Become comfortable with investing
Many people today grew up in a different investing environment.
"Thirty years ago it was about generating a lot of return. The stock market was the purview of rich people," says Kendrick Wakeman CFA, CEO of FinMason.com, a website dedicated to helping people understand their investments.
The Internet and the decline of traditional pensions changed all that.
"Modern investing is built on risk, not return," says Wakeman.
Most people who are investing for retirement need to avoid losing money in addition to generating returns. That requires an understanding of risk and how to mitigate it.
That's because most people in the stock market today are investing for retirement. They aren't necessarily trying to get rich, or richer. Of people who own mutual funds, 91% say saving for retirement is one of their financial goals; 72% say it's their primary financial goal, according to the Investment Company Institute.
"There are 90 million 401(k) plan participants," says Wakeman.
All of the accidental investors perplexed by stocks, bonds and mutual funds are in good company.
Just like paying bills and managing a checking account, investing for retirement is something everyone has to do today. It's never been easier to learn the ropes or find low-cost advisers who will lend a hand.
"It's a big mistake for people to think that investing is out of their league because they don't have enough money or knowledge," says Calahan.
Learning the basics of asset allocation and diversification is the first step. Formulate a plan based on the amount of risk you're comfortable taking and the time you plan to be in the market. People who understand those basics outperform those who chase myriad strategies and try to time the market.
Don't have a Las Vegas mentality
Investing is not about striking it rich with one great stock. Even day traders diversify their investments and stick to a trading discipline that limits losses.
"There have been several high-profile IPOs that were exciting. People always want to get in on them but that is not necessarily the best place to go," says Calahan.
"It's not as sexy, but diversification and a lengthy time horizon are the best places to be starting out," she says.
Wakeman agrees. "It's not play money. It's investing for your retirement. If you don't take care of your retirement, who will?"