The Rachel Cruze Show - Everything You Need to Know About Investing in 28 Minutes

Episode Date: September 2, 2024

💵 Start your free budget today. Download the EveryDollar app! Whether you’re brand-new to investing or you’ve been at it for a while, there’s always more to learn about saving for retirement. In this episode, get answers to the most common investing questions so you can maximize your money.   In this episode: ·      Answers to My Most-Asked Questions on Investing ·      How to Invest With Just $100 ·      Why You Should Never Handle Your Finances Alone Next Steps: ·      💰 Find out what’s possible with the Investment Calculator! ·      💸 Invest in your future with a SmartVestor Pro! Ramsey Solutions is a paid, non-client promoter of SmartVestor Pros.  Connect With Our Sponsors: ·      🏥 Learn more about Christian Healthcare Ministries. ·      🔒Remove your personal information from the web and get 20% off your DeleteMe plan.    Listen to More From Ramsey Network: 🍸 Smart Money Happy Hour 🎙️ The Ramsey Show  💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Investing is one of the best places for you to grow your money. You know, this idea of, gosh, I would love my money to make money while I sleep and I don't do anything. Well, that's what investing does. It's a really powerful thing. When you put your money in, you're going to get a return. Hey, guys, welcome to this episode of the Rachel Crewe Show podcast. I'm so glad that you're here. So in this episode, we'll talk about how you can start investing with just $100.

Then we'll discuss why you should never handle your first. finances alone. But first, I want to chat about my most asked questions when it comes to investing. Take a listen. So investing is always the top question that I get when it comes to money. Now, it can be tricky to understand this topic at first, but once you grasp the basics of investing and you know all of your options, you will be unstoppable when it comes to wealth building. So today I'm going to respond to a couple of your investing questions and stick around to hear about my go-to tips for investing no matter where you are in the process. So I'll do this every now and then on Instagram. I'll just say, hey, ask me a question. And these that you're about to hear were questions

from you all via Instagram when it comes to investing. So the first one is, when, where and how can I open up a Roth IRA if I don't have this option through work. So a Roth IRA you can do completely as an individual. You have to be working and making an income in order to qualify for a Roth IRA. But also, if you're married, your spouse, if your spouse stays at home, they can qualify for a spousal Roth IRA, which is great. So what you would do, I would suggest that you sit down with an investment professional and look at your entire investment strategy completely, everything from your 401k at work or 403B to the Roth IRA. I mean, look at everything and have them help you. That would be the best option, in my opinion. All right, the next question is, I'm a teacher with a pension and a 403B, and I'm

wondering if it's a good idea to start a Roth IRA as well. So the way I would answer this question is to say if you are debt-free with a fully funded emergency fund, I want you investing 15% of your income. And so what you're going to do is go up to the match of your 403B. Your pension, I would cut in half. So take that percentage that you're getting pension-wise and cut it in half towards your 15% because that is money going towards retirement, which is great. But you also have no control over where they're investing that money when it comes to your pension. and I want more options for you. So if you have more of that 15% that's not allocated,

then I would open up a Roth IRA and invest in that as well. So you could technically have three accounts, which is great. But again, the key here is that you're investing up to 15% of your income. Next is when or after which step do you recommend converting a traditional IRA to a Roth IRA? Will I be penalized for doing this? Okay, so I love the Roth IRA. And quickly what that means. Roth means basically tax-free.

you're like sheltered from taxes, which means you are putting money in, you can put up to $7,000 in this year, and what you're taking is money that's already been paid taxes on your income. So your income comes in, you pay taxes. Whatever hits your account, that's the money you use to fund your Roth IRA, which means the growth within that is completely tax-free. So if you're starting this early, you're going to have so much growth. You're going to have more growth in that funds versus what you put in the principal. So I think that this is so important.

I think it's really key to do a Roth IRA. Now, a traditional IRA is taken out before you pay taxes. So you almost don't even really see it. And then money hits your checking account and whatever's there is yours to live off of. But the problem is, whatever the growth is in the traditional IRA, you're going to pay taxes on when you pull it out at 59.5 or whenever you take money out, which is going to be a lot. You're going to pay a lot of taxes. So, again, there's a lot of debates between this on what you should do depending on your tax bracket and all of it. But I'm a fan of the Roth.

So if you're going to convert it, again, I would sit down with an investment professional to talk about this because if you're far down the line in a traditional, it actually may not be worth it because you're going to be taxed. In order to roll it over to a Roth IRA, you're going to have to pay taxes, which means you're going to have to have cash. It's going to be taxed like ordinary income. So it's going to take a chunk of money. But again, on the offset of whatever's going to grow in that funds is going to offset the taxes

you pay now, it's going to be worth it. But again, it's going to depend on your age and how much you have in there. The next question is, my husband withdrew the cash from his 401k from his old job. It was $9,000. We're currently on Baby Step 2. So should we just toss it at our debt? Yes. Go ahead.

If the cash is there, everything is going towards the debt. Now, remember you guys, if you move jobs, your 401K do not cash it out because you lose the benefit of all that growth. So the 401K, if you have it, just roll it over to a traditional IRAK. like we just talked about earlier. So again, you're not paying taxes or anything. You're just rolling over, letting that sit there and grow over time. And then you can open up a new 401k at your new job, but do not cash it out next time because you lose growth and you can be penalized. All right. Next is what is the best way to save for retirement as I stay at home mom. So this is a great question. So retirement specifically, if you don't have an earned income, but your spouse does. Again, you can do that spousal Roth IRA is what I would recommend.

But other than that, you may just be invested. in traditional mutual funds or index funds at that point. So again, the retirement option really is when you have an earned income, but if you don't, there's really limited options. My daughter's going to college next year debt-free, scholarships and a 529 fund. Great job. She bought her car in cash. Amazing. She has a couple of thousand dollars in savings and works a part-time job for extra spending money. Should she start investing now? Well done. Golly, that's amazing. So while, again, I love investing, I love talking about compound interest, I love talking about the earlier you start, the better off you're going to be, all of that. But the truth is, when you are 17, 18,

19, 20 years old, there is a lot of life ahead of you and an expensive life, right? That transition from college to the real world, it's expensive. Maybe you get a new job, you've got to move cities, there's moving costs, you're trying to figure out rent. And I mean, there's a lot to be said when it comes to entering in life. And so really the best investment you can make is in yourself, meaning having a lot of cash on hand when you're young is really, really helpful. And so what I would tell her to do is just put that in a high-yield savings account. I understand the temptation of like, go ahead and invest it. I get it. But also, I don't want her money stuck in an investment. And in three years, she actually really needs it for something. Again, it's going to

put her in a hole. So I would rather her have it available. And then when she transitions out of college, she gets her first job, then she starts saying, okay, now we're going to be, you know, investing in all of that. That money she saved as a teenager could be her baby step three, which is a fully funded emergency fund. So maybe she has that cash there, check, and she can go straight to investing then. So investing at 21 versus, you know, 19, she's going to be okay. I would not invest now. My husband will lose the match if we roll over his 401K to his employer. Should we still move it? I'm assuming that means. his 401k from his old job. So if that's the case, I would just roll it over to a traditional IRA and then

open up a new 401k, which hopefully then has a match. But if his new 401k doesn't have a match, I would still go ahead and invest it. I would just prioritize a Roth IRA over a non-matching 401k. The next is I'm investing 11% in retirement through work. And my company is matching 4% of that. So I'm sitting at 15% total. I don't feel like I have a lot of margin to do 15% on top of the match. So is that still good enough? So when we talk about the 15%, it does not include your employer's match. So technically you are investing only 11% of your income. So again, I understand, yeah, it is, margins are tight and all of that. So if it's for a season and it's what you can do to get by, that's great. But as your income starts going up,

then I would still really hone in on that 15%. That needs to be your goal. Let's just say that. That needs to be your goal, is investing 15%. So you may not be in a current position today to cover everything you need and invests 15%. But I don't want you sitting at 11% long term because when we look at inflation, when we look at growth within funds, all of that, I want you to be in a really comfortable place at retirement age. And that 15% really is that magical number. The next is how do I know when it is a good time to increase the percentage of money that goes towards retirement investing? Well, again, I always go back to that 15%. So I would do anything I could if you are debt-free with a fully funded emergency fund to max out and get to that 15% of

your income. And really, that's what you need for retirement investing now. If you're down, you know, the baby steps and maybe you've, you know, your kids' college is taken care of, maybe you've paid off your house even and you're looking to invest. That's when you can really go in and invest in other things besides retirement. But that 15% specifically within retirement investments is really key. Now, the last question is one that really fascinates me because it's something that skeptics tend to wonder about. But before I share with you what that is, all right, the final question is, does it ever make sense to invest in something other than retirement, like investing in mutual funds to save for a house? So it's a great question. And yeah, absolutely there is.

But for a lot of people, again, that we talk to, it's like, okay, getting out of debt is a priority first, getting an emergency fund is next, and then making sure retirement is taken care of. So once those things are covered and your house is paid off and you're beyond that and you're just okay, where can I invest? There are places and great things you can invest in. Really the two places I can tell you beyond retirement that Winston and I invest in is that we have just a standard mutual funds that we opened. Also, index funds is a great option too if you want to check those out and paid for real estate, which is starting really, really small. It's not a great market for it to find great deals, but you can still find them out there. So if you wanted to do that and whether

you're knowledgeable in that area of life and you can do a flip and make some money, that's great, or maybe you hold it for a rental. So I would invest back into the market in non-retirement funds or real estate. Those are the two places that I feel the safest. But no, if you're saving up for a house, usually if you're going to have a purchase within five years, I would just put money in a high-yield savings account. But if it's going to be longer than five years, and you're like, yeah, you know, this money, let's just see if it grows and you don't really need it for something specific, you could open up another fund like a mutual fund and just park some money there. Because here's the thing, you guys, no matter where you fall in the investing journey,

whether you're still paying off debt, still working towards investing a full 15%. There are a few tools that I recommend in this process. So use Ramsey's investment calculator to really help you plan and track your investment goals because this is a great place where you can put some numbers in and just see, hey, what if we did this and we let it grow for 10 years? What is it going to be? Or for retirement? hey, if we want this much at retirement, because this is how much we live off each year,

what do we need to have? So again, it's a great tool to use and also consider working with a pro. So today I want to talk about how to invest with just a hundred dollars. So I get questions all the time from you guys wondering how or even why you should start investing when you don't feel like you have enough money to throw at investing in the first place. So if that sounds familiar, I've got really good news for you. You don't have to have a ton of money to start investing. In fact, one of our core Ramsey teachings since the beginning has been the importance of investing early, even if you can only contribute a small amount at first. So today, let's talk about how you can start making financial progress by just investing $100. Yep, you heard that right.

And be sure to stick around to hear my number one don't when it comes to investing and wealth building. So now, before I explain what it looks like to invest $100, I want to catch everyone up to speed on some investing basics. Now, first, it's important to know why investing matters in the first place. Investing is one of the best places for you to grow your money. You know, this idea of, gosh, I would love my money to make money while I sleep and I don't do anything. Well, that's what investing does. It's a really powerful thing. When you put your money in, you're going to get a return. Now, depending on that return is depending on what the market is doing, so it's going to look different year by year. And sometimes there's some dips, even while I'm filming this.

There was a massive dip yesterday, and everyone's freaking out about it. So it is a ride. Buckle up, get ready. But it's a great place to put your money for your money to make money. And compound interest is your friend. It's a beautiful thing. Next, make sure that you understand when is the right time to invest. So really focusing your money and putting all of your motivation and all of your intensity

towards one thing is really, really important when it comes to personal finance. So if you are in debt, get all. all of your focus of getting out of debt, everything but your house. If you don't have money saved after that, that means you need to save some money. Three to six months of expenses for an emergency fund is a great, fully funded emergency fund. And then you can start thinking about investing. So when you're thinking about investing, you want to start off with retirement specifically because you're going to be investing for the future. And when you want to stop working, you have money to live off of. And you're not depending on the governments, but you're depending

on you right now saying, hey, I'm going to put money away for the future. So you want to put 15% of your income into retirement at that point. And third, let's clarify how much money you should be investing. So again, just like I said, that 15% rule is really, really key. And when you think about investing into retirement and that 15%, remember this, okay? Match beats Roth, beats traditional. So great places to put that 15% is a 401k at work. Go up to your match or a 403B. And then a Roth IRA is another great thing to open. You can invest up to $7,000 in it in this calendar year that we're in now, and so put some money in there, but invest up to 15% of your income. Okay, now let's get to the main point of how to invest $100. Now you might be thinking, okay, Rachel, well, if I'm ultimately

supposed to invest 15% of my salary, can $100 really make a difference? Absolutely, because building wealth is all about taking small steps. You may be investing just a little bit at a time. Winston and I, when we were babies and when we got married in early 20s and we started contributing, you know, it was not a lot. Our 15% of our income was not a ton of money, but we still continue to do it. So even if you feel like, gosh, it's such a small game that I'm playing, it is important to start early and also to develop the habit of putting money away. And speaking of building, let's just take a moment and honor the MVP of investing,

and that is compound interest. So what compounded interest is really simplified is, let's say you put your money, in the market, and let's just use 10% growth as an example. So your money is going to make 10%. So that $100 you put in, yeah, 10% of that is $10. So again, you're going to be having $110 going in next year. Well, if you don't touch it, you don't put any money in, you don't put any money out. You're going to make 10% if the market does that on $110, not just $100. What's happening is you are making money on not just the initial investment of that $100, but you're going to make money on the growth of it as well.

So it just continues to get bigger and bigger and bigger. Let's just pretend that you're 22 years old and you put that $100 in. And let's say the average rate of return was 10% all the way till you're 65. That little $100 will grow to $7,240, which is pretty amazing. I mean, if you think about it, you just put $100 in and you just went on about your life. That's what it grows to. Now, obviously, $7,000 isn't enough money to sustain your life and to live on during, you know, your retirement years of 15, 20, 30 years. But the powerful thing is that you can see what math does, because the point of

this is that time is so, so key. Okay, next, let's talk through one of Dave's OG examples when it comes to investing. This is one that is tried and true, and it works. We're going to take Jack and Blake. Jack started investing $200 a month when he turned 21 years old. But at 30, he decided to stop investing altogether. So he just left that fund alone. So for nine years, Jack invested $2,400 a year, which is about $21,600 total. Now his friend Blake, on the other hand, started investing $200 a month at age 30. So when Jack stopped investing, that is when Blake started investing. And he started investing at the same amount of $2,400 every single year, until he was 68. Now, Blake invested $91,000 of his own money during that 38 years. And remember, in just nine years, Jack invested $21,600. So if you had to guess, who do you think ended up

with more money at retirement? Jack. That's right. So by investing $2,400 for nine years, Jack ended up with $2.3 million, while Blake invested the same amount of money per year for 40 years, and he ended up with only $1.3 million. Is that how crazy? I mean, compound interest is wild. That's what compound interest did. That growth turned Jack's $21,600 to over $2 million because he started early. So again, time is on your side. Time is money, people. Time is money. So even if you can invest $100 or $2,000, $200 a month and you start as early as possible, it's going to pay off. Now, before I share my number one investing, don't, let's talk about where you need to put this $100. So if you don't have a 401k option through your work or you're already contributing

and you're interested in diversifying your investment portfolio, then again, consider a Roth IRA. A Roth IRA is a great place to put your money and it grows tax-free, which is what we love, but you can only invest up to $7,000. and it does have an income limit. So if you make too much money, you won't qualify for the Roth IRA, but you can do what's called a backdoor Roth IRA and you can still invest. Okay, let's say you've been investing for a while. How do you know when it's time to bump up your contributions?

Well, I recommend adjusting the amounts that you invest as your income grows. So maybe you get a raise, maybe you gain a spouse's income. Maybe, you know, you have a new career and you get paid a whole lot more. But when your income increases, you need to be bumping up your investments. So that 15% of your income needs to go along with your growing income. And if you're investing only 100 or 200 there, you know, again, I think the goal is to get to that 15% when the day is done. And that's going to set you up for a great retirement. All right.

So now it's time for my number one no-no when it comes to investing in wealth building. And that is crypto. I was on a trip recently. and there was this dude at the pool, crypto dude, and he's talking. He's like, have you not done crypto? Not to me, but to his friend. And he's going on and on and on about it. And I was like, oh, my gosh.

Because the truth is, if you have disposable income and you want to throw it at crypto, do it. That's great. But if you don't, and you're working your way out of debt or to get an emergency fund or to fund that 15% to retirement, stick to the plan. Because cryptocurrency, it is a total gamble right now. I mean, it really is. I mean, it's up and down.

There's tons of scams within it. it does not have a long track proven record. So making sure that you put your money in proven methods that have worked for decades. And that's what I want, right? I mean, this is your money. You're hard-earned money. You don't want to put it into something because some bro at the pool said to and then you'll lose it. So making sure you are really, really wise with this. So one thing about me, I believe two things can be true at the same time. Do I believe that you can have the power to build wealth by following a plan and making intentional choices? Yes. Yes. Do I believe in listening to expert advice to guide you through certain parts of the process?

Also, yes. So even though money can feel very personal and private for a lot of people, the truth is that a financial advisor is a must, especially when it comes to investing. So today I want to talk about that and share five reasons why you should never handle your finances alone. A lot of people assume that this service is only for the extremely wealthy people, that that's what they need. but the truth is it's wise to get a coach or somebody in your corner at any stage of your financial journey. We've already done the work to find someone that you can trust, but technically there is a right and a wrong time to invest, so stay tuned till the end, so you can hear my thoughts on that. But first, let's make sure we're all on the same page when it comes to what a financial advisor is.

The term financial advisor isn't an official title or degree. It's just the name of people who offer some kind of service to those seeking guidance with their personal finances. So a few examples of this is a CPA, a certified public accountants, an RIA, a registered investment advisor, a CFP, a certified financial planner, a PFS, a personal finance specialist, and all of those abbreviations can kind of get confusing. But it's encouraging to me to know there are experts out there who are talking about money. They're being educated on it. They've got to take a lot of tests. and all this smart stuff. So listen, they know what they're doing.

But my favorite way to find a trustworthy advisor is through smart Vester Pro. So I will leave a link for you to get connected with a professional in your area down below. Now, let's talk about five key reasons why you need to work with a pro. Number one, financial advisors keep you on track with your investing plan.

So in short, financial advisors are constantly asking the important questions that you may not even think to ask. And beyond that, they will know the specific answers and the specific numbers for your situation. So, for example, they may have insider information and how much money that you need to have, say, for retirement

or how you can make up for lost time if you're investing late. Should you change your investment portfolio as you get older and you're making more money? How do you go about making some of these changes? What are the tax implications? You know, what happens if you sell a property? I mean, the list goes on and on and on. So if you don't believe me,

go do a quick Google search, because the data consistently shows that those that work with a professional to help them invest are ahead of those that don't. All right, number two, financial advisors do more than just invest your money for you. So there is a broad list of things that a financial professional will do for you and help you think about. This is everything from rebalancing your investments, tax planning, estate planning, long-term care planning, spending strategies after retirement, legal restrictions that affect all of the money, the things that we just mentioned. I mean, financial advisors literally live and breathe this stuff.

So it doesn't mean that you don't get a say in your own strategy. In fact, in fact, I want to empower you. It is your money. They are there to assist and advise, not make the final call. So just because you're a financial, you know, professional said, oh yeah, you need to do this, I want you to understand why. And if you don't feel good about it, don't do it. Okay. Now, they are professionals. They know what they're doing. So I want you to be able to trust them. but also remember, this is your money. You have the power to say yes or no. All right, number three, even the pros need help sometimes. I mean, you think about doctors can't perform surgeries on them. I mean, graduate students, you know, don't grade their own essays. So no matter what industry you're in,

everyone has blind spots. So even if you work in the world of finance or maybe you're good with money, having an expert's opinion is really crucial when you're making big financial decisions. Plus, professional financial advisors often work with up to 100 clients or more, which gives them a much larger amount of context than just, again, your personal perspective and your opinions. And they're unbiased when it comes to their expertise across the board. And again, this is whether they are paid, even how they're paid, right? A flat fee or a commission. Finding someone that you trust is so, so key. All right. Number four, you just don't have the time. Let's be honest. If you're working a full-time job, you got friends, you got family, you got.

a million other things to be thinking about. Investing is a really big part of building wealth, and you want to do it the right way. And it also can be something that you just put on autopilot most days. But this only works if a professional is on your team and they're constantly looking at all of the factors when you don't have time to analyze them. So things like inflation and stock market trends and the housing climate, like all of this, yes, I want you to be informed of, but again, they're going to have a deeper understanding, which is great. Number five, financial advisors at non-emotional decisions so you don't have to lose progress. So just like T-Swift's tour, the world of investing has some eras to it, if you know what I mean. So like the stock market drop in 08,

the rise in the fall of crypto, the game stop spike 2021. I mean, all of these things are factors into our economy. But here's the deal. The flashy headlines can really stir up some big emotion, which causes people to make really bad decisions and pull their money out when they should have just stayed in. And investing works best if you're in it for the long haul, which means working with a professional, you can talk yourself down. Our investment professional we met with, he even said the other day, he's like, half my job is literally emailing and taking phone calls, talking people off the ledge because people freak out. They do and they want to take the money out. But what your investment professional or advisor is going to see is, oh my gosh, if we stay in the

market, we actually can end up buying more funds. Your money will go further. So when the market returns, which it has always returned, you're going to make more. So it's best just to ride out the wave. Okay, now that you have more of an understanding of why it's important to work with an investment professional, let's talk about when and how you should reach out to a pro. So when? This is when you are debt-free and you have three to six months of expenses saved in the bank. This is crucial. then your goal is to invest 15% of your income into retirements. And once investing begins, then I would reach out to a pro. So next is how.

So how do you find a reliable financial advisor in your area? Well, I will leave a link to SmartVestor Pros down below. So what's really powerful, though, is I would go and talk to maybe two or three different ones. And maybe one of them, you're kind of like, you don't like them. That's fine. Don't use them. find somebody that you actually like and that you trust and makes you feel comfortable and again has the heart of a teacher. But I want one for you that you enjoy and you trust and you love.

So again, having a financial advisor in your corner, a financial professional, you guys, it is so, so important. All right, thanks so much for listening to this episode. Make sure to leave a review. If you love this show, your feedback helps us out so much. Make sure to subscribe as well and share the podcast with your friends and family and help get the word out. Thank you guys again so much for listening. And remember to take control of your money and create a life you love.