7℅ to 10%? yearly? if retails know this they just give up.time wich is most valuable asset is not worth by far.you need to be rich and lend your money.I will stop trading tomorrow (joking)
Why don't people just stay long on the S&P 500? Bear markets cause long periods were investors are under water - most get scared out near the lows. Traders seek to make profits when the market is going up or down. True 90% wipe out, however few people that set out to learn to surf, play a musical instrument, lose weight, learn a language, start a business, etc - fail at it - trading is no different. Those that are tenacious and have some capital can make it. Wiping out a time or two when starting out is the norm, even for the best traders of all times. Buy & hold looks brilliant in a raging bull market - when the bear markets show up it does not look so smart.
"So why don't retail traders just invest their money in SP500? ?" To play devil's advocate, there are no guarantees that just buying the S&P is a good "investment/trade" Would be a shame to get Japan'd or 1929'd ...
By trade, do you mean 'Trade' (as in day trading or short term holding) or 'Investing' (as in buy &hold long time). The idea behind investing is not so much to beat the S&P, but to have a diversified portfolio with various holding and return types (capital, dividend, etc.) to meet your specific needs. For example, if you need income you may want to diversify portfolio with some dividend payers to cover income, and blue chips to survive long term, with some low volatility stocks. If you don't need income, and you have a 30+ year horizon, it's hard to beat throwing it all into the S&P 500 and just forget about it. Now when it comes to Trading, the goals are very different. You have individuals with small amount of capital who needs high returns. With long term investors, they are happy with 7% return (especially if have a 1M base to start with). But a short term trader may have 25k to their name and need to somehow make 25k/year. They can't do that with buy & hold. When it comes to institutions, it is also very different. They have to meet criteria to keep clients happy, worry about quarterly returns for advertising purposes, and have their own bonuses to worry about. Also they like to close their books on the quarter/year for easy book-keeping. So the answer your question, it all really comes back to asking a more appropriate question. The question is not about whether or not its worth the effort to learn how to trade. The question is: What form of interacting with the financial markets should I focus on in order to meet my personal needs. If you have 1M and need a modest income, you may find out that it's not worth the headache to try and play heavily leveraged futures/forex on a daily (minutely) basis. If you are young and plan to start investing for retirement in 30 years, you may find that buying S&P 500 (SPY) and a few choice companies that you like will suit you well. You may even want to study up some of the basics of Portfolio Theory.
Recovery times as you say. I think long term a good investment but wait 25 years, or 16... I honestly think those are too long timeframes.
It is like asking "is it even worth to learn how to be a great writer". Many strive to, very few achieve though paradoxically everybody nowadays knows how to read and write. There is a universe between knowing how to write and becoming a great writer.
Person A was born in 1905. When he was 25 years old (1930) he had some money to invest. When he was 50 years old (1955) he checked his investment and saw that the return for the past 25 years was zero. The past 25 years his return was constantly negative. At the age of 50 he still had to start saving money, he lost 25 years. Person B was born in 1940. When he was 25 years old (1965) he had some money to invest. When he was 45 years old (1985) he checked his investment and saw that the return for the past 20 years was zero. During 20 years his return was constantly negative. At the age of 45 he still had to start saving money, he lost 20 years. Between 1900 and 1985 there were 3 recovery periods for a total length of 60 years on a 85 years period. With a little bit of bad luck investing would have resulted in horrible returns. The economical miracle of Japan with their Nikkei index that only could go higher turned out horrible too. End of 1989 the miracle ended at a level of over 37,000. Even now, 27 years later, the losses are still around 50%. People who saved money for their pension never made any money and with some bad luck they lost up to 50%. In hindsight it is always easy. Not only in trading, also in investing.
FX xtc said: Exactly correct! Trading can be one of the best entertainments (providing you learn enough how to control risk) and one of the top intellectual challenges (providing you have the required willpower). People do need to pay for a movie, a concert, a sport competition (training cost), a research thesis (mental effort), etc.