Ask Stacy: Should I Buy Stocks or Contribute to a Retirement Plan?

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Welcome to “Ask Stacy,” a short video feature answering money questions submitted by readers and viewers. You can learn how to send in a question of your own below.

If you’re not typically a video watcher, give it a try. These videos are short and painless, and you’ll learn something valuable. But if you can’t deal with video, no problem: Just scroll down this page for the full transcript, as well as some reader resources.

Today’s question is about how to invest; specifically, whether you’re better off putting money into stocks or into your company’s retirement plan.

I’ve been maxing out my retirement contributions for many years now. That’s a good thing, since I’m nearing retirement age. I also occasionally put money in the stock market. This reader, on the other hand, doesn’t have enough extra cash to do both. He has to choose between the two. Given these two choices, which would you do? Hit “play” on the video below to find out my advice.

For more information on this topic, check out “7 Tips for Stress-Free Retirement Plan Investing” and “Roth, Regular IRAs and 401(k)s Made Simple.” You can also go to the search at the top of this page, put in the word “investing” and find plenty of information on just about everything relating to this topic.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, everybody, and welcome to your money Q&A question of the day. I’m your host, Stacy Johnson, and this question is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Here’s today’s question — it comes from Anthony. Anthony says, “I’m contributing a good amount to a 401(k), and 457 retirement plan, but not maxing them out. I’d like to dabble in stocks with whatever extra dollars I have, and I was wondering what the smarter play is?”

Three things to know, Anthony.

Number one, I’d recommend maxing out your retirement plans, at least to the extent you get any match offered by your employer. There are very few opportunities in life to get free money. And when an employer’s offering to match your contributions into your company retirement plan, that’s free money. Put in enough to get that full match.

So that’s priority one: Get the free money, Anthony.

Number two, you’ve got a tax benefit when you’re investing in retirement plans, something you’re not getting when you’re just buying stocks. Whenever you’re putting money into a retirement plan — if it’s a regular plan — you’re getting a tax deduction, which is pretty sweet. And if it’s a Roth, you’re going to take money out of it tax-free, also pretty darn sweet.

Number three, if you really enjoy stocks, buy them. Many people consider this a hobby, and it can be a lucrative hobby. I myself do this. So, if it’s something that you really enjoy, Anthony, do it. Just make sure you put as much as possible in retirement plans first. If you don’t have enough to do both now, fund your retirement plans. Stocks will be around for a long time. When you’re ready, they’ll be waiting.

Bottom line? I really want you to focus on A, getting the match, and B, funding retirement plans so you capture those tax benefits. Once that’s done, dabble in stocks if it makes you happy.

Make sense? I hope that answered your question, Anthony.

Got a question of your own you want to ask? All you have to do is hit reply to the Money Talks newsletter, which arrives in your email inbox every day. If it doesn’t, subscribe on our website. It takes five seconds. Then, when you get our email in your inbox, hit reply, ask your question, and maybe it’ll show up right here.

Let’s close with our quote of the day. This one comes from Greek philosopher Epictetus.

“Wealth consists not in having great possessions, but in having few wants.”

A thought to keep in mind today. Make it a profitable one, and I’m going to see you right here, next time!

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Got more money questions? Browse lots more Ask Stacy answers here.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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