Dave Ramsey Ch 8: Investing and Retirement
truths about liquidity
the more liquid an investment the less return the less liquid and investment the more return
Why should people invest and save
to enable their money to make money
Stock Market
trading of securitites
When buying and selling investments
understand basic investment strategies and different type of investments, identify and set your goals, consider your time frame
Bull market
upward stock market trends
To start investing
you can start with a small amount amount of money
What is the Rule of 72 and how is it calculated
Quick way to calculate length of time to double your money: 72/# of years
401K
Sometimes employer provides matching funds
Why do single stocks carry high risk
If you buy a single stock there is no diversification in your investment.
liquidity
How quickly an asset can be converted quickly into cash without loss of value
Savings accounts and money market accounts
Best for emergency funds and short-term goals
Main points of a wise investment strategy
Build a diversified portfolio, never invest using borrowed money, never invest purely for tax savings, develop a strategy based on your investment goals and stick to it, keep it simple, choose an investment broker with the heart of a teacher, learn the different types of investments and understand basic investment strategies never invest in something you don't understand, don't fall for get rich schemes, invest only after you have your college education funded.
How does compound interest work?
Compound interest is interest paid on interest previously earned.
If you get into financial trouble
Dave says you should never borrow against your retirement plan
dividend
Distribution of a portion of a company's earnings to a class of its shareholders, amount determined by board of directors.
Internal Revenue Service
Federal agency responsible for collecting taxes and responsible for interpreting and enforcing the Internal Revenue Code
Securities Exchange Commission
Government agency responsible for regulating the stock market
Long term investments should include these type of mutual funds
Growth, growth and income, international, aggressive growth
Your saving and investing amounts
Has nothing to do with the amount of money you make
Why do mutual funds carry less risk
Investing in mutual funds ensures diversification, and therefore lowers risk.
Investing using borrowed money
Is a bad idea because it increases the risk of the investment and if you lose the money, you are still left with repaying it
tax-favored dollars
Money that is invested tax free or deferred in a retirement plan
According the Dave: one of the best investment options
Mutual Funds
Dow Jones Industrial Average
One measure of how well or poorly the stock market is doing
Good investment portfolios
are extremely simple
You should start investing
as soon as your college education is funded
Bear market
downward stock market trends
Money markets are great for your emergency fund
due to their liquidity and stability
War Bonds
finances military operations during war time. Last time US issued war bonds was during World War II
529 Plan
savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.
stocks
securities that represent part ownership or equity in a corporation
Mutual fund porfolio
should have funds in a 4 categories: small cap, mid-cap, large cap, and international.
Real Estate
is least liquid investment, it takes time and depends on the current market to sell it which makes it difficult to access your investment dollars.
Roth IRA
is not subject to income tax upon withdrawal
The New York Stock Exchange(NYSE)
is the largest organized stock exchange in the US and was formed in 1792.
portfolio
list of your investments
Diversification
means reduced risk
Employee benefit packages
non-wage compensations provided to employees in addition to normal wages/salary
share
piece of ownership in a company, mutual fund, or other investment
Mutual funds
provide moderate risk for above-average growth
risk-return ration
relationship if reward(return) to amount of risk
What should you do if you have prior job's retirement account
roll that money into in IRA using a direct rollover, avoiding taxes and penalties.