At the casino, a game with one of the best odds of beating the house is Blackjack, at 49%. That's a losing prospect over the long-term, which is why it's called gambling. You're more likely to lose money than gain.
But when investing in stocks, the odds of making money in the long run are actually in your favor, according to research from Ned Davis Research.
That's as long as you invest in a diversified portfolio of high quality companies that are profitable and growing. The S&P 500 represents the 500 largest public companies in the US that are profitable — that's usually the best option for new investors who want to familiarize themselves with the market.
Unfortunately, a bulk of new investors in the stock market gravitate towards speculating in lower priced stocks that represent unprofitable companies in the hopes of realizing a swift and sizable profit. Buying these stocks is akin to gambling at the casino: you could strike big, but more often than not you will lose.
Therefore, if you can't help but bet on these risky companies, only invest what you are willing to lose, and make sure these bets only represent a small percentage of your overall investment portfolio.
NDR crunched the historical numbers on the probability of making money on an investment in the S&P 500 at various lengths of time, and what they found was consistent across the board: Over the long run stocks remain one of the greatest money makers.
Here's the data from NDR.
Since 1925, the S&P 500 has delivered an average annual return of 10.2%. The index was up 74% of the time during all 1-yr periods. That winning percentage increases to 87% during all 5-yr periods, and to 97% for all 10-yr periods. Buying the S&P 500 turned a profit 100% of the time for all 20-yr and 30-yr periods.
This data helps illustrate how anyone can build wealth in the stock market.
So don't gamble, invest, because the odds are in your favor.
If you'd like to talk to a financial advisor about investing in the stock market, schedule a time to talk today! Ithaca Wealth Management offers $0 account minimums and a swift, fully digital account opening process!
The Probabilities of Turning a Profit in the S&P 500 Since 1945 (75 Years)
The Probabilities of Turning a Profit in the S&P 500 Since 1970 (50 Years)
The Probabilities of Turning a Profit in the S&P 500 Since 1995 (25 Years)
Thanks for reading, and please reach out with any feedback or questions.
Matthew Fox, CMT, MBA
Founder & Wealth Advisor