Zero of My Peers Invest Outside of their 401K?! Why Aren’t You?

When it comes to investing in your 401K, your options are limited to what your plan administrator decides to let you choose from – usually a mix of mutual funds with varying degrees of stock and bond allocations. You choose from those, put your contributions on auto pilot, and you’re done, separate from checking in now and then to hope your balance is trending upwards.

You have the account all set up for you, hopefully you get a 401K match, you click a few buttons to select from your options, and you can wash your hands of it.

But what do you do with all that money outside of your 401K?

0% of My Peers Invested Outside of their 401K?

I have an interesting story that led to me putting together this post.

I decided to teach a ‘personal finance for beginners’ course at work. Attendance was maxed out at 30 people – most of whom were in their twenties and eager to learn more about personal finance (awesome, by the way). An interest in investing bubbled up from the questions from people attending the course, while discussing 401K’s.

I then asked the question, “how many of you in this room invest outside of your 401K?”.

<dead silence>

Zero people raise their hands. ZERO!

Before I asked the question, I thought I might get a minority response, but not this. For color, we’re talking about a group of 30 very highly educated, high income, white-collar professionals (almost all without children or home expenses), and ZERO of them had even taken the first step to investing on their own. Shocking! (continued below)…

invest outside of 401K

How I Got Started Investing

Ever since I graduated, I’ve thought to myself that investing was a necessity. What else would I do with my additional income so that I could make it work for me and so that it could evade the corrosive effect of inflation over time?

About a year after graduation, I decided to make the leap. I first read some books, including Personal Finance for Dummies (highly recommended), read up on investing in Kiplinger and Smart Money magazines (both are great), watched a lot of Jim Cramer (not recommended at all), started up an investment account, and I was off to the races.

It was mostly a disaster. I was burned on a number of investments, and my overall strategy has changed quite a bit since then. I’ve lived and learned from my mistakes (of which there’s been plenty).

And then EVERYONE got burned by the recession and subsequent market nosedive.

Despite all that, sitting on cash for the rest of your life is not really a viable option. With inflation, you will get beat. Your cash will lose its value, and you’ll be left behind. Everyone seems to know that. But, as evidenced by my discovery, something is preventing people from even getting started in the first place.

I didn’t dive too deeply into the “why not?” in that meeting, but I have been incredibly curious ever since. I generally understand the barriers to getting started, but I wonder if one stands out amongst the others as being the main limiting factor.

Once I find out what the biggest barriers are, I’d like to explore each and how to overcome them.

Investing Discussion:

  • What are (were) the main barriers preventing you from investing outside of your 401K?
  • What fears do you have of investing?
  • What are you doing with the money you have saved?

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