News from the Tennessee Valley Columnists
MONDAY, JULY 30, 2007

Dave Ramsey

Should you invest extra income?

Dear Dave: We have no debt other than our house, so weíre doing pretty well financially. My husbandís income covers all the bills, and mine is just extra money every month. Iíd 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 youíre afraid something can really hurt you, and the other is fear that comes when you donít understand something. The second is the kind of fear lots of people have when it comes to investing.

Knowledge alleviates fear, April. So hereís 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 donít go down in value over the long-term. The market may fluctuate, but in the end youíre probably going to be OK. The stock market really isnít 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: Iím 50, single and feel itís time to start making some wise investments for my future. Iím debt free, and lately Iíve 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 theyíre a conservative way to invest. But youíre only 50 and have plenty of time, so Iíd 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: Thatís not exactly how I did things, but sure you can. I donít have a problem with that at all. When I started my business I started from nothing, so I didnít have to save up for anything and itís always paid its own way. Youíre 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

Dave Ramsey Dave Ramsey
DAILY Columnist

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