Dave Ramsey's Mutual Fund Investment Strategies Revealed

Dave Ramsey recommends investing in four types of mutual funds: growth and income, growth, aggressive growth, and international. He suggests that investors spread their money equally across these four types of funds to create a stable and diverse portfolio.

Growth and income funds are considered the calmest of the growth stock mutual fund types. They invest in large, well-known American companies that have been around for a long time and offer goods and services that people use regardless of the economy.

Growth funds invest in medium to large companies that are experiencing growth. These companies are more likely to ebb and flow with the economy and often produce the latest it products.

Aggressive growth funds are the wild child of the portfolio. They invest in smaller companies with high growth potential. When they're up, they're really up, but when they're down, they're down.

International funds invest in large non-US companies and help spread risk beyond American soil.

Overall, Ramsey emphasizes the importance of diversification and long-term investing when it comes to mutual funds.

Growth and Income Funds (Large Cap)

Growth and income funds are a type of mutual fund that provides a stable foundation for an investment portfolio. They are considered the "calmest" of the growth stock mutual fund types, with the goal of providing slow and steady growth. These funds invest in large-cap companies, which are businesses valued at more than $10 billion. Large-cap companies tend to rise and fall much more slowly than smaller companies, making them a more stable investment option.

Growth and income funds are often referred to as "large, well-known (big and boring) American companies" that have been around for a long time and offer goods and services that people use regardless of the state of the economy. These companies tend to have a consistent history of growth and dividend payments. Examples of large-cap companies include household names like BMW, Mercedes, and LG.

When investing in growth and income funds, it is important to look for funds with a long track record of strong and consistent returns. These funds should aim to outperform the S&P 500, which measures the performance of the stock market by tracking the stock prices of the top 500 American companies. Additionally, it is recommended to spread your investments evenly across different types of funds to minimise risk.

Dave Ramsey, a well-known personal finance advisor, recommends investing in four types of mutual funds: growth and income, growth, aggressive growth, and international. By diversifying across these fund types, investors can create a balanced and stable portfolio that minimises risk and maximises long-term wealth-building potential.

Growth Funds (Medium Cap)

These funds are a good option for investors who want a mix of stability and growth potential. They are less risky than small-cap funds but offer more growth opportunities than large-cap funds.

When investing in growth funds (medium cap), it is important to diversify your portfolio by investing in a variety of companies from different sectors and industries. This helps to minimise risk and maximise returns. It is also crucial to work with a financial advisor or investment professional who can guide you in making informed investment decisions.

Additionally, when choosing a growth fund (medium cap), look for funds with a long track record of strong returns and compare all your options before making a decision. By following these strategies, you can build a solid investment portfolio that aligns with your financial goals.

Aggressive Growth Funds (Small Cap)

Aggressive growth funds are the "wild child" of your investment portfolio. They are also referred to as emerging market funds or small-cap funds. These funds can make big gains and losses in a short amount of time. Aggressive growth funds often invest in small companies or startups with the potential for rapid growth.

When they're up, they're up. But when they're down, buckle up—you're in for a bumpy ride.

Aggressive growth funds are one of the four types of funds that Dave Ramsey recommends investing in, with the other three being growth and income, growth, and international. By balancing your investing dollars between these four types of funds, you can create a stable and diverse portfolio, which is necessary for long-term wealth building.

When choosing which mutual funds to invest in, it's important to keep in mind that mutual funds are a proven way to build wealth and retire a millionaire. However, this only works if you know how to choose the right mutual funds for you.

• Fund manager experience: Look for a fund manager with at least 5-10 years of experience.
• Performance (rate of return): Choose a fund with a history of strong returns (or ROI). Focus on long-term returns of 10 years or more if possible.
• Turnover ratio: A low turnover ratio of 10% or less indicates that the management team is confident in its investments. A high turnover ratio may be a red flag.

International Funds

When choosing an international fund, it is important to look at its long-term history and how it has performed over the last 10-20 years. It is also crucial to compare it with other similar funds in the market and explore the fund's fees and expenses.

Tax-Advantaged Retirement Accounts

Dave Ramsey's investing philosophy recommends investing 15% of your income in tax-advantaged retirement accounts. This is the second step in his five-step investing strategy.

Ramsey suggests that you first get out of debt and save up a fully funded emergency fund. Then, you can start investing 15% of your household income in retirement. He recommends using tax-advantaged investment accounts to get the most bang for your buck.

There are two types of tax-advantaged retirement accounts: pretax investment accounts and after-tax investment accounts.

Pretax investment accounts give you a tax break on your contributions now, but you'll pay taxes on your withdrawals in retirement. Examples of pretax investment accounts include 401(k)s, 403(b)s, and Thrift Savings Plans (TSPs). If your employer matches contributions to these accounts, you should invest up to the match first, as this is essentially free money.

After-tax investment accounts, such as Roth IRAs, let you enjoy tax-free growth and tax-free withdrawals in retirement. If you have a Roth 401(k) at work, you can invest your entire 15% there. If not, then you should max out a Roth IRA for yourself (and your spouse if you're married).

If you still haven't reached your 15% goal after maxing out your Roth IRA, you can increase your contributions to your 401(k), 403(k), or TSP.

It's important to note that tax-advantaged accounts are not the only option for retirement savings. If you have maxed out your contributions to these accounts and still have money to save, you can consider opening a taxable investment account or investing in real estate.

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