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- [00:01]
A
What's up guys? George Camel here. You're about to listen to a clip of last year's Investing Essentials virtual event. It was a two night deep dive into investing and real estate hosted by me and Dave Ramsey. And we're gearing up to do this event again. But we'll be covering even more topics than before, like what's going on with the economy and what you can do about it. You can watch it live on March 4th and 5th of 2025 and start investing with confidence. You can get your tickets today at ramseysolutions.com/events. Enjoy the clip. This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor and Dave, as I've been doing this now for years, you know, I did the podcast the Fine Print where I broke down kind of what's really going on with some of these traps. And in my book Breaking Free From Broke, I dedicated a whole chapter to investment traps because it's all I see now on social media. And I'm getting DMs from you guys saying, hey, is this a good idea? And I saw this video where this guy said I should invest here or speculate here. So I want to go over some of the biggest investment traps to avoid before we talk about how to do it the right way. So the first one Dave mentioned, single stocks. These are shares, tiny pieces of ownership in different companies. And when a company goes public, you've heard that before, they sell these shares to investors to pay for their business growth goals. So over time, the hope is that the value of that stock will grow and you get a return on your investment. So here's my hot take when it comes to single stocks. Single stocks are like betting all of your money on a single racehorse. Mutual funds let you own the race track. So I'm not stressed out at the Kentucky Derby hoping that that horse wins. I'm just having a good time because I'm rooting for all the horses to win because that's how I'm going to win. And it gives me a lot more peace when I invest. Single stocks can be super volatile. It's gonna go up and down depending on what Elon said, Tesla's gonna be doing this. And that's simply too much stress and too much risk for you to have in your portfolio. And so that's why we promote mutual funds so much more heavily, because you can actually sleep well at night not wondering if your stock is going to tank because a company did xyz. It's based on public perception and the business performance and it's just simply too risky to put in. The next one is related to this and that's day trading. This is buying or selling stocks in a really short amount of time. Like within a single day you're making multiple trades. And the hope here is that, is that you get quick and big gains. Here's the problem, the hot take here. Day trading is a great way to decrease your wealth and increase your anxiety. Here's proof. One study found that 97% of day traders who persisted for more than 300 days lost money.
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B
That's all of them.
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That's pretty much all of them. Within a year you're going to lose money instead of gain it. And many of these people, they borrowed money to invest, which is stupid on steroids as Dave would say, because now you're adding extra risk on top of your already risky scenario. And we've taken some heartbreaking calls on the Ramsey show where people say, Dave, I day traded, I lost thousands or hundreds of thousands by doing this. So please, please avoid this at all costs. Remember, wealth is built slow and steady. The next one is bonds. Dave talked about bonds earlier and how they have an inverse relationship with the mortgage rates. These are simply loans that corporations or governments sell to investors. So think of them like IOUs on a set schedule. So you buy bonds and you get your money back plus some interest. And since they're often backed by governments and guarantee a steady return, they're seen as a safe investment. So people that are spooked by the market volatility, they rush toward bonds. Here's the hot take though. Investing in bonds is like trying to run a marathon by crawling. Sure, you're not gonna trip and fall, but moving that slow will hurt your chances of ever finishing, of retiring with dignity with actual pile of money. So the returns you get from bonds are not impressive. They barely outpace inflation. And the goal of investing is to grow your money, not, not just keep up with inflation. So you're better off for short term goals with something like a high yield savings account or a money market account. And long term, stick with mutual funds. The next one is old school, but it's starting to make a comeback. You may have got some mailer to join a seminar where you get a free dinner and it's fixed annuities. And these are contracts with insurance companies that will promise you a stream of income later on in retirement. So you make a payment or a lump sum payment to this company. And in return, they, they promise to grow that money and send you payments later on. There's a bunch of types of these. You've heard of fixed annuities, variable annuities, and indexed annuities. And fixed annuities have a fixed interest rate, usually 5% or less. Variable annuities are invested in a submutual fund account and indexed is similar to indexed universal life insurance where it's tied to an index, to a stock market index. So the problem with these is that they prey on fears of market risks under the guise of, quote, protecting your nest egg. But they're less like a bank vault and more like a prison than that you pay to be in. And so these are sold heavily because the people selling them make big commissions. And a lot of them aren't even licensed financial advisors. They're simply insurance agents posing as advisors. And so there is a place that some people may have for something like a variable annuity. Dave's not going to yell at you for that one, but it makes sense for almost nobody. And Dave, you don't even have any of these in your portfolio.
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B
I don't own a single one.
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And so it's simply not something that you guys need to be worried about. Unless you have massive wealth and you want some of the estate planning benefits and you want some guaranteed returns, it's not worth it. So next up we have CDs. We've all heard about this one. This is like a savings account offered by banks and credit unions. You deposit money for a specific term, maybe three months to five years, and you get a fixed rate in return. And they generally offer higher rates than high yield savings, but with more red tape. And truthfully, these days, I think a lot of high yield savings accounts beat the CD rates. So the hot take is investing in CDs is like locking your money away in a minimum security financial prison just to get some free mediocre cafeteria prison food. It's just not worth it. Most of them have limited liquidity, they won't keep up with inflation. And you're better off parking your money in a high yield savings account these days. Now, permanent life insurance. I know. Why is he talking about insurance in an investing event? Well, this is being peddled so hard on social media and you know they're selling life insurance because they never mention life insurance. They call themselves tax free wealth strategists and they tell you this is how the wealthy keep their money and grow it. And they borrow from their own accounts. You, you've heard of whole life insurance You've heard of Universal Life Index, Universal Life Variable, Universal Life. You know, they're all just gross thorns by different names. So in addition to a death benefit like term life has, there's a cash value portion that's promoted as an investment. Here's the hot take. Permanent life insurance as a wealth building tool is a legal scam peddled by insurance agents that pose as financial advisors. It gives them fat commissions and locks you into a lifetime of stupid tax. And you've heard us take these calls on the show where people call in and say, dave, I got a whole life for my baby because Gerber sold it to me. Or I've had this whole life policy that my dad got me and I feel bad getting rid of it because of the sunk cost fallacy. Listen, get term life in place and don't mix your insurance with your investing. So that's the big one there, Crypto. I hope we've covered that enough, Dave. But the crypto Bros, they come back every time Bitcoin takes a spike up. And here's the deal. I'm going to try to explain it to you as simply as I can in 30 seconds. This is virtual currency, technically a store of value if you really want to nerd out. That can be traded instantly, peer to peer worldwide 24 7. And the thing that makes this different is that it's decentralized. It's not controlled by any one entity. And instead it's stored on this digital ledger that's called the blockchain. You may have heard of that. And this thing validates all these transactions and it keeps track of who owns what. And once things are added to the blockchain, it's permanent. It can't be modified, it can't be erased. So if that confuses you, it should. It's a very complicated product, and there's only been about one or two coins that have actually held up over time. And even then it's not. Doesn't have a proven track record. So here's my hot take. And I hope I don't offend any of you out there, but cryptocurrency is just Mary Kay for young men, okay? The people who are into it, they're obsessive about it. And if you're not in on it, then you just don't get it. And you need to get out of my life. It's just not something that you need to be worried about. And the 247 volatility of this thing will keep you up at night and people are losing big because of this, not only from choosing the wrong coin like a single stock, but also because of how many scams and fraudsters are out there. And we see this a whole time. We saw FTX come crumbling down back in 2022. We get calls about crypto. I got a crypto romance scam call Dave, the other day. This guy lost 230 grand because he thought he was giving money through this real exchange that was actually a fake exchange. And so there's so much fraud happening, just please stay away. Now, one that's as old as time is gold. These are the commodities, precious metals, silver, platinum, you know them. Investors buy these as a hedge against inflation and currency devaluation. So they're usually being peddled by the apocalypse guys who are saying, it's all gonna come crashing down, you gotta buy gold. Well, here's the hot take. Precious metals are fear based investments with poor returns that are sold by opportunistic fear mongers. So let me give you an example. If you bought $1,000 worth of gold in 1989, the year I was born, sorry to age you, Dave. If you had $1,000 in the S&P 500 versus gold in the year 1989, you would have made three times more just by investing in the S&P 500 in the stock market over gold. So if you want to get it as a hedge against inflation, it doesn't make all that sense. Because here's the deal. If we really had an apocalyptic event, no one's gonna be bartering gold. We're gonna want ammo and fuel. And so if you want to have a gold chain, you want to have a gold bar in your closet just to feel good, that's fine. But please don't call this investing. Don't think you're investing. And the industry is also ripe, just like crypto, with a lot of scams, a lot of fraud. And we know that fear is a terrible financial advisor. And that's the number one reason people run to gold. So, Dave, like you mentioned, a lot of these are speculative. They're not actually investments. And I don't want people to invest in the wrong things. I want them to invest with confidence that they're doing it the right way.
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B
I think every one of those you covered except whole life, which would be a long play. And you could take single stocks and do a long play, but all of the rest of those were speculative. You could do gold as a long play, but the rate of return, as you pointed out on gold, is horrible. And the whole Life. Life insurance is just a known scam. No one in the financial world supports the whole life thing except the whole life people. Everyone else in the whole financial world just looks over and goes, why would anybody do that? It's just a horrible product. And so again, if you'll just say, okay, Bitcoin, that's an example, we could go with crypto, right? You know, if you want to do some crypto. And I've got a friend that's worth probably 20 million and I think he's probably got 100,000 bucks. And he was making fun of me the other night because I hate it, you know, but he was trying to, trying to rub it in me that I spent $100,000 on crypto. My coin went up and I'm like, yeah, 100,000 of your 20 million is in this. So if you lose it, it's like somebody else eating a biscuit, you know, but, you know, it's me and him joshing around. But the deal is he's not investing in it, he's speculating in it. He knows that and he knows that and he's goofing around with it. It's what he's doing. But I don't goof around and lose money. I can't stand it. It's not fun for me. It might be fun for him, but.
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A
Dave's no fun in Vegas. Don't take him.
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B
I am absolutely no fun in Vegas at all. Quite the opposite, as a matter of fact. It's sad for me. But the thing is, all those things that you covered, a lot of them fall in the idea of speculation that it's a short term rate of return. Day trading for sure, right?
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Yeah. A lot of get rich quick in there, which is known to make you broke even faster. So we don't have any of those in our portfolio. And the best investing advice comes from proverbs, and this is one I love. Wealth gained hastily will dwindle, but whoever gathers, little by little will increase it. I mean, this is the class of tortoise and hare.
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B
There he is.
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You want to get rich quick, you're going to go broke. If you get it slowly over time, you're actually going to be able to manage it and grow it.