# DAVE RAMSEY’S GUIDE TO INVESTING

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DAVE RAMSEY’S GUIDE TOINVESTING

The Rule of 72is a great wayto quicklyestimate howlong it takes yourinvestment todouble in value.THE RULE OF 72Part of building your retirement strategy is identifying your investment timeline. One way todo that is with the Rule of 72.WHAT IS THE RULE OF 72?Divide the number 72 by the rate of return earned on an investment. The number you endup with is the approximate number of years it will take for your investment to double in value(assuming it continues to earn the same returns).AN EXAMPLEIf your mutual fund earns a 12% annual return, which is the long-term average return of thestock market, your investment would double in 6 years. (72 12 6). That’s the rule of 72.HOW IT WORKS FOR YOULet’s say you invest 10,000 in a mutual fund that earns 12% a year and you leave that moneyin the fund for 24 years. Here’s a rough estimate of what you would get:We know from the example above that your investment would double after six years,going from 10,000 to 20,000. Now you’re working with 20,000. So after six more years,that investment would double to 40,000. Six years after that, it would double to 80,000.Twenty-four years later, your one-time 10,000 investment would be worth roughly 160,000. (Actually, it’s worth 175,612—the Rule of 72 is only an estimate.)Pretty cool stuff, right?THE RULE OF 72 AT WORK 175,612 80,000 40,000 20,000 10,000OriginalInvestmentAfter6 YearsAfter12 YearsAfter18 YearsAfter24 YearsDAVE RAMSEY’S GUIDE TO INVESTING 2

HOLDING ON TO YOUR INVESTMENTSTo invest the way Dave does, you have to be ready to invest for the long term, no matter what’s going on in the market. Thatmeans you have to prepare yourself for all the media coverage surrounding the stock market and the economy, because mediacoverage on these topics is designed to scare investors. If you’re scared, you’re much more likely to tune in tomorrow for the latestinformation, right?But when the pundits start talking doom and gloom for the economy or the stock market or anything else, the smartest thingyou can do is hold on to your investments. Do not cash them out.That’s what Dave has done in every recession and every stock market slide since he started investing, and he has a lot of moneyinvested in growth stock mutual funds. But he doesn’t touch those funds. He rides the market rollercoaster to the very end.WHY?People who make money in the stock market are theones who consistently stay in the market. They don’twithdraw their money when the stock market takesa dip. Market timing is trying to predict when to addor withdraw your money in the market; historically, itdoesn’t work.However, staying invested ensures that yourinvestments won’t miss the market’s best performingdays. The chart below shows that if you missed just 10of the stock market’s best performing days over thepast 20 years, you would have lost tens of thousandsof dollars!Hold on to your current mutual fund investments,and down the road you’ll look like a genius!BUT DAVE, I’M ALMOST OLD ENOUGH TO RETIRE.SHOULD I CASH OUT?Nope. It’s understandable to be scared, but think this through. If you’reunder 59½ years old and cash out your 401(k), you’re going to facepenalties and pay Uncle Sam a lot of taxes!When it’s all said and done, you could take a bigger hit on your moneyby cashing out than any drop in the stock market can do to it. So, even ifyou want to retire, you’re better off leaving your 401(k) or IRA alone.Keep thinking long term. That’s how millionaires think. Don’t cash out.Trust in the market’s historical ability to bounce back.The Cost of Missing the Good DaysGrowth of 10,000Never Cash Out 53,365Miss 10 Best Days 26,632Miss 20 Best Days 16,698This shows what happens when you miss the 10 best days of stockmarket performance.Growth of 10,000 in the S&P 500, 20 years ending June 30, 2011.Sources: Standard & Poor’s; American Century InvestmentsDAVE RAMSEY’S GUIDE TO INVESTING 3

DAVE RAMSEY’S GUIDE TO INVESTING 1 Seek the advice of a qualified financial advisor so you can ask questions and build a solid investment plan you can stick with. HOW TO BUILD A SOLID INVESTMENT STRATEGY All the great historical victories were planned. The building of the Great Wall, the invasion of

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Dave Ramsey has made a national name for him-self guiding people out of debt. I occasionally listen to his show (Ramsey and I both live in Nashville), and I applaud much of what he tells his listeners. In particular, Ramsey stresses the importance of hav-ing a specific budget and communicating with one’s spouse about money.

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