Dave Ramsey is a seventime #1 national best-selling author, personal finance expert, and host of The Dave Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.
Dear Dave,
A friend recently mentioned something called impact investing to me. What exactly is this? How do impact investment funds perform, and what do you think about them?
Carson
Dear Carson,
Impact investing generally aims to benefit society, while providing a profit for the investor, by investing in companies, funds and organizations that are aligned with causes, certain values or issues. Think of it as a middle ground between traditional investing and charitable giving, where you can match your investing with your own particular beliefs. It really isn’t all that different from investing in traditional mutual funds, except for the goal of the funds.
Since their inception, impact investments have averaged returns of a little less than 6%. That’s well below the average return of the S&P 500. Impact investing can do some good, but the truth is it’s hard to measure exactly how much good it’s doing. If you’re going to invest in impact investing funds, you need to make sure you understand exactly how your money is going to help the businesses you invest in, if they’re actually doing what they say they’re doing, and whether or not they’re really making a difference for the better.
As with all investments, it pays to do a lot of research and find an advisor with the heart of a teacher. And never invest in anything if you don’t completely understand how it works. Remember, it’s your money that’s in the mix. Don’t feel like the odd man out if you’re the only one not joining in on an investment craze your friends are diving into.
Personally, I recommend investing in good, growth stock mutual funds and real estate paid for with cash. And hey, if you want to make a difference in the world and still invest the old fashioned way, create room in your budget for charitable giving or saving with the goal of making donations to organizations and causes you care about.
I hope this helps, Carson!
—Dave
Dear Dave,
My fiancée and I want to make an offer on a house. She has a lot of late payments and a bad credit record, though, but she is working hard to manage her money better and get out of debt. I don’t make enough money to get a home loan by myself, and I have some debt to pay off, too. In order to help us out, my aunt and uncle said they are willing to co-sign a mortgage loan for us. What do you think of that idea?
Evan
Evan Dear Evan,
Here’s a simple, solid piece of advice for anyone looking to make a purchase of any kind. If you need a co-signer, you’re not ready to make that purchase—period. I’m not trying to beat you up or anything, but it’s way too soon for you two to be thinking about buying a home. I mean, for starters you’re just engaged right now.
When a lender requires a co-signer, it basically means they don’t believe you’ll pay back the money. And besides, you two don’t need a house now or right after you get married. The two of you should get married, and live in a decent, inexpensive apartment for a while. During that time, you both need to work hard on paying off all your debt. After that, save up an emergency fund of three to six months of expenses. Then, start setting aside cash for a down payment on a modest home.
When it comes time to buy a home, I recommend a 15-year, fixed rate loan with a down payment of at least 10%. Twenty percent is better, because it will help you avoid having to pay PMI (private mortgage insurance). Make sure the monthly payments on the loan are no more than 25% of your combined take home pay. Keeping the payments at 25% or below will make it easier to address other important financial issues, like saving and investing.
Your aunt and uncle are obviously generous people, Evan, but they’re a little misguided in their offer. At this point, helping you two buy a house—something you obviously can’t afford—would be a huge burden instead of a blessing.
—Dave
Dear Dave,
My wife and I are Christians, and we own a successful small business in our town. Should businesses tithe?
Barker
Dear Barker,
This is a good question. Giving is never a bad idea unless you do it irresponsibly and to the point of putting your family in financial danger. To the best of my knowledge, the Bible only addresses the topic of tithing by individuals—not businesses.
Personally, I don’t give a tenth of my business gross or net until I receive my paycheck. When that happens—meaning it’s profit that I’m going to pay taxes on, or it’s salaried income out of my business—I tithe on the profits.
So, I can’t really tell you I’ve found Biblical instruction to give a tenth of your business. Hope this helps!
—Dave