The last few weeks I have gotten more than one question about Michael Lewis’s new book, Flash Boys, and the subsequent 60 Minutes television show interview. For those who missed it, Lewis went on record saying the stock market is “rigged” and investors big and small are “prey.” Catch more from the interview here.
The gist of the story is so-called “high frequency” trading firms use fancy algorithms and geographical proximity to market data to game public markets and make billions of dollars a year. So, is the story true? Well, yes. Should you take your money out of the market and assert the backyard coffee can plan to retirement planning? No.
The truth is the effect of flash trading firms on most individual investor accounts is infinitesimal. While there’s no way to accurately quantify it, let’s call it a couple cents a year. Far greater concern ought to be given to things like high management fees, front-end loaded commissions and self-serving broker recommendations.
Better to instead spend your time worrying about things like reducing debt, lowering expenses, investing continuously and getting independent advice that must be in your best interests. And if you manage to find a nickel on the ground on your way into the office this week, consider yourself one up on those high frequency trading guys.
If you toss a coin 10,000 times, it will NOT be heads 5000 times, but closer 4950. Heads is actually a slightly lower probability, since the picture weighs more, causing it to end up on the bottom slightly more times.
IRA Contribution Reminder
If you are contributing to an IRA, and did not make a contribution in 2013, your deadline to do so for the 2013 tax year is April 15, 2014.
Have a great April,
Steve Zakelj, CFP®