This FPU lesson was all about Investing. Now, I love that Dave Ramsey can make boring things interesting, but even he couldn’t keep my full attention. I really did try to listen and learn, but so much of it is really confusing for me. I could follow him as long as I knew what he was talking about. But once it started going over my head, he lost me.
I used to know nothing about the different types of investing. Bob has taught me a lot. But it’s because he’s repeated it over and over to me. He tells me, then I forget the next day. I don’t know why it is, but I don’t retain this information. All that to say, I think it’s me and not him.
So, here are some things I did follow.
- Don’t invest in anything you don’t understand. What a great idea! He’s saying that you shouldn’t just listen to what someone tells you to do and do it. You should be involved in what’s going on. If you can’t explain it, then don’t buy it. This can be hard for someone who has no interest, but remember, this is YOUR money! And I know you care about YOUR money.
- Diversification. This is the “don’t put all your eggs in one basket” principle. Having your money invested in one place is too much like gambling. It could go up, it could go down, it could completely disappear! But if you have multiple “baskets,” then you’re much safer. Mutual funds are great for this because you can buy one and it gets you stock in a bunch of different companies. This is a good way to diversify and still keep it simple.
- If you’re investing, don’t be worried about the ups and downs. The market is going to go up, and it’s going to go down. But if you’re investing, you shouldn’t be looking at the day-to-day earnings of what you’re invested in. It’ll drive you nuts. He brought up the point that our economy is very resilient and just a few months after 9-11, the stock market was back to normal. That’s amazing to me. Don’t be worried about it. Just ride it out.
- Don’t invest in real estate unless you have a lot of cash. Real estate is a big commitment. It’s not always easy to just sell it if you can’t afford it. Just be warned to have a lot of cash set aside in case you need it.
- Day trading is a horrible idea. You can lose everything fast!
- Remember the tortoise and the hare? The tortoise wins every time because he slowly and steadily wins the race. Isn’t it amazing! The Bible even says it: Proverbs 13:11 “Wealth from get-rich-quick schemes quickly disappears;wealth from hard work grows over time.”
So, do you have any good tips for learning how to invest?
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I’m not sure why it just popped in my mind, but have you ever looked into peer-to-peer lending? LendingClub is one such site. In a nut shell, it allows everyday Joe to get a loan from one or more other every day Joe’s. Interest seems to be around 7-15% or so. I’m wondering if it works very well or if it is too risky. Any ideas?
Hey Chris,
I’ve invested in with Lending Club, and had a pleasant experience. If you’re interested in trying them out, they’re offering $25 for free to invest with if you sign up through a referral link that I can provide for you. If you’re interested, you can contact me on my blog and I can provide you with more details.
@Linda – I think most of the advice you mentioned is sound! However, I don’t think day trading is a horrible idea for ALL people. If you’re a financial “expert” and have a lot of training in understanding the stock market, then day trading may be fruitful. If you have enough money, some brokerages will let you trade without commissions.
But with all this said, I personally am not a day trader because just like your tip #1, I don’t have an in-depth understanding of the stock market.
Just held this session last night. One important tip is to learn how to read a Morningstar report. My second tip is to review major positions between fund choices. You could end up with overloading, read “eggs in one basket”, due to investing in multiple funds with significant stock overlaps. Different funds may not follow a given investment style model rigorously which could improve the yield, but also change the risk profile with poor diversification results.
I agree that Dave Ramsey can make finances entertaining.
Investing should always be looked at with a long term approach in my opinion.
Day trading is very difficult and take years of hard work. I have been working at it for over 10 years now. Even then it is better to look for the longer term move to get involved with.
Financial advisors are a dime a dozen, but finding a good one take a lot of work also. They are out there and worth the research.