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I simply cannot understand how investing in stock/shares works. So I am too scared to invest/buy any of these, although I do have Roth and 401(k) plan through my employment.

By not investing in the stock/shares, am I losing too much money?

Keeping money in a savings back account loses its value due to inflation; is this true?

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    You said that you have a Roth and 401(k) plan at work. Are you participating in these? If so, how do you have them invested? – Ben Miller - Remember Monica Dec 14 '18 at 4:34
  • well I contribute a chunk of percentile from my salary. Yes I have opted for 20% of my salary to go to this. – grund Dec 14 '18 at 4:35
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    Great! When you put money into those plans, you need to choose a fund that the money will be invested in. What did you choose? – Ben Miller - Remember Monica Dec 14 '18 at 4:37
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    @grund You should take a peak into the details of the default fund, but it is almost a definite thing that the fund is at least partially invested in stocks chosen by the fund manager. So, you are not completely out of the market. – Grade 'Eh' Bacon Dec 14 '18 at 13:45
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    I don't believe that's permitted. A 401(k) must offer a number of options and the choice between them. A forced mix is something that I'd be very surprised to see. (And surprised to see the laws have changed regarding this, if that's the case) – JTP - Apologise to Monica Aug 7 '19 at 23:31
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For long-term investments (over ten years, which is what retirement accounts are typically for), the stock market always brought ~10% average gain per year. That means, that if your money sits there for 20 years you will get around 570% total interest/gain.
If you compare that with even a 2% savings account, which would accumulate 48% in the same time, you see that you are losing out on significant gains: 100k would become 148k instead of an expected 670k.

Of course, nobody can guarantee those 10% average; but basically all specialists agree that long-term it is to be expected - nobody seriously doubts that.

You should try to invest and forget this money, not check every day. if you cannot take the anxiety of daily changes, you will have to go with more secure options, and therefore less gain.

Note that this is not a black-and-white decision, you can choose to put a part in shares and a part in savings accounts, or anything in between.

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  • So it would be good idea with risk to longterm invest in stock along with retirement plan/roth[These have limits how much can be invested in]. Rather than keep in SB account. – grund Dec 14 '18 at 5:06
  • yes because the 570% gains in those are tax-free (Roth) or at least tax-deferred (non-Roth). Why would you want to pay taxes year after year on those gains? – Aganju Dec 14 '18 at 5:09
  • that is also the reason for the limit - otherwise people would put millions in there – Aganju Dec 14 '18 at 5:09
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    "... the stock market always brought ~10% average gain per year"??? this statement gives me the heebie jeebies. We're 28 years past the Nikkei 225 all time high set in 1990. That is a major index of a liquid market in a major capitalist economy. Also, it's not a smooth 10%. An investor might see 10% return in the long term from the S&P 500, but along the way they have to get through some specific years of +30% (2013, 2003), and some years of -20% (2008, 2002). A novice expecting a smooth 10% is in for a bumpy ride. – user662852 Dec 14 '18 at 15:28
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    While the long term return from the market averages 10%, when adjusted for inflation, it's about 7%. When an investor enters the market and how long he remains in it makes a significant difference to the returns. Anyone buying in 1982, 2003 and 2009 after the slide ended did very well. Someone who bought stocks in 1965 had 16 years of losses before recovery began and another 12 years before reaching the nominal peak of 1965 (reinvesting dividends shortened that recovery time somewhat). – Bob Baerker Dec 14 '18 at 16:22
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When some people think about investing in the stock market, they are envisioning choosing a stock, buying some shares, and then watching CNBC to see how much money they gained or lost each day. That is very risky, and not something I recommend for someone who is just starting out investing. Instead, mutual funds allow you to invest in lots of different stocks all at once. And since the stock market as a whole on average increases in value over time, if you buy into the market and hold for many years, your investment will most likely have a good return. (At least, it always has, for the last 100+ years of the stock market.)

The retirement plan at your place of employment is going to be your easiest way to save for retirement. And yes, if you want to eventually retire someday, you should have this money invested in the stock market.

The great news is that you are already participating in that plan (20% is great!), and most likely you are already investing in the stock market to some degree, as the default fund you are in may include stocks.

I know that you said in a comment that you do not get to choose how this money is invested, but I think it is possible that you have more options than you currently know about. Inside most 401(k) plans there are several choices of investments (typically stock and bond mutual funds) that you can select from. I would encourage you to find out more about your company's retirement plan and get a list of what your investment options are. Some of these funds will be more appropriate for you than others, so if you have questions about any of the funds that are inside your 401(k), you can ask a new question here, and we can probably help you understand your choices.

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If I was you I would look for an investment adviser that has the desire to teach you about investing. Sure you will pay him a fee, but it is well worth it in cases such as yours. The stock market can be very scary for some, and even seen as gambling, or even immoral.

Reading a few quick answers in the internet will not change your mind. However, having a patient teacher will not only take time but also be very worth your while. Yourself, 20 years from now, will thank yourself for undergoing this journey.

I'd advise you to keep this person longer than necessary and quite possibly the rest of your life. Certain personalities do well with having professional guidance in investing.

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  • Huh. The advice I've always heard is "Don't pay for an advisor until you know enough that you won't be led around by the nose.". I wouldn't hire an advisor unless they were willing to sign a contract that acknowledged that they had a fiduciary responsibility to me. – Charles E. Grant Dec 15 '18 at 17:56
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There are a couple key points here.

Stocks are higher risk/higher reward. IF you have a good portfolio, it can be tough to find better returns elsewhere. The broad market (S&P 500) has more than doubled in the past 10 years and many individual stocks have grown even more than that.

That said, you can also LOSE money in individual stocks if you don't know what you're doing and if you don't actively manage your risk. Ultimately, the market has gone up over long periods of time, but a) not every company makes it and b) you could still lose a lot in the short term. For example, I mentioned that the S&P 500 more than doubled over the past 10 years. It also lost more than half of its value between 2007-2009. If you held from 2007 until now, you would have doubled your money but you also would have had to stomach a short-term loss of 50% of your capital. Of course, you can control that risk by using stop losses, but you need to have a plan.

You don't need to dive head first into individual stocks. You can ease your way in by choosing some lower risk ETFs and/or using an online robo-advisory service. Advisory services charge a management fee, but some people like the peace of mind of having their investments managed for them.

Either way, I think your best bet is to slowly dip your feet in until you feel comfortable. You can invest as little as $500 at a time.

In terms of the actual investment process, it is simple. Open an account with an online brokerage and place orders to buy and sell the stocks you are interested in.

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  • "You can invest as little as $500 at a time." I think that depends on the brokerage service; some services even allow to invest mich less than that. – glglgl Aug 8 '19 at 6:18

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