Wall Street vs. Main Street: Yes, You Can Still Invest

Wall Street vs. Main Street is a phrase used to describe the disparity between the average investor and the large financers. It emphasizes the idea that the “little guy” does not have the same advantages of the big Wall Street companies who are able to take advantage of the small investors. Another common metaphor used here is “David vs. Goliath.”

However, don’t get discouraged when it comes to investing.

There is opportunity in the stock market to reach your financial goals, no matter your level of expertise or resources behind you.

Who is Wall Street?

You probably know Wall Street as a street in lower Manhattan in New York City, home to the New York Stock Exchange. But “Wall Street” is also commonly used to reference the people and organizations associated with the stock market, including investment banks, hedge funds, large corporations, brokerages, and the stock exchanges. 

The purpose of these organizations is to make money in the financial markets.

Who is Main Street?

Main Street is often used to refer to the average investor (not the people associated with the large Wall Street firms).  

They are your average workers and small business owners across America looking to grow their money.

Main Street is also often used to refer to the broader economy. 

Does Wall Street take advantage of Main Street?

There is no doubt that the activities on Wall Street have an affect on the economy. 

Instances of corruption throughout the years have caused many to feel discouraged and lose trust in investing in the stock market. The scars of the financial crisis of 2007-2008 when the nation’s largest banks took on excessive risk causing a meltdown in the global economy can still be felt today. It was also in 2008 when the Ponzi scheme orchestrated by Bernie Madoff, former chair of the NASDAQ exchange, was uncovered. 

Here’s a brief historical overview of other instances of corruption on Wall Street:

  • William Duer, recognized as the first insider trader caused the financial panic of 1792.
  • In 1868, Jay Gould, to prevent Cornelius Vanderbilt from gaining control of his railroad, issued fraudulent stock and paid bribes to New York legislators to legalize the sales.
  • In 1990, Michael R. Milken, known as the “junk bond king” pleaded guilty to six felonies in what was the biggest fraud case in Wall Street’s history.
  • In 2001, the energy company Enron filed for bankruptcy causing investors to lose millions. An FBI investigation revealed executives had engaged in questionable accounting practices inflating asset values to boost cashflow and earnings statements.  

These are just a handful of the known events in history which is enough to discourage anyone. 

But should events like this these dissuade you from investing in the stock market?   

The stock market is still a great opportunity

Even with the many instances of fraud and corruption, the stock market still presents a great opportunity for investors. 

Make no mistake, this article is not a defense of the illegal and unethical practices by some on Wall Street. But don’t let these instances discourage you from investing. If you stick to sound investment principles, you can still benefit from investing in the stock market.

The average annual return of the S&P 500 between 1928 and 2020 (including dividends) was 11.64%. So even with a history of fraud and corruption throughout the years, the overall market has performed well. Investors who held a diversified portfolio of stocks over the long term would have benefited from the growth and returns the stock market provided, regardless of the corruption and unethical practices.

We live in an age where the opportunity to invest in the stock market has never been easier. The big online brokerage firms now offer commission free trades on stocks and exchange traded funds (ETFs). You can purchase shares in low cost mutual funds directly with the mutual fund companies. And many brokerage firms offer a variety of managed accounts with commentative fees.

It’s important to stick to sound investment principles. That means having the right asset allocation and diversification.

Investing involves risk. And corruption is one of the many risks you face. But by diversifying your investment portfolio among a variety of companies from different industries you can reduce your risk. You can limit your exposure to the negative events of a particular company or industry.

What if you are a victim of fraud?

The Financial Industry Regulatory Industry (FINRA) was established to protect investors and safeguard the integrity of the financial markets. If you are a victim of fraud or feel you have been treated unfairly, you can file a complaint  and they will conduct an investigation.

You can also submit a complaint and any concerns of securities fraud to the Security and Exchange Commission (SEC).  

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