Should you invest extra income?

Dear Dave: We have no debt other than our house, so we’re doing pretty well financially. My husband’s income covers all the bills, and mine is just extra money every month. I’d like to begin investing my income in mutual funds, but the idea frightens him a little. How can I convince him? — April

Dear April: There are two kinds of scared. One is when you’re afraid something can really hurt you, and the other is fear that comes when you don’t understand something. The second is the kind of fear lots of people have when it comes to investing.

Knowledge alleviates fear, April. So here’s the knowledge he needs. Ninety-seven percent of the five-year periods in the entire market history — including Pearl Harbor, the Great Depression and 9/11 — made money. Want more? One hundred percent of the 10-year periods have made money.

Investing is a lot like buying a house. As a rule, homes don’t go down in value over the long-term. The market may fluctuate, but in the end you’re probably going to be OK. The stock market really isn’t a risky investment, either, as long as you put the money in there and leave it alone for a long time! — Dave

What are index funds?

Dear Dave: I’m 50, single and feel it’s time to start making some wise investments for my future. I’m debt free, and lately I’ve been doing some research on index funds. Can you explain them, and do you have any advice? — Theresa

Dear Theresa: An index fund invests in securities to mirror a market index, such as the S&P 500. They buy and sell securities in a way that mirrors the composition of the selected index. So, if you invest in an S&P 500 index fund, your returns will probably follow the rise and fall of the S&P 500.

I own a few index funds, and they’re a conservative way to invest. But you’re only 50 and have plenty of time, so I’d suggest maxing out a Roth IRA as part of your long-term plan. Put a fourth of your contribution into four different kinds of mutual funds: growth, growth and income, aggressive growth, and international.

Make sure these mutual funds have a solid track record of at least five years, and the rest is easy. You can even have the contribution automatically deducted from your checking account each month! — Dave

Start small business?

Dear Dave: My husband and I are debt-free except for our house. Should we start saving to invest in a small business idea before the home is paid off like you did? — Jenny

Dear Jenny: That’s not exactly how I did things, but sure you can. I don’t have a problem with that at all. When I started my business I started from nothing, so I didn’t have to save up for anything and it’s always paid its own way. You’re about to have some real fun being an entrepreneur, Jenny. Go ahead and put aside $2,000 or so, then tear into the house payments and get that mortgage knocked out. Good luck! — Dave

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