Is Wall Street Like A Casino?

There is a price war on Wall Street and that is good news for investors.  Both Schwab and Fidelity only charge $4.95 per trade.  Vanguard announced commission-free online transactions for nearly 1,800 ETFs and the ETF providers continue to lower their fees.

When I began my career in the 1980s trading commissions were in the hundreds of dollars, mutual funds charged outrageous load fees, and prices were calculated in eighths instead of pennies so bid-ask spreads were larger.  Compare that to today.  Investors can buy Schwab S&P 500 Index Fund (SWPPX) for an annual expense fee of just 0.03 percent and outperform most of the high-priced actively managed funds.

Still, some say Wall Street is rigged and compare stock ownership to a casino.  If Wall Street is a casino, it's one in which the odds heavily favor the players.  That's not a typo.  If the "players" are long-term investors success is almost guaranteed.  That’s because stocks go up over the long term.  Consider that since 1928 the stock market has risen on 54 percent of the days, 58 percent of the months, and 73 percent of the years.  Compare that to a casino, where the longer you play the greater the odds that you will lose.

Every stock market “correction” and bear market has been followed by a move to new highs.  For 20-year holding periods stock returns have never fallen below inflation.  Bonds and gold can’t claim that.  Since World War II, the average annual real (after inflation) return on stocks is 6.4 percent.

To stack the odds in your favor one must hold a broad market index and/or high-quality companies that pay dividends and raise them often, if not annually.  If, however, you constantly jump into and out of the market and hold low-quality stocks (or leveraged ETFs) then the casino analogy isn’t far off.  As we saw after the technology bubble burst, low-quality stocks sometimes don’t come back or they disappear entirely. 

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Disclaimer: David Vomund is a fee-only money manager. Information is found at or by calling 775-832-8555. Clients hold the ...

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