# Why Index Funds Beat Prediction Markets > Young investors drawn to prediction markets for quick returns should know the odds are stacked against them. - Title: Why Index Funds Beat Prediction Markets · Kiplinger | Shortify - Summary: Young investors drawn to prediction markets for quick returns should know the odds are stacked against them. Index funds offer real asset backing and… - Keywords: index funds, prediction markets, kalshi, polymarket, s&p 500, investing, younger generations, financial stress, speculation, long-term investing, investment returns, wealth building - Source: Kiplinger — https://kiplinger.com/investing/why-invest-in-index-funds-when-prediction-markets-pay-big - Published: 2026-09-26T13:30:00+00:00 - Read time: 2 min - Topics: index funds, prediction markets, kalshi, polymarket, s&p 500, investing, younger generations, financial stress, speculation, long-term investing, investment returns, wealth building ## The prediction market temptation Young investors are increasingly ditching index funds for prediction markets like Kalshi and Polymarket, betting on everything from election outcomes to alien existence. ## What prediction markets actually are Unlike traditional gambling, prediction markets let you buy and sell yes-or-no contracts based on event likelihood. They're federally regulated financial derivatives that mirror stock trading. ## Gen Z and millennials lead the charge A 2026 Scripps News poll found 37% of Gen Z and 31% of millennials have used prediction markets, compared to just 19% of all Americans. ## Financial stress drives the shift Seventy-three percent of prediction market users say they're seeking faster paths to wealth because they feel financially behind. For Gen Z, that number jumps to 80%. > 73% say they're doing so because they feel financially behind and think those investments offer a faster path to their goals than traditional methods. ## Index funds deliver real returns The S&P 500 has averaged 11.87% annual returns over 50 years. A $10,000 investment earning 17.25% yearly for 40 years grows to $5.8 million. ## Stocks have real backing When you buy stock, you own a piece of a company with real revenues, profits, and assets. Prediction market bets have no underlying value, just belief. ## The deadline risk problem Prediction market bets expire on specific dates, often within weeks or days. Index funds have no deadline, so you can recover from short-term losses. ## The zeroing risk difference Both can go to zero, but every prediction market bet has one side that must zero out. Most stocks never reach zero and take much longer to fail. ## Polymarket traders lose money A Pew Research analysis of 12,000 Polymarket accounts found the average trader spent $600 and lost money. Fifty-eight percent gained or lost less than $100. > The average trader spent a little over $600 on the site, with a net loss of less than $2. ## Only 18% of traders win big Just 18% of Polymarket traders gained $100 or more, while 24% lost $100 or more. Most results fell between plus 17% and minus 17%. ## Index investors beat the odds In 2024, average equity investors earned 16.54% versus the S&P 500's 25.02%. In 2025, the gap shrank to just 0.72 percentage points. ## Long-term investor returns Over 50 years, average equity investors earned between 3.39% and 11.15% annually, far better than prediction market losses. ## Warren Buffett sees the casino Buffett warned that markets now exhibit more casino-like behavior than in his youth. He distinguishes between investors building long-term wealth and speculators making short-term gambles. > Markets now exhibit far more casino-like behavior than they did when I was young. ## Real concerns, wrong solution Americans face real financial stress from rising food, fuel, and housing costs plus retirement uncertainty. But prediction markets won't solve these problems. ## The better path forward Index funds offer proven returns, real asset backing, and time to recover from mistakes. Prediction markets are speculation with no underlying value. ## Key takeaway Index funds offer real asset backing and long-term growth potential, while prediction markets are pure speculation with no underlying value and worse average returns.