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?
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.
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.
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.
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.
