It’s been estimated that only a small fraction of Americans invest directly in the stock market, which is a shame, because there is money to be made, if you invest carefully.
The biggest reason that most people would give for not investing directly in the stock market themselves is that they feel like it is too confusing or overwhelming, especially when most people consider their savings through their 401(k) plans to be a smarter way to go because then their money will be managed by professionals who know what they are doing.
The thing is, it is true that professional money management companies know what they are doing, but it’s also true that managing a portfolio of comprised of thousands or even hundreds of thousands of people is a lot different than just doing so with a few stocks you pick for yourself. Consider for a moment those very same professional money managers, do you suppose they put all their money into the same pool as everyone else?
They do not, and that is because they know that money management is more about risk aversion than making profits; whereas investment management is about making money.
Clearly it wouldn’t be the smartest thing to take all your money out of your savings plan and buy stock with it. That would be insane, especially in light of the fact that most people would have no idea which stock to choose.
Thus, that is the first step. Start reading the newspaper, learn about which companies are doing what. Learn about industries and which are doing well and which aren’t. Check to see which weather financial storms better than others; and which you just feel like you would know more about because you have some background in it. For example, if you’re a sales guy for a paper company, learn all about the wood and paper industries and see how they do historically.
While you’re reading or watching the news, also do a little research regarding the stock market itself. Teach yourself what it is and how it works.
Then, when you’re ready, get yourself an account with E*Trade, and buy some stocks. Not much, just some to see how it feels. Maybe put down a few hundred dollars. Then watch it, but as you do so, always remember that stock prices fluctuate wildly; so don’t let yourself get over stressed. Just pick a stock you feel good about and let it sit there awhile to see how it does.
And keep learning more about the whole system, and if you feel good about some other stock, go ahead and buy some of that.
But don’t expect to stumble across a 1980’s Microsoft or anything like it, because that is about as likely as winning the lottery.
Just keep at it, the longer you’re there, the more you’ll learn, and in the long run, you’re likely to do better than your 401(k).