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Dave Says – 10.04.11

Dave Says – 10.04.11

Posted: Wednesday, October 5, 2011 7:01 pm
By: Dave Ramsey, Special to The Press

Online trading

Dear Dave,
How do you feel about online trading for building a stock portfolio? Assuming that someone has done their homework on which stocks to buy, is there anything else to know about do-it-yourself trading?
– Kevin
Dear Kevin,
There’s one very important thing to know – don’t do it! This kind of thing is one rung below day trading on the ladder of stupidity.
Here’s the problem. When most people talk about “doing their homework” on single stocks they’re just barely skimming the surface. And most of the time this involves just talking to their broke friends. There’s no way you and your golfing buddy are going to dig up and decipher the kind of solid, reliable information you’ll need to be successful at this kind of thing. I’d much rather go with a mutual fund that’s spent millions of dollars analyzing companies and doing real research. What you’re talking about is a million times riskier than using good growth stock mutual funds – selected by professionals – with 90 to 100 different stocks.   
– Dave

Home equity loans

Dear Dave,
Right now our debt is keeping us from investing. Do you recommend making investments with a home equity line of credit?
– Paul
Dear Paul,
Let me answer this very, very carefully. No! You don’t borrow on your home, Paul. You never want to put something as precious and important as your home in jeopardy just for the sake of investing. Follow the Baby Steps. First, get $1,000 in the bank to start your emergency fund. Second, pay off all debts from smallest to largest – except for your house – using the debt snowball. This will lead you to Baby Step Three, which is fully funding your emergency fund with three to six months of expenses. Once you’ve done all this you’re ready for Baby Step Four, which is investing in Roth IRAs and other pre-tax retirement.
When you’re debt-free except for your house, you’ll find investing is easy because you’ve freed up your most important wealth building tool – your income!
– Dave

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