The first thing to remember of course is that any investment involves a degree of risk. The value of any stock, even the most stable stock, can go down as well as up. So when planning for your retirement, you want to make sure that you invest wisely and choose the right stocks for your 401k fund.

The risk from online 401k investing does not just come from the stock prices however. There is a degree of anonymity with the web that unfortunately attracts scammers and con artists, who would just love to take your money off you. So if you are planning to hand over money to any company you find on the Internet, make sure you do your research first, both online and offline. Is it a reputable, regulated company? Where are its offices? Who are its customers? Don’t fall into the trap of investing your 401k with a company that seems legitimate but in actual fact is not.

On the other side of the coin, you don’t want to be too cautious when investing. Sure you can go for something like Guaranteed Investment Certificates (GICs), which are very safe investments, but the returns you are likely to get on your investment will probably be so poor as to be not worth it. You do want your money to grow after all.

Think carefully about how much money you want to invest into your 401k each month. You want to put enough in there so that the fund will grow to a nice enough level to keep you comfortable when you retire, but you don’t want to put so much in that you are leaving yourself short each month. And don’t forget, if you withdraw funds from your 401k before the age of 59, you will be heavily taxed because the money you were investing into the fund was pre-tax.

As long as you remember that you are saving for your retirement and not for that new car you wanted, you invest wisely and conservatively (but not too conservatively!) and you seek out a reputable firm to manage your 401k investments, you should be all set!

You Choose How Much You Risk On a Stock

Always a great suggestion for when you are starting out, after having paper-traded for a while (trading with fake money as you practice a strategy), you can begin by opening a small account.  Many brokers allow you to open with very small accounts, often as low as $250 according to what I’ve seen.  The mantra is ‘never trade with money you can’t afford to lose’.  If you feel like $500 might be a good amount to start out with, you can give that a try.  Just make sure that if you somehow lost it all, it wouldn’t be totally devastating to your financial well-being. How do you prevent losing it all? I’ll talk about that briefly in the next section.

You Can Cut Your Losses Short Using Stop-Losses

Contrary to any type of ‘crash’, be it big or small, when you are doing your own trading you are able to assess your own risk tolerance, and place trades accordingly.  Let’s compare this to say, your 401k or a mutual fund you might have some stake in. Somewhere around the end of 2008 the stock market began to tank pretty bad. Many people had 401k’s or owned mutual funds that were affected by this. After polling a few open friends about this, it seemed to me that many saw losses up to 40 and 50% of their portfolio! On the other hand, those such as myself who take care of their own retirement are able to set what is called a ‘stop-loss’ on any given trade that will pull it out when it reaches a certain point.  As an example, if I had $20,000 in my account and had one trade open, I would be able to set a stop-loss that might close the trade if my account balance reached $19,000, making it so I would suffer only a 5% loss.  A far cry from the 50% that some people have seen recently. It’s this exact reason why I don’t understand why some people claim that trading your own money is more dangerous than things like mutual funds or 401k’s.

Buying Stocks is a Very Simple Process

Lastly, I think that some people are turned away from the idea of buying stocks because they think that opening a trading account will be a difficult process.  This simply is not true.  As I remember, the last time I opened an account it was all done online, and was only a couple of pages.  Most of this was material that you are supposed to read, with a few spaces to fill out. After that it takes about two or three days to be approved, and you can find yourself trading in no time.  You are able to deposit money into your trading by sending a check or by bank wire, and in some cases you can even fund your account with a credit card. Withdrawing money? That is where all the fun is.  You can also do this in the same way; a check to your doorstep, or bank wire.

Fine, I can see where you are coming from.  But there is more to it than that.  First of all there is the lack of incentive. A stock broker is going to make money whether you do or not. This is very different than say many hedge funds, who take a ‘performance fee’.  These types of funds will earn a percentage of the profits that they make you each year; a far better compensation plan in my mind. The incentive to do well is clearly there. This would put many stock brokers out of business.

If you are not buying stocks yourself, you have very little control over your financial future. I know I keep harping on the same examples, but I doubt that you do not know one person who has lost a huge chunk of a 401k or a mutual fund that they owned.  It is all over the place.  Stock trading for yourself is no guarantee of course, but there are so many checks you can put in place to prevent the sort of things that many people have had to go through, often shortly before their planned retirement date, only to have to postpone that for a few more years (or many more years).

Decide today that this scenario is not going to happen to you.  Buying stocks is not as difficult as it seems. People ask me all the time if there is someone that I DO trust to help with this. Yes, there is.  Very few out there, but I have become acquainted with the rare few. One such service is a company called Doubling Stocks.  Although I will always trade on my own, both because I love it and because I have done well, I will occasionally try out other service to see how they do. Doubling Stocks is one company that has really impressed me. I cannot say enough good about them, and you of course are welcome to check them out for yourself.