Friday, 21 February 2014 18:13

Investing and Loans

Written by  Dave Ramsey
Rate this item
(0 votes)

 

Q. I’m a little worried about investing in the market due to volatility. Are there safer investments?

 

A.You’re right; the market is volatile. It’s not a volatile as some things, but you have to remember that anywhere there’s money to be made—including long-term investing—there are ups and downs.

 

For instance, I like real estate. It’s not as volatile as the stock market, but there are no guarantees. We experienced that big dip over the last few years, and it was probably one of largest dips ever in the real estate market, except for the Great Depression.

 

Aside from real estate, I also like mutual funds. When it comes to these, one way to smooth out the volatility of the market is through diversification. That means you spread your money around instead of investing in one or two things. That’s how I handle my mutual funds, and I recommend others do the same. Spread your investments across these four types of mutual funds: growth, growth and income, aggressive growth and international.

 

There are no guarantees when it comes to long-term investing. But diversification can help make the ride a little bit smoother!

 

 

Q. My parents co-signed on government loans so I could go to college. Would my forbearance or non-payment affect their credit if I don’t pay?

 

A.Yes, it would. I’m not trying to lay a guilt trip on you, kiddo, but you’ll be trashing your mom and dad’s credit if you don’t pay the bills on time. If they co-signed for you, they’ll start getting phone calls, too, if you don’t do the right thing and pay back these loans.

 

The truth is, your mom and dad shouldn’t have co-signed for you in the first place. There’s only one reason lenders want a co-signer, and that’s because they’re afraid the person taking out the loan won’t be able to pay back what’s owed.

 

My goal here isn’t to beat you up. It’s to give you information that you—and your parents—need in order to make different, smarter decisions in the future. We all do dumb things sometimes. In the past, I did some really dumb things with very large numbers attached. The goal is to grow, learn, and try to use what we learn in order to do fewer dumb things in the future.

 

 

Q. I’m 26, and I just started a new job making $50,000. I’ve also been offered a 401(k) with no match. Should I put money into the 401(k) or open a high-yield CD?

 

A. I’ve got another idea. I’d open a Roth IRA with good growth stock mutual funds inside and fund it up to $5,500 a year. Make sure these mutual funds have been open at least five years—preferably 10 years or more—and have performed well. Mathematically, this investment, growing tax-free, will be superior to a non-matching 401(k).

 

Then, if you want to invest more than $5,500, you could put some additional money into the 401(k) offered by your company. Again, make sure you’re invested in good growth stock mutual funds with long, successful track records.

 

 

Last modified on Thursday, 27 February 2014 18:18
Go to Top