It is a dirty fact, but everyone on Wall Street knows the stock market could not function without Dumb Money. Dumb Money—and that is how Wall Street classifies outsiders—always does what most benefits Wall Street. Dumb Money buys stocks when it should sell, and panics and sells when buying makes more sense. This is a primary reason why Wall Street makes so much money when most everyone else fails, or inches forward, in the stock market. If not for the positive effect of inflation, and corporate stock dividends, which represent more than 45 percent of historical stock gains, most investors would have sharply smaller investment portfolios.
Now, as Baby Boomers confront retirement, and younger generations worry they will not live as well as their parents, millions of people are beginning to understand that they must get much smarter, much faster, about the stock market if they ever want to retire, pay for their children’s college educations, or lead lives that eventually bear some semblance of financial ease.
The old ideas of coasting toward retirement by regularly investing in stocks and effortlessly doubling stock portfolio values every seven or so years as the stock market advanced are no longer valid. The Credit Crisis of 2007, and Europe’s sovereign debt crisis that sparked in 2009, have unleashed new financial realities that are likely to prove true Wall Street’s adage that the stock market hurts the most people, most of the time.
Yet, the future need not be ...