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Most days, The Dave Ramsey Show is dedicated to helping people deal with their debt. But recently, Dave dedicated the first hour of the show to investing topics, specifically addressing his critics who say earning 12% on your mutual funds is impossible.
“The S&P was up 13.41% last year,” Dave said, citing the growth rate of the S&P 500, a measure of the stock prices of the largest and most stable companies on the stock exchange. “If you owned a simple S&P 500 index fund […] you could have made 13.41% last year.”
“I don’t understand why those of you who are supposedly trained or purport to your readership that you actually know something about investing can’t find a mutual fund with a 50-year or 70-year or 20-year track record of average returns of 12%,” he continued.
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Of course, not every mutual fund has a track record like that, but it’s easy to find the ones that do with online investment research tools or through a mutual fund broker.
Finding the Fund Is Just the First Step
Earning 12% is about more than finding the right mutual funds, Dave explained. One of the keys is disciplined investing—continue to buy mutual funds and hold on to your investments no matter what the market is doing.
Political or economic crises have caused the market to drop significantly 28 times in the history of the stock market. Investors often react badly to these stock market dives, cashing out their investments and making their losses permanent. But if they’d only held their investments, 19 of the 28 times they would have recovered their losses within six months.
It took four years for the markets to recover from the last market slide that ended in March 2009. Investors lost as much as half of their money by selling their mutual funds as the market declined.
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“That was because you didn’t have the backbone to stay in. Why? Because you didn’t have the knowledge that markets go through cycles,” Dave said.
Talk to an Investing Professional
That’s why it’s important to find an investing professional who understands market cycles. People who invest by themselves average 3% less on their money than those who work with a pro because they panic and cash out at the wrong time.
Even though Dave is an experienced investor, he values the input of his own investing pro. “I want someone in my corner every day who lives, eats, and breathes this stuff,” he said.
Don't know where to start? Find an investing professional in your area!