Can I Invest Without Using a 401(k)?

For someone with no previous investing experience, an employer's 401(k) plan may be that person's first exposure to investing money. However, there are many ways to invest money outside of your employer's 401(k). There are many ways to invest on your own. For first-time investing outside of a 401(k) you need to do some research and get started with one of the widely accepted ways to put investment money to work.

Research and Planning

Investing on your own first requires you to gain some knowledge about the various ways you can invest your money. The Securities and Exchange Commission recommends that a new investor first set some financial goals, develop an investment plan and evaluate her personal risk tolerance. The next step is to learn as much as possible about the two major investment asset classes -- stocks and bonds. There are many ways to invest in each type of asset, but a basic understanding of stocks and bonds will allow you to select the investment strategies that fit your investment plan.

Mutual Funds

One way to invest in a portfolio of stocks or bonds is to invest in a mutual fund. The thousands of mutual funds allow you to find a fund or funds with investment strategies which match your investment goals. Mutual funds offer access to professional managed portfolios. You can start investing in many funds with $1,000 or less and add to your fund investment at any time. No-load mutual funds do not have any sales commission but require you to do your own research into a fund's investment strategy and results. If you would like professional advice on which funds to select, investment advisers sell funds that include a sales charge, or load, in the initial share price when you buy mutual fund shares.

Brokerage Account

An account with a stock brokerage firm allows you to buy shares of individual stocks, bonds and exchange traded funds. You can open an account with a discount online broker to buy and sell stock or ETF shares at low commission rates. Although the online broker's website may provide a wide range of research materials, if you invest online you are responsible for your investment successes and failures. You can buy stocks or ETF shares as long-term investments or buy and sell short-term -- called trading -- to profit from market fluctuations. The SEC warns that most new investors who try to profit from short-term trading end up with significant losses within a few months.

Getting Investment Advice

There exists a tremendous volume of resources on how and in what to invest. Your initial research should be from free or low-cost sources such as the SEC website, classic investment books and the widely distributed financial magazines. As you look for more detailed investment advice, the SEC notes that you should be wary of offers that can provide easy profits or guaranteed results if you buy a certain newsletter, seminar or trading program.

Do Not Ignore Your 401(k)

Remember that an employer-sponsored 401(k) plan may be your best option for long-term investing. Your contributions go into the plan from your salary before it is taxed and all of the earnings and growth is tax-deferred. Most employers also match a portion of employee deferrals, increasing the amount going into your retirement account. Long-term participation in a 401(k) plan will result in a sizable nest egg at retirement time. You can take your 401(k) money with you if you go to a new job and even borrow against it, interest-free, under certain circumstances.