were there any warrants attached? What do you perceive to be heavy research?  What background do you have in finance/accounting to give weight to your ability to perform such research? Crawl. Walk. Then run. Don't kid yourself in to thinking that since you have some level of education you understand the contracts involved in enterprise finance. Like almost all investing question: it depends! Boring companies generally appreciate slowly and as you note, pay dividends. More speculative investing can get you some capital gains, but also are more likely to tank and have you lose your original investment. The longer your time horizon, and the more risk you are willing to take, then it is reasonable to tilt towards, but not exclusively invest in, more speculative stocks. A shorter horizon, or if you have trouble sleeping at night if you lose money, or are looking for an income stream, would then tend towards the boring side. Good Luck By exploiting institutional investors, HFT does hurt small investors. People with pension, mutual, and index funds get smaller returns. Endowment funds are also going to get hurt which hurts hospitals, schools, charities, and other institutions that work for the public good.  I agree with you though. At this point we would likely be just arguing semantics. "no way -- he suggests that if you don't have an edge, no one needs to play the game. He doesn't like the idea of a ""lesser bad"" way to invest (MPT).   If you do decide to get involved in investing, then it's about absolute performance, not relative. He believes that the whole relative performance thing -- beating some arbitrary benchmark -- is just an artificial construct." Yes, you should own a diverse mix of company sizes to be well diversified. While both will probably get hit in a recession, different economies suit different sized companies very differently in many cases, and this diversity positions you best to not only not miss out in cases where small companies do better out of recessions than large, but also in environments where small companies rate of growth is larger in bull markets. No. You're lucky, maybe, but not really a successful investor. Warren Buffet is, you're not him. Sometimes it is easier to pick stocks to bid on, sometimes its harder. I got my successes too. It is easier on a raising market, especially when it is recovering after a deep fall, like now. But generally it is very hard to beat the market. You need to remember that an individual investor, not backed by deep pockets, algo-trading and an army of analysts, is in a disadvantage on the market by definition. So what can you do? Get the deep pockets, algo-trading and an army of analysts. How? By pooling with others - investing through funds. "If you are like most people, your timing is kind of awful.  What I mean by most, is all.  Psychologically we have strong tendencies to buy when the market is high and avoid buying when it is low.  One of the easiest to implement strategies to avoid this is Dollar Cost Averaging.  In most cases you are far better off making small investments regularly. Having said that, you may need to ""save"" a bit in order to make subsequent investments because of minimums.   For me there is also a positive psychological effect of putting money to work sooner and more often.  I find it enjoyable to purchase shares of a mutual fund or stock and the days that I do so are a bit better than the others.   An added benefit to doing regular investing is to have them be automated.  Many wealthy people describe this as a key to success as they can focused on the business of earning money in their chosen profession as opposed to investing money they have already earned.  Additionally the author of I will Teach You to be Rich cites this as a easy, free, and key step in building wealth." "I'd refer you to Is it true that 90% of investors lose their money? The answer there is ""no, not true,"" and much of the discussion applies to this question.  The stock market rises over time. Even after adjusting for inflation, a positive return. Those who try to beat the market, choosing individual stocks, on average, lag the market quite a bit. Even in a year of great returns, as is this year ('13 is up nearly 25% as measured by the S&P) there are stocks that are up, and stocks that are down. Simply look at a dozen stock funds and see the variety of returns. I don't even look anymore, because I'm sure that of 12, 2 or three will be ahead, 3-4 well behind, and the rest clustered near 25.  Still, if you wish to embark on individual stock purchases, I recommend starting when you can invest in 20 different stocks, spread over different industries, and be willing to commit time to follow them, so each year you might be selling 3-5 and replacing with stocks you prefer. It's the ETF I recommend for most, along with a buy and hold strategy, buying in over time will show decent returns over the long run, and the ETF strategy will keep costs low."