Investing Like a Millionaire | Dave Ramsey's Greatest Hits

Summary

In this episode of Dave Ramsey's Greatest Hits, host Rachel Cruz discusses the importance of financial control and investment for future wealth. Dave Ramsey shares his investing process, emphasizing the power of income as a wealth-building tool and the significance of avoiding debt. He advocates for investing in growth stock mutual funds, particularly those that outperform the S&P 500, and stresses the importance of consistent investment over time. Ramsey also addresses the financial industry's focus on investing at the expense of saving and emphasizes the need for a long-term, intentional investment strategy rather than chasing quick returns.

Takeaways

• 🌟 Dave Ramsey emphasizes the importance of controlling finances and investing for future wealth, highlighting that income, when not committed to debt, can be a powerful wealth-building tool.
• 🚗 The average car payment in America is $53, which Ramsey considers excessive. He suggests investing the money saved from avoiding such payments as a better financial strategy.
• 💡 Ramsey shares his own investing process, which involves investing in good growth stock mutual funds across four types: growth and income, growth, aggressive growth, and international.
• 📈 He advises choosing mutual funds with at least a 10-year track record and that outperform the S&P 500, as these are less risky and more likely to yield higher returns.
• 🎯 The key to wealth building, according to Ramsey, is consistent investing over time, rather than trying to get rich quick through speculative investments.
• 🛑 He warns against the financial industry's focus on investing without addressing the importance of saving and avoiding debt, which are crucial for increasing one's ability to invest and become wealthy.
• 🤔 Ramsey criticizes the lack of practical financial advice from professionals who themselves may not have significant wealth or a successful track record in investing.
• 📊 For retirement savings, Ramsey suggests maximizing contributions to 401K and Roth IRA accounts, as these offer tax advantages and help build wealth for the future.
• 🏦 He acknowledges that while fees are important, they should not be the primary concern when choosing an investment; instead, the potential return on investment should be the focus.
• 💼 Ramsey advocates for working with a knowledgeable broker or financial advisor who can provide guidance and help investors make informed decisions, even if it involves paying commissions.
• 🌐 Diversification is recommended across different types of mutual funds to spread risk and potentially increase returns, including growth, aggressive growth, and international funds.

Q & A

What is the main focus of Dave Ramsey's advice in this transcript?

The main focus of Dave Ramsey's advice in this transcript is on getting control of your finances, investing for the future, and building wealth through smart investment choices and avoiding debt.

What does Dave Ramsey suggest about the average car payment in America?

Dave Ramsey suggests that the average car payment in America is $53, which he finds excessive and advises against, as it can hinder wealth building.

What is the potential outcome of investing $500 in a decent growth stock mutual fund from age 30 to age 70?

The potential outcome of investing $500 in a decent growth stock mutual fund from age 30 to age 70 is amassing over $5 million in wealth.

How does Dave Ramsey feel about the financial industry's focus on investing?

Dave Ramsey feels that the financial industry focuses too much on the investing part of the equation and often neglects the importance of debt elimination and income commitment for wealth building.

What types of mutual funds does Dave Ramsey recommend for investment?

Dave Ramsey recommends investing in four types of mutual funds: growth and income, growth, aggressive growth, and international.

What does Dave Ramsey say about the importance of a mutual fund's track record?

Dave Ramsey emphasizes the importance of a mutual fund's track record, suggesting that investors should look for funds with at least a 10-year track record and that consistently outperform the S&P 500.

What is Dave Ramsey's stance on paying fees for mutual funds?

Dave Ramsey acknowledges that fees exist but argues that they should not be the primary concern. He believes that the rate of return on the investment is more important and that paying fees for good advice and management is worthwhile.

What does Dave Ramsey advise about getting out of debt?

Dave Ramsey advises getting out of debt as a crucial step towards wealth building, as it increases one's ability to invest and become wealthy, which in turn can lead to a more secure and dignified retirement.

How does Dave Ramsey describe the characteristics of a growth and income mutual fund?

Dave Ramsey describes growth and income mutual funds as large-cap or blue-chip funds, which are associated with big, stable companies. They are considered the calmest of the four types of mutual funds he recommends, offering stability during market fluctuations.

What is the significance of the 74% savings rate mentioned by Dave Ramsey?

The 74% savings rate mentioned by Dave Ramsey refers to the significant role that consistent saving and investing play in retirement success. It underscores the importance of regularly putting money into investment accounts, such as a 401k, over an extended period.

What advice does Dave Ramsey give for those who want to invest but don't understand financial matters?

Dave Ramsey advises individuals who lack financial knowledge to seek the help of a professional with a teaching mindset, not a sales mindset. He emphasizes the importance of understanding where your money is going and not being afraid to pay commissions for valuable guidance and advice.

Outlines

00:00

🎉 Introduction to Financial Wisdom

Host Rachel Cruz introduces the show, highlighting the focus on Dave Ramsey's best moments from the past decade. The episode emphasizes the importance of financial control, investing for the future, and wealth building. Rachel shares her belief in the power of income as a wealth-building tool and the significance of avoiding debt to increase generosity and investment capacity. She also mentions her background in finance and her decision to drop financial licenses to avoid regulation, except for her real estate license.

05:02

🚀 Investing Strategies for Long-Term Growth

The discussion delves into investment strategies, emphasizing the importance of investing consistently over time. Rachel criticizes the financial industry's focus on investing without addressing debt issues. She shares her approach to investing in growth stock mutual funds, preferring those with a solid 10-year track record. The emphasis is on choosing funds that outperform the S&P 500, and Rachel explains how to identify such funds by comparing their performance to the index. She also addresses the misconception that fees are the main barrier to wealth accumulation, arguing that consistent investment is more critical.

10:05

🌐 Diversification and Risk Management in Investing

Rachel continues to discuss investment strategies, focusing on diversification across four types of mutual funds: growth and income, growth, aggressive growth, and international. She explains the characteristics of each fund type and their role in a balanced portfolio. Rachel warns against chasing returns and the dangers of making emotional decisions based on market fluctuations. Instead, she advocates for a steady, long-term investment approach, emphasizing the importance of not timing the market.

15:06

💡 The Truth About Millionaires and Wealth

Rachel shares insights into the lifestyles of millionaires, contrasting the public perception with reality. She notes that many millionaires live understated lives, not seeking to impress others with their wealth. They prioritize their own satisfaction over societal expectations. Rachel also reflects on her own journey to wealth, acknowledging past mistakes and the value of understanding money management. She stresses the importance of taking personal responsibility for one's financial decisions and seeking professional advice from educators rather than salespeople.

20:08

📈 The Impact of Fees on Retirement Savings

A caller asks about the impact of fees on 401K investments, referencing a PBS documentary that suggested fees can significantly erode investment returns over time. Rachel explains the difference between market index funds and mutual funds, using the S&P 500 as an example of an index fund. She argues that the primary reason people lack retirement savings is not due to fees but because they don't invest consistently. Rachel also discusses the importance of choosing the right type of fund within a 401K plan, considering both the fund's performance and associated fees.

25:09

🤔 Navigating Mutual Fund Fees and Options

The conversation continues with a caller seeking advice on mutual fund fees, specifically the difference between front-end load fees and no-load funds. Rachel clarifies the distinction between loaded and no-load funds, explaining the different fee structures, including maintenance fees and commission charges. She emphasizes the importance of considering the total expenses over time, not just the initial commission. Rachel also discusses the benefits of having a broker for ongoing advice and support, even if it comes with a management fee.

30:12

🎯 Planning for Early Retirement

A 24-year-old caller with $26,000 in retirement savings expresses a desire to retire before age 40. Rachel advises against relying solely on 401Ks and Roth IRAs due to early withdrawal penalties but suggests investing in low-turnover mutual funds, such as an S&P 500 Index Fund. She also encourages the caller to start a side business or pursue a fulfilling career path to avoid early retirement without a clear plan. Rachel shares a personal anecdote about a friend who became unwell after retiring early without purpose, highlighting the importance of meaningful work and financial independence, not just wealth.

35:13

🌟 Conclusion: The Path to Lasting Wealth

Rachel concludes the episode by reiterating the importance of intentional investing and building wealth over time. She emphasizes that the best way to get rich is to invest consistently and patiently, avoiding the temptation for quick riches. Rachel also encourages viewers to share the show with friends and looks forward to the next episode, hinting at a dramatic continuation of the series.

Keywords

💡Wealth Building

Wealth building refers to the process of accumulating assets and increasing one's net worth over time. In the context of the video, it is emphasized as a long-term strategy that involves intentional decisions and consistent investments. The speaker, Dave Ramsey, suggests that the best way to build wealth is through steady, informed financial choices rather than quick, risky schemes.

💡Debt-free

Being debt-free means having no outstanding loans or financial obligations. In the video, this concept is presented as a crucial foundation for wealth building. Dave Ramsey argues that eliminating debt is the first step towards financial freedom and the ability to invest and grow one's income.

💡Investing

Investing is the act of allocating resources, usually money, into financial instruments or other forms of assets with the expectation of generating a profit or achieving financial growth. In the video, investing is portrayed as a critical aspect of wealth building, with a focus on long-term, informed decisions rather than short-term, speculative actions.

💡Mutual Funds

Mutual funds are financial vehicles that pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers and are designed to spread risk while aiming for returns. In the context of the video, mutual funds are recommended as a reliable and relatively low-risk investment option for individuals looking to build wealth over time.

💡401k

A 401k is a retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out. It is a tax-advantaged account in the United States. In the video, 401k plans are mentioned as a smart way to save for retirement, especially when an employer offers a matching contribution.

💡Roth IRA

A Roth IRA is a type of individual retirement account in the United States that offers tax-free growth and tax-free withdrawals in retirement. Contributions to a Roth IRA are made with after-tax dollars, meaning the money has already been taxed, and the earnings can grow tax-deferred.

💡Financial Independence

Financial independence refers to a state where an individual has enough wealth and income to cover their living expenses without having to work actively. It is the goal of achieving the freedom to choose one's work and lifestyle without financial constraints. In the video, the concept is discussed in the context of early retirement and the importance of having a plan to achieve it.

💡Early Retirement

Early retirement is the act of leaving the workforce and stopping regular employment before the typical retirement age. It often involves careful financial planning and the accumulation of sufficient savings or investments to support oneself without a regular income. In the video, the speaker discusses strategies for achieving early retirement, including the types of investments and lifestyle changes that might be necessary.

💡S&P 500 Index Fund

An S&P 500 Index Fund is a type of mutual fund or exchange-traded fund (ETF) designed to track the performance of the S&P 500 Index, which is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. Investing in an S&P 500 Index Fund provides investors with exposure to a broad swath of the U.S. stock market, aiming to mirror the market's performance.

💡Fees

Fees in the context of investing refer to the costs associated with managing, buying, or selling investment products such as mutual funds or stocks. These can include management fees, maintenance fees, and commission charges. In the video, the speaker discusses the importance of understanding and comparing fees when choosing investment vehicles, emphasizing that sometimes higher fees can be justified by better returns or additional services.

Highlights

The importance of controlling finances and investing for the future is emphasized, with wealth building advice from Dave Ramsey.

A biblical perspective on debt is shared, highlighting the belief that borrowers are slaves to lenders.

The impact of car payments on wealth building is discussed, with the average car payment in America being $53.

Investing $500 in a growth stock mutual fund from age 30 to 70 can result in over $5 million in wealth.

The significance of getting out of debt to increase generosity and investment capacity is mentioned.

The financial industry's focus on investing rather than income commitment is critiqued.

The importance of a long track record in mutual funds is highlighted, with a preference for funds that outperform the S&P 500.

The role of fees in mutual funds is discussed, with the advice to focus more on the rate of return than on fees.

The significance of a consistent savings rate for retirement success is emphasized, with 74% of success attributed to it.

The concept of not getting wealthy by saving on fees is introduced, with wealth coming from consistent investment rather than fee avoidance.

The importance of having an adviser or broker in your life for investment guidance is discussed.

The types of mutual funds suggested for investment are outlined: growth and income, growth, aggressive growth, and international.

The stability of growth and income funds, also known as large-cap or blue-chip funds, is highlighted.

The volatility of aggressive growth funds, often small-cap or emerging market funds, is discussed.

The diversification benefits of international funds, including non-American companies, are mentioned.

The importance of not chasing returns and not investing in things you don't understand is emphasized.

The role of understanding and behaving like your money is your responsibility is compared to parenting.

The misconceptions about wealth and material possessions are addressed, with a focus on living for oneself rather than impressing others.

The value of a simple and consistent investment strategy over a long period is highlighted as the best way to build wealth.

Transcripts

[Music]

hey guys I'm your host Rachel Cruz and

welcome to Dave Ramsey's Greatest Hits

where we're looking back at the best

moments from the last 10 years of the

Ramsey Show on video this episode

features Dave's most watch Clips on

getting control of your finances and

investing for the future you're about to

get some great wealth building advice

and spoiler alerts Dave even shares his

own investing process check it

out well you guys know by now that I'm a

firm believer in what the Bible says

that the borrower is slave to the

lender because your most powerful wealth

building

tool is your

income and when you haven't committed

your income in the form of payments to

everybody else you can invest it and

become

wealthy really the average car payment

in America today is

$53 that's just cray cray that's nutty

if you invest $500 in a decent growth

stock mutual fund from age 30 to age 70

you'll have over $5

million that one thing will make you

worth $5 million getting how the land a

car payments and staying out of them

isn't that

amazing and so I've become known for

getting people out of debt and the only

reason I get people out of debt is

because it increases their generosity

and increases their ability to invest

and become wealthy which also increases

your

generosity and it changes your life it

changes your family tree it changes your

retirement you retire with dignity you

don't have to buy that cookbook 72 ways

to prepare Alpo and love

it you can retire with dignity but you

have to do it on purpose and getting out

of debt in order to invest is the

shortest way and what is amazing to me

is

that the almost the entire financial

industry focuses on

one part of the equation and that's the

investing part of the equation and they

all have a bunch of

theories now I've had all the letters

and licenses after my name I have a

degree in finance I've had all the

licenses in the business dropped all of

them because I didn't want to be

regulated what I could say here on the

air the only license I still have active

is my real estate license I've had it

since I was

18 and they don't regulate much so

um I'm going to keep that one but um you

know the rest of it is is just it is

amazing the number of people in the

financial World whether they're

financial advisers writers

bloggers uh whatever they do that have

opinions about money that don't have any

money and whose track record on teaching

people to invest and getting them to

invest

sucks 3% of the public is where all of

those people make their money off

wealthy

people they make all their money off

wealthy

people and most of the advisers out

there won't fool with you if you don't

have some money they don't want to sit

down and talk to you and so we started

teaching people of course all these

years ago how we invest and then as

we've met with many many many thousands

of millionaires over the years how did

they invest what are they doing well we

suggest and I personally invest in good

growth stock mutual funds

I spread it across four types growth and

income growth aggressive growth and

international and I buy mutual funds

that have at least a 10-year track

record well Dave shouldn't you just buy

index funds well you can if you want

index funds basically an S&P 500 fund

mirrors the market that basically is the

stock market and so you're going to do

exactly what the stock market does good

or bad the mutual funds that I buy

outperform the S&P 500 and they're

really not that hard to find a lot of

mutual funds don't outperform the S&P

500 so if you if you're going to buy

that well that'd be dumb just buy an S&P

500 but I buy mutual funds that

outperform the S&P 500 and my portfolio

mix that I just outlined is pretty much

always beats the market because I buy

funds that outperform the market it's

you know not that hard to do you open up

the prospectus and there's two little

lines on the graph one of them is the

S&P 500 if the mutual fund you're

looking at if that line is below that

S&P 500 line don't buy that

fund this is hard really not that much

to

this but Dave you you just tell people

buy those loaded funds yeah pay a

commission that's fine have somebody in

your life helping you do the investing

all the data says that you'll continue

to invest doing that but when you jump

when you're you know out there by

yourself with all your theories and they

they you know some idiot newscaster

comes on the Evening News predicting the

end of the world what do you do you cash

out all your mutual funds at exactly the

wrong time because you don't have

anybody in your corner saying don't jump

don't jump instead you're just out there

with your own emotions and the

newscaster and that's how you pick out

your when you jump in or out of the

market and that's just dumb so all the

data says a decent portfolio of good

performing mutual funds

wins and the big thing is actually

putting money into the mutual funds

actually

investing uh one piece of research shows

that 74% of the reason of retirement

success is doing it it's called savings

rate the number of you that put money in

versus talk about

it and continually put money in year

after year year after year year after

year month after month week after week

out of your check into your 401k over

and over and over and over and over

again this is how you get

wealthy you do not get Wealthy by Saving

on

fees because fees don't keep you from

getting wealthy it's ludicrous these are

theories promoted by people who don't do

anything and most of them don't have any

money so I'm a multi-millionaire and I

pay mutual fund fees to my broker boom

just like that you hear that and you

know why because I need a broker in my

life I need somebody that's an adviser I

know a lot about mutual funds but I

don't pick my own I let them pick out

four or five I'm not going through 8,000

mutual funds I have what's known as a

life I'm going to actually have you know

pick out three or four dude and I'm

going to sit down with you we're going

to look at them I'm going to pick out

that takes me about 30 seconds and let

me tell you I pick mutual funds about

80% of the choice on my mutual fund 85%

is based on its rate of return its track

record I look a if the track records

tied and I'm trying to look I look for

the longest track record who's been

doing it a long time I like

neighborhoods with big oak trees when

I'm buying real estate you see what I'm

saying I like a long track record

something stable I don't like Risk I

like to make money risk equals not

making money for me big risk

anyway and I I I you know I pay the fee

and I'll look at the fees and see if the

fees are unusually high and I might pick

a fund if everything else is equal has a

lower fee but I'm not so you know some

people are stepping over $5 bills trying

to pick up pennies worrying about these

fees you know I save $57 out of a th000

woo you're getting

rich you know that's not what's getting

rich dude it's the fact that the fund is

invested in something that's going up in

value and you do it over and over and

over and over again and don't jump in

and out of the market based on what's

going on it's going down I'm scared it's

going up I'm high I'm greedy you know

that's called chasing return turns this

is the best way to lose your butt you

know get in there and just stay in there

and just ride it and ride it and ride it

we're going to talk about these four

types of mutual funds a little bit more

when we come

back thank you for joining us America

this is the Dave Ramsey Show open phones

at

8825

5225 you jump in we'll talk about your

life and your money we're talking about

mutual funds and how to invest to become

wealthy we should spread it across four

types growth and income growth

aggressive growth and

international well let's talk about

those for a second because there's all

kinds of names for mutual funds and the

name of the mutual fund tells you what

is in the fund okay a growth and income

fund is also called a large Cap Fund or

sometimes also called a blue chip fund

and the Blue Chip is the most expensive

chip on the poker table so that means

these are big companies in this large

cap is short for large

capitalization large capitalization

means these are large companies and so

your growth and

income uh funds are large companies

boring of the four types of mutual funds

that I put money into and I recommend

this is the

calmest if you were to chart this

volatility on this fund versus the stock

market you would see it's a lot calmer

than the

market and so it's your friend when

things are going down in other words

it's your stable it's the big old

dinosaur companies they're boring when

things are going up by the way it's also

boring it's not exciting when things are

going up it's a downer you look at that

thing going why is it not doing well

when the rest of the Market's going up

CU it goes slower than the market up and

slower than the market down because this

is stable land stable land a growth fund

is right in the middle the s&p500 index

fund would be considered a growth fund a

growth fund is companies that are

growing they're kind of medium-sized

company so you might call hear it call

midcap

fund uh and so you know these are just

standard growth stock mutual funds

there's a whole lot of these out there

ton of funds that fall in this

area

so the idea is pretty simple that the

growth fund you know that's kind of

right there in the middle you want

something in the middle when it's pretty

much going to do about what the market

does in terms of volatility but you can

get mutual funds that are growth stock

mutual funds that outperform the S&P 500

you can even get growth and income funds

even though they're not as volatile that

outperform the S&P 500 then there's the

aggressive growth fund this is the wild

brother okay it's the crazy one and so

you might guess it's going to be also

called a small cap funds these are the

small companies the startups a lot of

tech companies would fall into there

very crazy all the fun weird stuff is in

there and that means some of it fails

and goes to zero and so it's it's a

crazier mix it's going to be much more

volatile than the stock market is so

it's going to go up faster than the

market goes up but it's going to go down

faster than the market goes down small

cap aggressive growth stock mutual funds

also

known uh in there a as

um let's see small cap aggressive growth

oh Emerging Market you would call it

that too as well international funds

means that the stocks in it are out

overseas companies they're not American

companies it has a kissing cousin called

a global fund if you think of a globe

what is it it's everything thing so that

would have international and US

companies in a global fund and it would

be a cousin to a an international by the

way American companies generally

outperform other International companies

and by and large as a group and so your

International fund will be your worst

performing of the four over the last

several decades and a global fund will

outperform an international fund because

you put some spice in there you put some

American companies in there usually and

so they're a little bit better but at

least you got some stuff overseas you're

not 100% betting on the American economy

not that I'm anti-American I am not this

is not a patriotic thing this is a

diversification thing and so you know

you want to have some BMW and some

Mercedes in there uh you want to have

some LG and some other stuff even though

some of those things are made Stateside

those are foreign companies and so you

look for you know companies that are

overseas based could be a French company

could be whatever and that are in an

international fund and then you spread

your investing across those four

types and so um you know very simple

here very simple the thing is do

it that's the thing everybody talks and

talks and talks and talks and talks

about investing the problem is Nobody

Does it the people we talk to on the

millionaire theme hour that are

millionaires you know how they got to be

millionaires they did

it and and they never when I ask them

how they became millionaires they never

say oh man I hit the Home Run I got this

mutual fund had low fees they never say

that because it never happens oh Dave I

hit the Home Run I got this mutual fund

that went straight up and I made all my

money in one one good buy you know my

golfing buddy gave me a SC stock tip I

don't meet millionaires that have did

that I hear stories about it but but a

golfing buddy with a stock tip is like a

golfing buddy with a fishing

story The One That Got Away I mean it's

just everybody's got an opinion and it's

all a bunch of

crap and so you just have to really stop

and go slow and steady actually

investing is the way it's the way it's

the only way to go it's the only way to

go so growth and income growth

aggressive growth International don't

chase the returns do not invest money in

things you do not

understand people get ripped off when

they invest money in things that someone

told them is good and they trusted the

person instead of knowing what the flip

they were doing you know all these

athletes you read about the NFL stars

and they lost $10 million or they made

made $100 million and it's all gone and

you know you know how they lose their

money cuz they give it to someone else

to handle and they don't even look at it

and then they're shocked to find out

that person was a crook that's how you

lose your

money it's your money just like it's

your kids which means you have to make

it behave just like you have to make

your kids behave you have to do that if

you want good kids that's how it's going

to happen if you want money this how

it's going to happen you have to

understand it now you don't have to have

a master's degree in finance this stuff

is not rocket science it is really not

that

difficult and

and and you really really seriously have

to do this and you have to understand

what the money is going into do not put

money in that's why when you're buying

Insurance when you're getting a mortgage

when you are doing your investing in

mutual funds that's why when you do all

of that that you have

to understand what you're doing and the

only way you're going to do that is when

you're picking someone to help you in

one of those areas you're doing your

estate plan if it's complicated you're

doing your taxes if they're complicated

that kind of thing you need someone

sitting on the other side of the table

that is not a salesperson but that is

they may be selling they may make a

commission but they have the heart of a

teacher not the heart of a

salesperson and so they're selling not

by twisting your arm or getting you to

buy something that you don't understand

instead they sell by getting you to

understand what you're doing and then

you choose to do

it I'm an easy sale once I understand

something but until I understand it I'm

not putting a dime in it I'm not going

forward with this it's that simple so

don't put money in things you don't

understand always use an investment

professional that has the heart of a

teacher don't be afraid to pay some

commissions you don't want to overpay

but that's not the end of the world the

big deal here is pick out some mutual

funds get your investing going and do it

every every month if you need some help

check our smartvestor Pros click

smartvestor at DAV ramsey.com and you

can find a list of the people we endorse

in your area they don't work for me but

I endorse them and they have the heart

of a teacher and they'll help you this

is the Dave Ramsey show you know this

money thing is very interesting you guys

it's very interesting because very few

things are what they

seem as you get older and uglier like me

and my ears continue to grow as other

well as other parts of my body

continuing to grow my wife says my belly

is continuing to grow and she's right as

I as I do that I I am more and more

amazed at how dumb I was and how I

really didn't understand that very few

people who look like they have money

actually

do the h huge car expensive

car the vastly expensive

purse the vastly expensive vacation on

Instagram the vastly expensive fill-in

the blank are very seldom actual

indicators of

wealth particularly the first level of

wealth I would call the first level of

wealth your F your first to your first

10 million if you have a net worth of $1

to10 million the average person in that

category is not average to start with

they're way above average but the

typical person I guess it should say

typical family that is a one to a 10

million net worth is very

understated they buy their clothes at

unimpressive places and their

unimpressive

clothes uh they enjoy nice vacations but

they seldom post them for you to see on

Instagram because they didn't not didn't

take you on vacation they wanted to go

on

vacation the Christmas presents around

the tree are very

reasonable the car that they drive is

understated and the valet is seldom

impressed until he gets the

tip it's usually a used Camry or

nice used Honda or a nice old pickup

truck of some

kind because the people that achieve

that first layer of wealth that $1 to10

million the way they did it is they

didn't do it for

you they're not mad at you but they

don't care what you

think they were not living their life to

impress

others they loved their life not

yours

they were not trying to emulate or be

the

Joneses they just didn't care what you

thought there's a real thing that ISS

when you quit worrying about what people

think and you're actually living life

for you and your family and that causes

you to make completely different

purchases and live a completely

different

lifestyle one of the greatest

compliments I had was I had a very

important gentleman who is a top level

corporate executive with one of the

major companies in our

area come to visit us one night in our

home and he said I was interested to

meet you he said I've been checking you

out I've been asking around town around

Nashville about Dave Ramsey and he said

you know what I always hear I said I'll

be interested to hear that that'll be

interesting you know what that you're

unassuming hm it's kind of a nice

compliment it's another way of saying I

don't really do stuff for what you

think um I get to do a lot of nice

things but I'm really not doing any of

them for you and I don't mean that in a

mean way I'm just you know I didn't buy

the house I live in for

you I bought it for me and I don't care

what you think about it one way or the

other the same with my boat or my car or

my vacation or whatever a and my net

worth these days is well in excess of

the $10 million level so I'm starting to

enjoy some things at a different level

and the people that I know that are in

the100 million $200 million they do have

some things that are

flashy and that they that are not

unassuming um that they they do because

they can afford it it's a very small

percentage of their world I've got a

friend who's worth about $200 million he

bought his wife a $5,000 Coach purse

which my brain from Antioch Tennessee I

couldn't even get my head around the

idea of doing that until I did it for my

wife later but I mean it but it blew my

mind that somebody would pay that for a

purse I still don't understand it but

it's just swi Sharon wants it so but you

know the thing I realize it's an Uber

who should ever spend that on a purse

well nobody should probably but the

truth is it's such a small percentage of

that guy's

World he's got1 million $200 million

$5,000 is spit it's not even you know

you know it's not like you it's like you

buying a biscuit right doesn't even come

up and so it's ratios at that point but

what my point is is the first level of

wealth not the guy with 100 million or

200 million or the gal with that's a

billionaire or something like that

that's a different

world and um you know that that's that's

a different kind of spending and a

different kind of Lifestyle because when

they buy a yet it's a smaller percentage

of their world than it is than when you

know most people buy a car right and so

it's a really different world at that

point but the 1 to 10 million that first

layer of wealth are typically people

that if you walk past them in Walmart

you'd have no

idea we were walking out of a church

that I was speaking in in Orlando

Florida the other day and I walk past

this

guy tall and

slender gray hair I'm guessing 65 years

old blue jeans that are pressed with a

crease down the middle really nice

cowboy boots and a big Texas belt on and

a pressed

shirt I mean he looked like a million

dollars he was wearing blue jeans and

cowboy

boots but I as I walked past him I told

one of my guys I said' that's everyday

millionaire I could spot him now cuz he

looks like just a guy with some jeans

and boots on but they were very nice and

it was clean and pressed and you know he

took care of himself obviously he was

he'd had a haircut you know he razor had

met his face you know all that kind of

stuff and so that kind of thing it just

you know but you could tell even though

there was nothing

flashy he was just still put together

you could feel I can feel them I can

feel the everyday millionaires now not

all of them but I've just met so many of

them over the Decades of doing this and

working with you so my point is my

friend Tom Stanley who wrote the book

Millionaire Next Door wrote another book

later called stop acting

Rich that's a great thing to do act your

freaking

wage Jeff's with us in Phoenix hey Jeff

how are you I'm well Dave thank you for

your time today sir sure how can I help

well I have a question about 401K for

retirement M um I saw a documentary on

PBS and it kind of showed some pretty

compelling evidence that uh investing

for retirement in 401ks is because of

all the fees that are associated with it

that over like 50 years it can erode

those fees can erode like two-thirds of

your original investment and they

strongly advised uh the advantages of

being in something called a market index

fund versus mutual fund so I guess my

question is twofold exactly what is a

market index fund and what's your

opinion on it which one I should be in

for

retirement okay um a market index an

index is anything that models um an

index fund is anything that models a one

of the particular indexes a good best

way to do it is give you an example the

S&P 500 is an index the Dow Jones

Industrial Average that quotes what

stock market's done today on the news as

an index uh the best the best example is

the S&P 500 and what that is is standard

and poor is a company S&P that uh rates

does all kinds of ratings and research

on the stock market and they have rated

the top 500 companies in size on the New

York Stock Exchange which are the

largest companies in other words uh the

P the largest publicly traded companies

in America so those 500 companies uh

what their stock does really does

represent in a very real way what the

stock market is doing that's an index

fund okay you you could get a uh an

index fund that is trying to measure or

or mirror some of the international

markets or some of the small cap stocks

like on the Chicago Exchange but the

most commonly known one that they would

be referring to in that would be

something like an S&P 500 now so if that

if that F if those 500 stocks are the

index if you want to index to them

rather they're the measuring stick what

we're trying to do if we're creating an

S&P 500 Index Fund is we're trying to

create a fund that mirrors what those

stocks do as a group it may or may not

hold all 500 of them but they're doing

their very very best to do exactly what

that index does with that mutual fund

okay so an S&P 500 fund is really going

to give you pretty close to the exact

rate of return that the stock market

gives you not any better not any worse

as a matter of fact it's considered the

Baseline when you measure against it to

see if another type of mutual fund is

outperforming the market you see what

I'm saying that's considered the 1.0 on

a beta meaning it's the Baseline and and

if your fund if you're graphing it if

you're the line on your fund's growth is

above the S&P then it's outperform the

market if it's below the S&P it's

underperformed the market okay a large

number of mutual funds underperform the

market but there are plenty of them that

overperform that outperform the market a

and so uh uh the the problem with the

PBS special is this the number one

reason people retire with no money is

not because of rate of

return and it's not because of the fees

it's because they don't put any freaking

money in

retirement that and we've got tons of

research that shows that and all of

these guys who start ripping on fees or

worrying about the 401K structure are

are you know from a liberal political

perspective try to figure out what's

wrong with America today and that

capitalism is somehow bad or something

and they've got that as their

undercurrent in a lot of these things

you're never allowed to charge a fee for

anything in their minds um and it is the

undercurrent and it is PBS so we know

that's there but aside from that the the

truth of the matter is that the Research

indicates that getting people to invest

is the primary thing you do first the

second thing thing you do if they want

to win is the rate of return that they

make on their money the last thing

that's an indicator of whether they end

up with money is

fees well I listen to your show and I

mean it tells me I need to be in the my

work has the 401K with a match and your

show tells me that's where I need to be

yeah and I've heard you mention there's

four different kinds of mutual funds all

you know related to risk and and and

return y um so I guess I'm asking so and

so the last part of the question is do I

think it's okay let me finish the one

last thing there if the main reason

people don't have money in retirement is

because they don't put any money in how

do you solve that you make it easy to

invest for retirement payroll deduction

is the easiest way if we're talking

about philosophy to get people to do

anything that's why the IRS gets away

with taking as much of our money as it

takes and we act like it's

okay because if you had an IRS guy

standing at the front door and you had

to hand him cash as you walked out every

day out of your money you know there' be

there'd be a dadgum revolution with what

we pay in taxes but we're all dumbed

down by the payroll deduction the 401K

allows that same automatic way to do

that so it so I'm a fan of the 401K

philosophically for that reason now do I

put money in my 401k yeah I put money in

my personal 401K is it the only thing I

do to build wealth no it's not the only

thing but it does keep the government's

hands off the taxes keep off the money

for taxes and if it's a Roth IRA a Roth

401k it's growing taxfree and yes I

recommend four types of grow stock

mutual funds none of those were index

funds by the way growth growth and

income aggressive growth and

international now in some

401ks the selection of funds that you're

looking at is so bad that that your

growth fund category could be filled

with the S&P 500 your aggressive growth

could be filled with a Russell index

which is the aggressive growth growth

index um fund if there's an index fund

in there that's fine I'm not against

that um but look at your mutual funds

inside your that you have the

opportunity to select and in every

mutual fund perspective there's that S&P

trend line Baseline and then the trend

line of the growth on your particular

fund and you can see if the fund you're

looking at as a track record of

underperforming the market if it does

don't use it use an index fund right you

know but let me ask you this all mutual

funds managed so all mutual funds have

those different levels of fees no well

there there's no load funds and there's

loaded funds all mutual funds have some

fees a no load fund means no

commission that's what that means but it

has a maintenance fee and the

maintenance fee comes out every single

year the commission comes out only at

the beginning so what you're looking at

is not uh if they have fees you're

looking at the What's called the expense

rtio ratio when you look at the

perspectus you can look at that and you

want to look at it averaging over 10

years what's the average annual expense

from all the fees they're lumped into

that one ratio in in your perspectus and

it's it's federal law it has to be in

there okay um and you're looking at that

here's why you look at that let me give

you an example this is a great call by

the way thank you for asking these

questions because it's real helpful to

teach everybody this um on a no load

fund there's no commission but they

charge an annual maintenance fee now if

they charge an annual maintenance fee

that's

2% and they do that over 10 years then

their average is going to be 2% where a

loaded mutual fund with a commission

might have a 5 and 3/4% most of them do

Commission on the front end when you buy

it and then the maintenance fee might be

0.5 or 6 and when you run that math out

it's going to be cheaper than a 2%

annual maintenance fee with no

commission over a 10year period of time

so your expense ratio can be cheaper

with a loaded fund your total expenses

you're paying over a 10-e period of time

can be cheaper than a mut than a no load

fund uh but it's not always so so if

you're real concerned about expenses

then you look at that expense ratio and

it it's the uh it's the true up it's how

you compare apples and oranges between a

commissioned fund and a non-commissioned

fund does that make sense yes sir and so

you look at the average through there

but here's the thing listen to this if

you're expenses are up 1% higher average

over a 10-e period of time but you make

4% more rate of return you came out I

can do that I can do that that's why

that's why return is your primary

measure of which you of how you pick a

fund that's your primary measure the

last thing I look at is expenses and

very seldom do I find expenses being the

deal breaker and and you know that's the

reality that's not Theory that's the

reality good question

starting off this hour is California

Chad is calling hi Chad how are you good

how you doing Dave better than I deserve

sir how can I help I had a question

about a mutual funds I'm just starting

to do the investing part and uh I went

to a broker and I'm finding some good

mutual funds with the the good

percentages like you say with the front

end load fee being about 5% five and

three five and 3/4 is what most of them

are yeah yeah yeah I was just wondering

uh if that's the five whatever you said

the 5 and 3/4% is that when you take you

say it's a 12% return would that mean

that I'm really only getting

7% well it's not 5 and 3/4 a year it's 5

and 3/4 the first time you put money in

okay see I'm still I don't know

everything and I was okay that's okay

let's talk through it there's basically

three ways you can get at this okay

there's what are called loaded mutual

funds which are mutual funds that have a

commission and there's no load mutual

funds that don't have a commission

there's two types of ways to get at the

loaded funds let's talk through it for a

minute we'll use you as a teaching

opportunity for all our listeners is

that okay okay and then you just walk

through me with this and you got any

questions you interrupt me as I go okay

to start with a no load fund is not sold

to a broker you buy them directly from a

company and you'll see their

advertisements in magazines and on

websites and things it's companies like

Vanguard and Fidel

okay and they are they are primarily no

load which means they don't charge a

commission now no commission does not

always mean cheaper for two reasons one

is there's two or three ways they charge

fees on mutual funds all mutual funds

have a maintenance fee

annually okay okay based on your balance

at that time so let's say you had

$100,000 in there and the maintenance

fee was 3/4 of a percent that'd be $750

that you were charged as a fee for

maintenancing the mutual fund okay now a

no load mutual fund has a maintenance

fee so you're still going to have a fee

it just doesn't have a commission

doesn't have the 5 and 3/4 or the other

kinds of commissions we're going to talk

about in a few minutes so you do have a

fee now let's say that you uh let's go

back to our 5 and 3/4 example okay uh

let's say that you put $100,000 into

that fund with that broker and you paid

the commission of 5 and 3/4 well that'

be

$5,750 right yeah that you paid upfront

now then your maintenance fee on that

fund let's say it was a quarter of a

percent only 250 a year so for 10 years

that'd be

$2,500 after 10 years you would have

paid in maintenance fees 250 a year

times 10 do you follow that yeah okay

and then you paid the 5700 on top of

that a and so we're talking about 7,000

bucks and some change over $10,000 you

following me yeah okay over 10 years now

the other one let's pretend it had a I

looked at one the other day that was a

no load that I didn't buy because it was

a ripoff I thought but it had o over a

1% maintenance fee it had a 1.2%

maintenance

fee okay so $1,200 a year right yeah

yeah for 10 years on

$100,000 that's

$122,000 wow okay so you paid the

commission on the other one but it was

cheaper do you follow me yeah that's

what in my mind I thought oh if I could

go around the broker I'm gonna make a

lot more money but not but not if you

get one with a high maintenance

fee yeah so you gotta you got to watch

they get you on the back if they don't

get you on the front now now there are

good no load funds that have reasonable

maintenance fees and sometimes I buy a

no load fund okay I'm not against them

I'm just warning you that no commission

does not always mean cheaper you have to

dig a Little Deeper to figure that out

okay yeah so that's the first thing then

the second thing is with commissions

there's basically two ways that people

are charging now one is they're doing

the 5 and 3/4 up front like you're

talking about which are a shares okay

and the second way is that they're doing

uh what are called C shares and the

Brokers will manage your whole portfolio

for you instead of charging you a

commission up front they'll do it for 1%

a

year okay which is not a bad deal

because you got a broker there to advise

you and teach you and help you for every

year if you got a good broker that's

involved and you can call them you know

you see a bad news story about something

and you're worried about the stock

market dropping 400 points last week in

one day and you want to call your broker

you got somebody to talk to and there's

actually research Chad that shows that

if you have a good broker in your corner

you tend to make more because you tend

to not make as emotional to

decision okay that makes sense right

there I guess that's worth it yeah it's

worth it to have a coach there's

research that indicates that lots of it

as a matter of fact so you could do the

1% deal where they just charge you 1% a

year and there's no commission but they

charge you 1% fee to manage everything

but they're there at your beck and call

if you need them you know and if you put

want to put more money in there's no fee

except the next year you're going to get

a 1% bill on that money that you put in

on top of everything else you put in but

again again some people love that and

they act like that the people that

charge five and three some of these

people have a holier than now thing in

the in the financial world and they act

like the people charging five and 3/4

are ripping somebody off but let's do

the math again because these are the

exact same two mutual funds just two

different ways of charging a commission

1% to manage it or 5 and 3/4 up front so

let's take our 100,000 again 5 and 3/4

is

$5,750 okay 1% on $ 100,000 if it

doesn't grow at all which would be bad

really bad but if it doesn't grow at all

1% is $1,000 a year for 10 years is

$10,000 so even if you do the 1% with

quote no commission you pay

more okay so it's better to do the a

shares yeah as long as you leave it

alone but if you want to buy and sell

the funds and out of there and and you

want to move some stuff around later on

you know you're going to pay that

stinking 5 and 3/4 every time you move

it around so the truth is that all three

of those work and I'm okay if you do any

of the three as long as you look at them

carefully for your situation and you

decide I used to be a huge proponent

only of the 5 and 3/4 up front because

of what we just did but uh the 1% thing

is fine and the no load is fine but

you're not holy if you you know some of

these guys in the financial world are

Pharisees and they're like oh I'm a 1%

guy and so these other guys are ripping

people off with a commission up front

and then the people who don't want

anybody to ever be charged a

commissioner saying anybody who charges

a commissioner ripping people off it's

just not mathematically true you know

okay yeah I read some of that online

that's yeah there's a bunch of and I

read one on Forbes today the guy's like

anybody charges a fee as a is a ripoff

artist and is a used car salesman well

that's just not true there's some of

them there's some of them that are but

if you're you know I believe in paying a

real estate agent a good commission cuz

you usually sell the house faster and

for more money so sometimes a commission

is worth it you just have to get

somebody a that knows what they're doing

and B you understand what you're getting

in on so hey man good question thank you

for joining us and letting me use you to

teach this is the Dave Ramsey Show

Jennifer is in Houston Texas hi Jennifer

how are you hi Dave I'm great how are

you better than I deserve what's up I

have a question um I want to retire

early I'm 24 years old I have about

26,000 in retirement and I want to

retire before the age of 40 I want to

ask like where can I put my money so I

can withdraw it early without penalty

and um what are your thoughts on the

best ways to retire early what does it

mean to retire early for you to stop

working at 40 at 40 you're not going to

ever work again the rest of your life I

won't go you know to a regular day job I

might like travel or do my own thing on

the side but I don't want to go to like

a workplace every day okay

well I I will tell you have I have a

friend that sold his business at 31

years old for millions of dollars and

basically he all he did was play golf

and fish and after about two years he

almost died because he was he he got fat

and uh he got completely out of control

and um it was not a blessing to to not

have anything to do with his life so I

always challenge folks I want you to be

financially independent so I'm with your

goal but I would have a goal of doing

something

uh at at some point and maybe it is you

start something on the side that you

want to start now before you actually

have the money to quit your job and you

you know you grow grow your business

that might be a way to go at this so uh

but but what would I invest in well you

obviously cannot use uh 401ks and Roth

IRAs because you don't have access to

them without penalty until

592 right and so um I would use those as

part of my wealth building just the same

uh but the portion that you're going to

live out of starting at 40 if you're not

going to earn much of an income uh I

would just go to good mutual funds okay

and uh just good growth stock type

mutual funds that you're going to buy

and hold long term you're going to pay

taxes on them as they earn some portions

of the income the dividends and and

anything they

sell so I'm probably going to lean

towards what's called a low turnover

mutual fund okay a good way to get that

is just an S&P 500 Index Fund low

turnover means they don't sell the

stocks inside of the fund very often not

much turnover of the portfolio does that

make sense yes and if they don't sell

the stocks then there's no taxes on it

until you cash it out right and so

you'll have very little taxation on a

low turnover as you go along until you

start using the money after age 40 so

what would my plan look like if I were

you it would be

three-pronged number one is I'm probably

going to start looking for that thing I

want to do with my life I don't want to

wait till 40 I'm going to start working

on it now as my side deal and start to

have a small business on the side and

move towards you know what do I want to

do with my life something that's filling

and uh that that gives me energy and so

forth and um that that you know and I'm

going to make some money with that prong

two is I am going to do 401ks and Roth

IRAs for the longer term but not for the

40 uh year old retirement plan and then

I'm going to do low turnover m mutual

funds in prong 3 something like an S&P

500 uh which you know if you save

substantially into that then you should

have a little bit of a nest egg to live

out of while you earn some other income

doing some other things beginning at age

40 but uh I want you to stop I mean I

don't know why you work from age 24 to

age 40 at something you

hate I wouldn't uh my point being that

I'm 56 I have no desire to retire I'm

financially set for life times 25 I mean

you know it's no issue but I have

absolutely no desire to

retire and I I I'm going to work until I

don't make sense here on the air you

know which some people say is already

happening but um you know I'm not I

don't I don't want to quit I'm I'm

having fun um now I what I do may change

in terms of I run this company as a CEO

every day and that that won't be

happening when I'm 80 but I may very

well be speaking or hanging out or you

know Kelly and me will still be arguing

you know it could still

happen hey guys I hope you see that

investing and Building Wealth is simple

but it takes intentionality once you're

debt-free and have a solid Financial

Foundation then consistently investing

over time is where the real lasting

wealth comes from in other words the

best way to get rich quick is to get

rich slow all right stay tuned for the

next episode in the series because it

could possibly be the most dramatic yet

and don't forget to share this video

with a friend who would enjoy it as

always thanks for watching and I'll see

you next

time