A recent Allstate/National Journal Heartland Monitor national survey asked 1,000 adults about their financial knowledge, participation and confidence in the future.
One finding in particular was striking to me. Seventy-three percent of adults have a savings account. Yet when it comes to vehicles for investing in the stock market, the percentage is far lower: Only 37 percent have a 401(k) and just 30 percent have a personal investment account.
All of these are necessary for financial success, of course. But it's hard to save or plan for retirement without investing in at least some equities, especially these days with historically low rates of return on savings accounts, CDs and government bonds. Savings account interest is currently running under 1 percent, and five-year CDs are topping out at 2 percent. Inflation has been running low lately, at 1 to 2 percent. But historical stock market "real" returns -- after inflation -- are around 7 percent for the better part of this century. So if you want to do much better than break even on your money, holding some stocks is pretty much a given.
Here are some of the most common reasons why most Americans steer clear of the stock market, along with suggestions (if you are part of that majority) on how to get started owning stocks by the end of the day today.
1. You don't know where to begin.
Start with a tax-advantaged retirement account. If you have access to a 401(k) through your employer, enroll in it. If not, you can open an individual retirement account or IRA. As a basic rule of thumb, if you are under 30 or in a lower tax bracket compared to where you plan to be at retirement, start with a Roth IRA, which you fund with after-tax dollars. If you are over 30, try a traditional IRA, which you fund with pretax dollars.
Once you have opened this account, the very simplest investment to make with the money in it is a target-date fund. This is a preselected mix of stocks and bonds that is targeted for your expected date of retirement. They usually have that date in the name, like "Schwab Target 2040 Fund."
2. You are afraid of getting ripped off.
Watch the expense ratios on mutual funds. This is the money that the managers of the funds pay themselves for moving your money around. The lowest expense ratios are found on index funds, which simply track a fixed portion of the market. Expense ratios for actively managed funds can be as high as 1.5 percent, which is a big drag on returns. For index funds, it can go as low as 0.18 percent. The first-ever index fund was the Vanguard 500 Index, which includes a piece of every company in the S&P 500, covering about three-fourths of the U.S. stock market's value.
3. You worry about putting all your eggs in one basket.
Diversification is complicated, but that shouldn't stop you from investing. Target-date funds provide one-stop diversification. If you prefer to go with stock index funds, you'll need to include a percentage of bonds in your portfolio. That proportion should grow over time. Also consider real estate and cash savings as part of your portfolio.
4. You are afraid of crashes.
It's a reasonable fear; crashes can cause considerable short-term losses. What you really need to keep in mind is this: Average investors are bad at timing the market. If you're reasonably diversified and can hold your stock funds for years, you can ride out downturns. Stocks are best for long-term investing, be it for retirement or your child's college education.
My final tip: Forget buying individual stocks, except with money you can afford to lose. Consider that a recreational form of investing, like poker.
(Anya Kamenetz' latest book is "DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education." She welcomes your questions at email@example.com)
(c) 2013 ANYA KAMENETZ. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.