Dear Dave,
Dave Ramsey is a seven-time #1 national best-selling author, personal fi nance expert, and host of The 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.
I’m 24, single, and I make $60,000 a year. I’m also debtfree and live in an apartment, plus I have about $550,000 in a brokerage account that’s made up of 75 percent mutual funds and 25 percent single stocks. The money in the brokerage account was originally an inheritance of $280,000 that has grown since I received it in 2007. Am I putting my money toward the best investment possibilities right now?
Drew
Dear Drew,
You’re in a nice place! I’m glad you’re taking your finances and your future so seriously.
First of all, I don’t play around with single stocks. There’s just too much risk there for me. Since I don’t invest in single stocks, I don’t recommend others do it, either. I look at two things when it comes to investing— real estate and mutual funds.
I always pay cash for income-producing real estate. And when it comes to mutual funds, I invest in good, growth stock mutual funds with a solid track record of at least 10 years. Now, I don’t get mad at people if they want to dabble in single stocks a little, but I wouldn’t recommend having more than 10 percent of your investment portfolio wrapped up in them. The numbers on playing single stocks are just not that good for the individual, and besides that, I don’t like losing money!
If I woke up in your shoes, I’d move the 25 percent you have in single stocks into good mutual funds. And I wouldn’t use a brokerage account. I’d stick with a quality financial advisor, one who has the heart of a teacher. I think you’ll end up doing better with your money in the long haul this way. It might be a little boring, but boring is good when it comes to stuff like this. Exciting means you stand a good chance of losing a lot of money.
You’ve got a good income, especially for a single guy who’s 24, so I’d make those adjustments and live like the inheritance money wasn’t there. Stay away from debt, live on a reasonable budget, and make sure you’re putting 15 percent of your income away for retirement. Then, when it’s time a few years down the road, use some of that inheritance money to pay cash for a nice home.
If you can manage to do all that, the money you inherited—even with buying a home—will likely grow to millions of dollars by the time you’re ready to retire. Pretty cool situation, Drew!
—Dave
Dear Dave,
My wife and I are in our late twenties, we have no debt, and our household income is about $180,000 year. We’re thinking about building a home, but we’re not sure whether to build just for us, or maybe building a multi-family place so we could live upstairs, rent the rest, and make some money. Your advice would be appreciated.
Joel
Dear Joel,
If you’re looking strictly at quality of life considerations, like privacy and having a little room to yourselves, a single family home is the way to go. But, if making extra money is important to you at this point, a multi-family structure might work. The good news is your tenants would be right there. The bad news is your tenants would be right there!
From a landlord’s perspective, living next to or above your tenants means you can keep an eye on things a little better. Your tenants might also take better care of the place with you around. But those kinds of situations aren’t always beautiful things. When you’re living a floor or wall away from someone, you’re all up in their business, and they’re all up in your business. It’s not for everyone.
If you’re planning to have kids soon, I’d recommend going the single family route— specifically because of the quality of life. Looking at the other side, you’ll make money with a multi-family construction, but it’ll probably be a pain in the butt. You’ll be giving up some things if you go that route.
Let me put it this way, Joel. I’ve owned a ton of investment real estate in my life, and my wife didn’t want to live in any of those properties. Still, there’s nothing inherently wrong with either decision. Just make sure your mortgage is a 15-year, fixed rate loan, and the monthly payments are no more than 25 percent of your combined take home pay. Save up for a down payment of at least 20 percent to avoid PMI, too.
Take a hard look at the numbers, and make sure you and your wife have a long, long talk about everything. You two should be in complete agreement about every aspect of this situation before moving forward!
—Dave