Is the stock market rigged?

Sam Swift, CFA, CFP®, AIF®

Apr 3, 2014

By: Sam Swift, CFA, CFP®

Well, Michael Lewis appeared on 60 Minutes recently and just told us that the stock market is rigged (he also appeared on The Daily Show with a few more laughs). Clearly, this is worth commenting on and I have two points to make:

  1. High-Frequency Trading (HFT) is irrelevant to your long-term plan
  2. Knowing point number one doesn’t mean you still shouldn’t be pissed off

Let me elaborate.

On my first point, if you’re engaged with real financial planning you know that a price change over a matter of milliseconds will have no bearing on your long-term outcome. You should hardly be doing much trading to begin with and that trading should be done through low-cost index products where the effects of HFT will have little to no impact. Furthermore, do you think investors are more interested about what exact price they bought their S&P 500 index fund at twenty years ago or more interested in the fact that it’s worth four times as much whether they got it at 445 or 446? Finally, market return is just one of several factors affecting your long-term outlook and it’s the one you have no control over. Much more important are the factors you can control and take advantage of: savings, spending, retirement date, and maximizing the time for growth by planning early. For those that were still thinking they could help their long-term outcome with some shrewdly executed day-trading, this is hopefully the final piece of evidence that will permanently shut down that mindset.

On my second point, the arguments stated above should relieve you of any fear as it relates to your situation, but you should still be angry. To me, this is further proof that a significant portion of Wall Street’s profits come thanks to deliberately creating confusion and actively working against client’s interests. It’s unethical and there should be consequences.

That being said, you have the choice to get educated, practice real financial planning and be successful regardless of whatever the Wall Street scandal of the week is.


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