Friend and freelance writer Les O’Dell shares this diary entry from the ninth session of Financial Peace University, a 13-week course from national talk-show host Dave Ramsey.
This week’s Financial Peace University lesson began the story of a man who never made more than $65,000 a year thorough his career, yet he was able to retire in his mid 50s with more than $1 million. He shared a simple philosophy: live below your means (Dave Ramsey calls it “acting your wage”) and save money in investments.
Ramsey began his portion of the teaching with some simple rules of investing, all prefaced on his belief that there is no point of doing everything else he teaches (including getting out of debt) unless the later goal is to use income to work toward building wealth. He talked about reaching the “pinnacle point” when your nest egg makes more money for you than what you do does.
He shared the concepts of simplicity in making investments (if you don’t understand a financial product well enough to be able to explain it to a room full of seventh graders, you should not be buying it), diversification (like grandma says, don’t put all of your eggs in one basket) and the correlations between risk and return and liquidity and return.
Types of investments
A discussion of types of investments followed. Ramsey outlined the basics of Certificates of Deposit, single stock purchases, bonds, real estate and other tax deferred investments. Spending a majority of the evening on managed stock and bond portfolios, he outlined his strategy and guidelines for investing including a definitions and explanations as well as how to judge things as potential investments and how to diversify the purchase of these investments.
While most of the discussion was on basic investing strategies, he did take time to explain various tax deferred investments and how they work. Using the analogy of a coat to keep an investment warm, he outlined the tax advantages. However, he did caution at several points in the evening’s lesson to never invest purely for potential tax savings.
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He also covered what he called “Horrible Investments” and cautioned students to avoid them. He explained that some are marketed heavily, others are so complicated even professionals don’t usually profit off of them and others are just dangerous.
After the DVD lesson was complete, we talked as a class about our experiences in investing and working with financial planners. Some people shared their own stories about working with a company-appointed or company-approved planner who was only “pushing” a product or was encouraging investing in something without explaining it. Others shared their experiences of working with a financial planning professional who understands what Ramsey teaches and explains investments allowing them to make their own decisions. Everyone agreed that was the type of planner to seek out.
Les O’Dell is a freelance writer living in Carbondale, IL. His work can be seen in a number of newspapers, magazines, publications and websites. He is co-author of the popular “He Said, She Said” newspaper column. He can be found on the web at www.lesodell.net. Les is not affiliated with or endorsed by LPL Financial.
- Investing involves risk including loss of principal.
- There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
- This information is for general information only and is not intended to be a substitute for specific advice. Please speak with your qualified advisors for financial, legal and tax issues as they relate to your specific situation.
- CD's are FDIC Insured and offer a fixed rate of return if held to maturity.
- Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price.