Investing Like a Millionaire | Dave Ramsey's Greatest Hits
Summary
TLDRIn 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
🎉 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.
🚀 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.
🌐 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.
💡 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.
📈 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.
🤔 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.
🎯 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.
🌟 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.
Mindmap
Keywords
💡Wealth Building
💡Debt-free
💡Investing
💡Mutual Funds
💡401k
💡Roth IRA
💡Financial Independence
💡Early Retirement
💡S&P 500 Index Fund
💡Fees
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
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