Saturday, November 5, 2022

This Stock Market Myth Could Be Holding You Back

By Keith Kaplan (View Archive)

Editor's note: Today in the Empire Financial Daily Weekend Edition, we're sharing an essay from our friend and colleague Keith Kaplan – CEO of our corporate affiliate TradeSmith...

At TradeSmith, Keith uses his more than 20 years of experience as a software architect and cloud engineer to put the power of software in the hands of everyday investors. TradeSmith provides easy-to-use – yet still sophisticated – tools to help folks make better investing decisions, risk less money, and potentially make greater gains in the market.

In today's essay, Keith busts a myth about the market that's keeping too many people out of stocks...

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How do some of the myths about the stock market even start?

One would guess it comes from simple perception. But the myth we need to debunk today is downright infuriating.

It's the belief that you need a lot of starting money to be a successful investor.

That couldn't be further from the truth. You don't need $1 million to start investing the right way. You don't even need $1,000.

All you need is a small stake and the right level of confidence...

The stock market is not just for rich people. It's not just for brokers and people with big boats sitting off the docks of Manhattan or Miami.

It's a genuine wealth-building tool for America's middle class. But many people don't take advantage of it...

It hasn't helped that three major financial crises occurred in the last 20 years... The dot-com bubble, the Great Financial Crisis of 2008, and the Covid Crash of 2020 have turned many 401(k)s into "201(k)s."

These sharp downturns have shaken confidence in U.S. and global markets. As a result, middle-class investors – who are typically loss averse and prone to selling stocks in times of crisis – have walked away from stock market investing.

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When it comes to who owns stocks and who doesn't, the numbers are staggering...

The top 1% of households by wealth have controlled 70% to 80% of the market since 1989. But the Federal Reserve reports that as of 2020, these households were near their highest levels of stock ownership ever... controlling 87.2% of U.S. equities.

In 2007, roughly 66% of Americans owned stock. Today, according to a recent Gallup survey, that figure is roughly 58%.

Wall Street, meanwhile, isn't doing anything to bring more Americans into the market. Hedge funds, private equity firms, family offices, and certain institutions are typically designed for accredited investors.

Who is an "accredited investor"?

These are individuals who only qualify for certain asset classes that are heavily focused on the markets. Accredited investors must earn at least $200,000 per year or have a net worth (minus their primary residence) of $1 million or more.

Big banks and big money managers love these investors because they generate massive fees for their bottom line.

But they've also contributed to the ongoing consolidation of assets among the wealthiest people in America. According to a recent Federal Reserve report, the top 1% of households in the U.S. own 53% of the stocks.

No wonder there is this ongoing misconception that the stock market is a machine built for rich people.

However, don't buy into that myth. The stock market is your tool to find success and build wealth.

I've had many conversations with people about where and how to start investing. And I always try to get people to think in terms of 'rules.' So here goes with a big rule...

Don't think that you don't have enough money to get started.

For example, I listen to people say that they need to hit a particular savings milestone before they start investing. Some people say they need $10,000 or $15,000 in their savings account before they start investing.

No. Start now.

Instead of putting $100 or $200 away each week or month into a savings account, put it in the market. The savings account will pay you a paltry 0.16% interest, which is lower than the inflation rate. You're actually losing purchasing power by parking your money in that savings account.

Think of it this way... You'd need 450 years to double your money at 0.16%. If you were earning 10% a year, you'd need just over seven years to double your money.

There are undervalued stocks that you can buy for $50 or $100. They might be trading even lower than the amount of money you have to start building a portfolio, which allows you to buy multiple shares. If you have $50 and the stock is at $5, buy 10 shares. If you have $50 and it trades at $10, buy five shares.

All you need to do is start small...

If you're out of the market – or just starting to dip your toe into it for the first or second time – you're in the right place. Or maybe this applies to someone you know... Maybe you have a college graduate in your family who's just getting their financial start in life.

Regardless, you should start small if you're learning how to trade and invest. And even if you do have a lot of capital, you shouldn't dive into the markets with both feet.

You don't need to worry about buying every single stock that interests you at once. Start with a few ideas and pick your best ones.

But for now... have confidence in the fact that the markets are not just for the wealthy.


Keith Kaplan
November 5, 2022

Editor's note: Right now, Keith is sharing the details on how to collect as much as $6,302 beginning this Monday, with one simple e-mail. As he says, it's like being handed huge sums of cash, directly through your computer screen – every single week, like clockwork. Learn more here.