Is the Stock Market a Scam?

Many people, particularly in the wake of the collapse in 2008, were left wondering if the stock market is anything but a Ponzi scheme.  It seems difficult to understand why the big players always seem to win, even when everyone else is losing their shirt.  We're left to wonder if the stock market is really a good idea, or simply a scam to get money from the average person and give it to those who already are rich.

If you are developing a model for a society, stock markets are obviously necessary and valuable.  If you want to have entities large enough to take advantage of economies of scale and to distribute risk, corporations and publicly traded shares are desirable.  You want the public to be able to amalgamate its capital and put it to work.  You also want entities that operate outside the whim of any one person.  In fact it can be easy to see how in countries where their stock market is not as well developed and trusted, that it is a serious hindrance to economic growth.

While this model of a stock market sounds lovely and benign, you also have to look at how the stock market is sold to Americans.  Many investors view the stock market more like a roulette table, moving their money around to chase trends and novel ideas.  They also may have unrealistic expectations of the kinds of returns they can expect over time.  If you started investing in the boom times, it can be a dizzying wake-up call when the market returns to the mean.

Additionally there are agents that are selling you on products and investments that are beyond your level of understanding.  Many of these people are little better than scammers trying to play on your lack of understanding and desire to get better returns.  They are outright predators and it can be very dangerous to get involved with them.

Given all this information it can be tempting for the average investor to dismiss the stock market as a scam and stay away, but as we mentioned it also has legitimate purposes and can be a great way to make your money work for you.  There are a few keys to being safe however.  The most important is to avoid anything that sounds too good to be true.  Use your common sense.  Additionally make it your mission to be as educated as possible.  You can't outsource your investing decisions completely.   No matter how trusted your advisors, you owe it to yourself to be as educated as possible.

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If you're interested in learning how to become a safer investor, visit Investing First Steps. There you can learn about topics like how to start investing in the stock market or the best books on investing for beginners.

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