Is it possible for the average person to profit on the stock market?
"There's a huge difference between ""can an anverage person make a profit on the stock market"" and ""can an average person get rich off the stock market"". It is certainly possible for an average person to profit, but of course you are unlikely to profit as much as the big Wall Street guys.  An S&P 500 index fund, for instance, would be a pretty good way to profit.  People with high-powered tools may make a lot of money picking individual stocks, and may even make some choices that help them when the market is down, but it's difficult to see how they could consistently make money over the long term without the S&P 500 also going up.  The same applies, to varying extents, to various other index funds, ETFs, and mutual funds. I agree with littleadv that there is no single ""right"" thing for everyone to do.  My personal take is that index funds are a good bet, and I've seen a lot of people take that view on personal finance blogs, etc. (for whatever that's worth).  One advantage of index funds that track major indexes (like the S&P 500) is that because they are and are perceived as macro-indicators of the overall economic situation, at least you're in the same boat as many other people.  On one level, that means that if you lose money a lot of other investors are also losing money, and when large numbers of people start losing money, that makes governments take action, etc., to turn things around.  On another level, the S&P 500 is a lot of big companies; if it goes down, some of those big companies are losing value, and they will use their big-company resources to gain value, and if they succeed, the index goes up again and you benefit. In other words, index funds (and large mutual funds, ETFs, etc.) make investing less about what day-trading wonks focus on, which is trying to make a ""hot choice"" for a large gain.  They make it more about hitching your wagon to an extremely large star that is powered by all the resources of extremely large companies, so that when those companies increase their value, you gain.  The bigger the pool of people whose fortunes rise and fall with your own, the more you become part of an investment portfolio that is (I can't resist saying it) ""too big to fail"".  That isn't to say that the S&P 500 can't lose value from time to time, but rather that if it does go down big and hard and stay there, you probably have bigger problems than losing money in the stock market (e.g., the US economy is collapsing and you should begin stockpiling bullets and canned food)." "Of course. ""Best"" is a subjective term. However relying on the resources of the larger institutions by pooling with them will definitely reduce your own burden with regards to the research and keeping track. So yes, investing in mutual funds and ETFs is a very sound strategy. It would be better to diversify, and not to invest all your money in one fund, or in one industry/area. That said, there are more than enough individuals who do their own research and stock picking and invest, with various degrees of success, in individual securities. Some also employe more advanced strategies such as leveraging, options, futures, margins, etc. These advance strategies come at a greater risk, but may bring a greater rewards as well. So the answer to the question in the subject line is YES. For all the rest - there's no one right or wrong answer, it depends greatly on your abilities, time, risk tolerance, cash available to invest, etc etc." Given that hedge funds and trading firms employ scores of highly   intelligent analysts, programmers, and managers to game the market,   what shot does the average person have at successful investing in the   stock market? Good question and the existing answers provide valuable insight.  I will add one major ingredient to successful investing: emotion.  The analysts and experts that Goldman Sachs, Morgan Stanley or the best hedge funds employ may have some of the most advanced analytical skills in the world, but knowing and doing still greatly differ.  Consider how many of these same companies and funds thought real estate was a great buy before the housing bubble.  Why?  FOMO (fear of missing out; what some people call greed). One of my friends purchased Macy's and Las Vegas Sands in 2009 at around $5 for M and $2 for LVS.  He never graduated high school, so we might (foolishly) refer to him as below average because he's not as educated as those individuals at Goldman Sachs, Morgan Stanley, etc.  Today M sits around $40 a share and LVS at around $70. Those returns in five years. The difference?  Emotion.  He holds little attachment to money (lives on very little) and thus had the freedom to take a chance, which to him didn't feel like a chance.  In a nutshell, his emotions were in the right place and he studied a little bit about investing (read two article) and took action.  Most of the people who I know, which easily had quintuple his wealth and made significantly more than he did, didn't take a chance (even on an index fund) because of their fear of loss. I mean everyone knows to buy low, right?  But how many actually do?  So knowing what to do is great; just be sure you have the courage to act on what you know. "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." Below is a list of rules that will help you to decide what types of products you should be investing in:
I read about the 90-90-90 rule aka 90% of the people lose 90% of the money in 90 days.  Anything that happens in 90 days or less is speculation (effectively gambling), not investment. And the 90-90-90 thing sounds around right for inexperienced amateurs going up against professionals in that space. I don't know anyone who actually made significant amount money by investing in stocks or other financial products except those appearing in TVs. Lots and lots and lots of people do.  I heard that people who actually encourage common people to invest in stocks are stock brokers and fund managers who actually gain by the fact that more people invest.  No. It's true that lots of people will give you advice to by specific stocks or financial instruments that will earn them comission or fees, but the basic idea of investing in the stock market is very sound; ultimately, it's based on the ability of companies to create value and pay dividends. Could you please give some valid reasons to invest in stocks or other financial market. Thank you. Well, what else can you do with your money? Put it in an interest-bearing bank account? Effectively, you'll still be investing in the stock market, the bank is just taking most of the returns in exchange for guaranteeing that you'll never lose money even temporarily. Yes under certain circumstances! Educate yourself first. Consider algorithmic trading when you code your strategies and implement your ideas - a bit easier for psychology. And let the computer to trade for you. Start with demo account without taking personal risk. Only after a year of experience try small amount of cash like you said 100$. Avoid trade when big news events are released. Stick to strategy, use money management, stop loss, write results in the journal... learn & improve... be careful it is very hard journey. "I think this is possible under very special conditions.  The important part of the description here is probably retired and rich.  The answers so far apply to people with ""normal"" incomes - both in the sense of ""not rich"" and in the sense of ""earned income."" If you sit at the top tax bracket and get most of your income through things like dividends, then you might be able to win multiple ways with the strategy described.  First you get the tax deduction on the mortgage interest, which everyone has properly noted is not by itself a winning game - You spend more than you save.   BUT... There are other factors, especially for the rich and those whose income is mostly passive: I'm not motivated enough on the hypothetical situation to come up with a detailed example, but I think it's possible that this could work out.  In any case, the current answers using ""normal sized"" incomes and middle tax brackets don't necessarily give the insight that you might hope if the tax payer really is unusually wealthy and retired." I remember like 20 years ago someone did an experiment where Peter Lynch, elementary school kids, and an ape, all picked stocks in a situation similar to this. The result was almost the same, with the elementary school kids coming out slightly better  Picking correct stocks is a craps shoot, as the market is an emotional entity, and in the short run, even educated guesses don't give an edge. People like Peter Lynch eventually win of course because of discipline, long term goals, and knowledge of tools like derivatives "This probably won't be a popular answer due to the many number of disadvantaged market participants out there but: Yes, it is possible to distort the markets for securities this way. But it is more useful to understand how this works for any market (since it is illegal in securities markets where company shares are involves).  Since you asked about the company Apple, you should be aware this is a form of market manipulation and is illegal... when dealing with securities. In any supply and demand market this is possible especially during periods when other market participants are not prevalent. Now the way to do this usually involves having multiple accounts you control, where you are acting as multiple market participants with different brokers etc. The most crafty ways to do with involve shell companies w/ brokerage accounts but this is usually to mask illegal behavior In the securities markets where there are consequences for manipulating the shares of securities. In other markets this is not necessary because there is no authority prohibiting this kind of trading behavior. Account B buys from Account A, account A buys from Account B, etc. The biggest issue is getting all of the accounts capitalized initially. The third issue is then actually being able to make a profit from doing this at all. Because eventually one of your accounts will have all of the shares or whatever, and there would still be no way to sell them because there are no other market participants to sell to, since you were the only one moving the price. Therefore this kind of market manipulation is coupled with ""promotions"" to attract liquidity to a financial product. (NOTE the mere fact of a promotion does not mean that illegal trading behavior is occurring, but it does usually mean that someone else is selling into the liquidity) Another way to make this kind of trading behavior profitable is via the derivatives market. Options contracts are priced solely by the trading price of the underlying asset, so even if your multiple account trading could only at best break even when you sell your final holdings (basically resetting the price to where it was because you started distorting it), this is fine because your real trade is in the options market. Lets say Apple was trading at $200 , the options contract at the $200 strike is a call trading at $1 with no intrinsic value. You can buy to open several thousand of the $200 strike without distorting the shares market at all,  then in the shares market you bid up Apple to $210, now your options contract is trading at $11 with $10 of intrinsic value, so you just made 1000% gain and are able to sell to close those call options. Then you unwind the rest of your trade and sell your $210 apple shares, probably for $200 or $198 or less (because there are few market participants that actually valued the shares for that high, the real bidders are at $200 and lower). This is hardly a discreet thing to do, so like I mentioned before, this is illegal in markets where actual company shares are involved and should not be attempted in stock markets but other markets won't have the same prohibitions, this is a general inefficiency in capital markets in general and certain derivatives pricing formulas. It is important to understand these things if you plan to participate in markets that claim to be fair. There is nothing novel about this sort of thing, and it is just a problem of allocating enough capital to do so." Sure.. its possible, its exactly what activist investors do (with institutional money - e.g. pension funds, family foundations).  Crowdsourcing probably implies an average &lt;$100 donation per contributor in your mind however, so you'd need a lot of contributors (as opposed to an institution writing a $1B check out of the box)  As a benchmark, you can start agitating even without owning shares, but it probably lends credibility to have a few percentage points.  As of today, GS's market cap is $46B, JPM's market cap is $122B, BAML's market cap is $77B... so you'd need at least $1B of capital to buy a percentage point or two.  At $100 per ticket. that's 10M individual donors. "(Leaving aside the question of why should you try and convince him...) I don't know about a very convincing ""tl;dr"" online resource, but two books in particular convinced me that active management is generally foolish, but staying out of the markets is also foolish.  They are: The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William Bernstein, and A Random Walk Down Wall Street: The Time Tested-Strategy for Successful Investing by Burton G. Malkiel Berstein's book really drives home the fact that adding some amount of a risky asset class to a portfolio can actually reduce overall portfolio risk. Some folks won a Nobel Prize for coming up with this modern portfolio theory stuff. If your friend is truly risk-averse, he can't afford not to diversify.  The single asset class he's focusing on certainly has risks, most likely inflation / purchasing power risk ... and that risk that could be reduced by including some percentage of other assets to compensate, even small amounts. Perhaps the issue is one of psychology? Many people can't stomach the ups-and-downs of the stock market.  Bernstein's also-excellent follow-up book, The Four Pillars of Investing: Lessons for Building a Winning Portfolio, specifically addresses psychology as one of the pillars." "I'm going to take a very crude view of this: Suppose that you have an event that would cost $100,000 if it occurred. If there's a 10% chance that it'll happen to you and the insurance costs less than $10,000, you'll make a profit ""on average."" This is, of course, assuming that you could afford a $100,000 loss. If you can't, the actual loss could be much higher (or different). For example, if you couldn't afford surgery because you didn't have health insurance, it could be a lot more ""costly"" in a way that could be difficult to compare to the $100,000. Obviously, this is a very simplistic view of things. For example, making more than you paid on the premium typically isn't the only reason you'd buy insurance (even if you're high net worth). Just wanted to throw this out there for what it's worth though." How can you correlate a company stock's performance with overall market performance. No you can't. There is no simple magic formulae that will result in profits. There are quite a few statistical algorithms that specialists have built, that work most of the times. But they are incorrect most of the times as well. Well lets see...  JP Morgan Chase, for example, has a market cap of $118 billion. The U.S. labor force is about 158 million people. So if every working american kicked in about 400 bucks, you'd have enough money to buy a a controlling stake in JPM. Goldman Sachs has a market cap of $44 billion. You could buy a controlling stake in Goldman if every working american threw in about 150 bucks. Of course you'd have to purchase the stock at a large premium if you're trying to gain a controlling stake. "The stock market is not a zero-sum game.  Some parts are (forex, some option trading), but plain old stock trading is not zero sum. That is to say, if you were to invest ""at random"", you would on average make money.  That's because the market as a whole makes money - it goes up over time (6-10% annually, averaged over time).  That's because you're not just gambling when you buy a stock; you're actually contributing money to a company (directly or indirectly), which it uses to fund activities that (on average) make money.  When you buy Caterpillar stock, you're indirectly funding Caterpillar building tractors, which they then sell for a profit, and thus your stock appreciates in value.  While not every company makes a profit, and thus not every stock appreciates in true value, the average one does. To some extent, buying index funds is pretty close to ""investing at random"".  It has a far lower risk quotient, of course, since you're not buying a few stocks at random but instead are buying all stocks in an index; but buying stocks from the S&P 500 at random would on average give the same return as VOO (with way more volatility). So for one, you definitely could do worse than 50/50; if you simply sold the market short (sold random stocks short), you would lose money over time on average, above and beyond the transaction cost, since the market will go up over time on average. Secondly, there is the consideration of limited and unlimited gains or losses. Some trades, specifically some option trades, have limited potential gains, and unlimited potential losses. Take for example, a simple call option.  If you sell a naked call option - meaning you sell a call option but don't own the stock - for $100, at a strike price of $20, for 100 shares, you make money as long as the price of that stock is under $21.  You have a potential to make $100, because that's what you sold it for; if the price is under $20, it's not exercised, and you just get that $100, free.   But, on the other hand, if the stock goes up, you could potentially be out any amount of money.  If the stock trades at $24, you're out $400-100 = $300, right?  (Plus transaction costs.)   But what if it trades at $60?  Or $100?  Or $10000?  You're still out 100 * that amount, so in the latter case, $1 million.  It's not likely to trade at that point, but it could. If you were to trade ""at random"", you'd probably run into one of those types of situations.  That's because there are lots of potential trades out there that nobody expects anyone to take - but that doesn't mean that people wouldn't be happy to take your money if you offered it to them.   That's the reason your 16.66 vs 83.33 argument is faulty:  you're absolutely right that if there were a consistently losing line, that the consistently winning line would exist, but that requires someone that is willing to take the losing line.  Trades require two actors, one on each side; if you're willing to be the patsy, there's always someone happy to take advantage of you, but you might not get a patsy." I don't believe the decision is decided by age or wealth.  You only stock pick when  a) you enjoy the process because it takes time and if you consider it 'work' then the cost will probably not be offset by higher returns. b) you must have the time to spend trading, monitoring, choosing, etc. c) you must have the skills/experience to 'bring something to the table' that you think gives you an edge over everyone else.  If you don't then you will be the patsy that others make a profit off. "First of all, the annual returns are an average, there are probably some years where their return was several thousand percent,  this can make a decade of 2% a year become an average of 20% . Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3% of the US population is registered as accredited investors. Accredited Investors are allowed to participate in private offerings of securities that do not have to be registered with the SEC, although theoretically riskier, these can have greater returns. Indeed a lot of companies that go public these days only do so after the majority of the growth potential is done. For example, a company like Facebook in the 90s would have gone public when it was a million dollar company, instead Facebook went public when it was already a 100 billion dollar company. The people that were privileged enough to be ALLOWED to invest in Facebook while it was private, experienced 10000% returns, public stock market investors from Facebook's IPO have experienced a nearly 100% return, in comparison. Third, there are even more rules that are simply different between the ""underclass"" and the ""upperclass"". Especially when it comes to leverage, the rules on margin in the stock market and options markets are simply different between classes of investors. The more capital you have, the less you actually have to use to open a trade. Imagine a situation where a retail investor can invest in a stock by only putting down 25% of the value of the stock's shares. Someone with the net worth of an accredited investor could put down 5% of the value of the shares. So if the stock goes up, the person that already has money would earn a greater percentage than the peon thats actually investing to earn money at all. Fourth, Warren Buffett's fund and George Soros' funds aren't just in stocks. George Soros' claim to fame was taking big bets in the foreign exchange market. The leverage in that market is much greater than one can experience in the stock market. Fifth, Options. Anyone can open an options contract, but getting someone else to be on the other side of it is harder. Someone with clout can negotiate a 10 year options contract for pretty cheap and gain greatly if their stock or other asset appreciates in value much greater. There are cultural limitations that prompt some people to make a distinction between investing and gambling, but others are not bound by those limitations and can take any kind of bet they like." &gt; The stock market measures individual companies' ups and downs, right?  Not precisely, no. If anything it measures...  1. Information  2. Risk and Riskiness  3. Market Sentiment  &gt; Perhaps it could even gain over my life.  One would assume that this would be a relatively flat graph, with little if any trend, and occasional spikes upwards and downwards. It'd also be subject to caps and floors, unlike the market which is only floored (at 0).  &gt; I don't know if anyone could come up with a kind of standardised measurement we could use to do this.  It'd be impossible. Happiness is subjective *and* relative. Getting a million bucks might make me happy, but Bill Gates bored. Having a child can be conflicting intensely. The death of a loved one could be both sad and a relief. "You can hold a wide variety of investments in your TFSA account, including stocks such as SLF. But if the stocks are being purchased via a company stock purchase plan, they are typically deposited in a regular margin account with a brokerage firm (a few companies may issue physical stock certificates but that is very rare these days). That account would not be a TFSA but you can perform what's called an ""in-kind"" transfer to move them into a TFSA that you open with either the same brokerage firm, or a different one. There will be a fee for the transfer - check with the brokerage that currently holds the stock to find out how costly that will be. Assuming the stock gained in value while you held it outside the TFSA, this transfer will result in capital gains tax that you'll have to pay when you file your taxes for the year in which the transfer occurs. The tax would be calculated by taking the value at time of transfer, minus the purchase price (or the market value at time of purchase, if your plan allowed you to buy it at a discounted price; the discounted amount will be automatically taxed by your employer). 50% of the capital gain is added to your annual income when calculating taxes owed.  Normally when you sell a stock that has lost value, you can actually get a ""capital loss"" deduction that is used to offset gains that you made in other stocks, or redeemed against capital gains tax paid in previous years, or carried forward to apply against gains in future years. However, if the stock decreased in value and you transfer it, you are not eligible to claim a capital loss. I'm not sure why you said ""TFSA for a family member"", as you cannot directly contribute to someone else's TFSA account. You can give them a gift of money or stocks, which they can deposit in their TFSA account, but that involves that extra step of gifting, and the money/stocks become their property to do with as they please. Now that I've (hopefully) answered all your questions, let me offer you some advice, as someone who also participates in an employee stock purchase plan. Holding stock in the company that you work for is a bad idea. The reason is simple: if something terrible happens to the company, their stock will plummet and at the same time they may be forced to lay off many employees. So just at the time when you lose your job and might want to sell your stock, suddenly the value of your stocks has gone way down! So you really should sell your company shares at least once a year, and then use that money to invest in your TFSA account. You also don't want to put all your eggs in one basket - you should be spreading your investment among many companies, or better yet, buy index mutual funds or ETFs which hold all the companies in a certain index. There's lots of good info about index investing available at Canadian Couch Potato. The types of investments recommended there are all possible to purchase inside a TFSA account, to shelter the growth from being taxed. EDIT: Here is an article from MoneySense that talks about transferring stocks into a TFSA. It also mentions the importance of having a diversified portfolio!"