When it comes to personal finance and investing, Dave Ramsey is one of the more famous voices. He’s famous for his advice on how to get out of debt and build wealth. However, after cleaning up debt and creating a budget, it’s the investment piece that trips many people up as they don’t know where to begin with the scary world of stocks, bonds, and retirement accounts.
The basis of Ramsey’s philosophy is safety, discipline, and patience. He believes you don’t need to be risky or complicated to build wealth, but you do need a plan and the right mindset. His investment guidelines are realistic and are meant for a long term success. By sticking to his principles, you can make educated decisions based on your financial goals, and ultimately retire with the benefit of a comfortable retirement.
Invest in Index Funds And Mutual Funds
Dave Ramsey says you should invest in mutual funds or index funds . This gives you the ability to diversify the money you have in a variety of companies, so that if a company takes a dive, you won’t lose a whole lot of money. Diversification over time gives better growth and more stable return of these funds.
Don’t Use Debt to Invest
Ramsey’s rule of thumb is: you should never invest with borrowed money. Debt can magnify a market turn against you, but it can also magnify the potential to profit, as the market moves in your favor. He suggests investing only money that you already have, not money you have to borrow.
Don’t Panic During Market Fluctuations
Ramsey reminds investors not to panic when the market drops. It’s a long term game and markets go up and markets go down. Instead, he recommends sticking it out, and letting your investments recover. The market tends to recover and reward the patient investor who doesn’t react to the knee jerk reactions.
Don’t Follow Trends or Hype
One of the quickest ways to lose money is to chase trends and jump on the latest investment bandwagon. Ramsey warns not follow the crowd, do not buy the latest stock or the hottest commodity or the hottest investment fad. In fact, focus on the time tested investment strategies that have been evidenced by historical performance.
Don’t Invest Without an Emergency Fund
Ramsey tells you that you should have an emergency fund in place before you even begin investing. To that, he says it’s wise to have at least three to six months’ worth of living expenses in a savings account. This cushion means you don’t have to sell investments in the middle of a financial emergency and it protects your future wealth as you deal with unexpected costs.
Focus on Your Retirement Accounts
Ramsey says that retirement savings should be prioritized because it goes into a tax-advantaged account, such as a 401(k) or an IRA. They have the advantage of having fantastic tax advantages and compound growth over time. The more you contribute to them earlier and more consistently, the more you’re setting yourself up for long term success, while paying less in taxes along the way.
Don’t Depend on Get Rich Quick Schemes
Ramsey warns against risky investment strategy that makes fast money. He warns chasing high risk, high reward opportunities, because they are recipes for financial disaster. Instead, put your money into things that are predictable, proven and will be around for the long haul.
Diversify Your Portfolio
Ramsey’s key tenet of investment philosophy is diversification. Spreading your money between different sectors, for example stocks, bonds and real estate, minimizes your risk. This approach helps you not to lose incase of a bad turn in one investment.
Do Focus on Long-Term Growth
Ramsey’s basic principle is to invest long term. The key to building wealth is to focus on slow, steady growth. If you stay consistent and don’t get caught up in short term speculation, you can build a portfolio that will continue to grow and compound, and get you to your retirement goals.
Do Consult a Financial Advisor
Ramsey advices one to take charge of your finances, but he knows that professional guidance can be a good thing. If you’re unsure about your investment strategy and need a little help making some tough decisions, a financial advisor can help you sleep at night. A certified expert can help you create a personalized plan, and save you costly mistakes along the way.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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