Dear Dave,
I want to roll over a 401(k), and my bank is encouraging me to roll it over to fixed annuities. Is this a good investment?
John
Dear John,
More times than not, when you go to a bank for investment advice, what you’ll get in the bargain is bad advice. And that’s the case here.
I’d move toward a traditional IRA, in a series of good growth stock mutual funds. Put it across four types of accounts: growth, growth and income, aggressive growth and international. What you’re looking for, John, is a great track record for your investments. You want a track record so ridiculously good that it gives you a great sense of comfort, even though there’s no guarantee of what’s to come. And there are mutual funds out there that can do just that for you. I own one that’s over 70 years old, and it has averaged nearly 12 percent over that time.
Lots of people talk in “what ifs” when it comes to investing. Well, you can play that little game all day. But if the economy goes completely down the tubes, and the government destroys things like mutual funds and real estate completely, your little bank-recommended annuity isn’t going to make it, either. The banking system as a whole will fail if all the mutual funds close because they’re all based in publicly traded companies. And that means virtually every business you drive by on your way to work would be out of business. A bank’s not going to survive that kind of thing.
If you’re looking for things to help you survive the apocalypse, you’re talking about food and water. But if you want rational, well-reasoned investments, you need to look at growth stock mutual funds and paid-for real estate. That’s what I do!
—Dave
Dear Dave,
Why do you think debt consolidation is such a bad thing?
Tessa
Dear Tessa,
Debt consolidation is a bad thing because it makes you feel like you really did something to get out of debt and change your financial world when you didn’t. People come to me all the time saying stuff like, “Dave, I got a second mortgage. I paid off all my debt!” Well, no you didn’t pay off all your debt. You just moved it around.
That’s part of the catch when it comes to debt consolidation. If you get a lower payment and move things around a little bit, you feel like you actually accomplished something. The problem with that is you don’t do anything to address the real problem, which is you.
Interest rates aren’t your problem, and the number of payments isn’t your problem. Your problem is the person you look at in the mirror every morning, Tessa. Until you fix that person and get mad enough at your financial situation and the real cause of it, you’ll never make any progress toward getting control of your finances.
Trying to borrow your way out of debt is not a good plan!
—Dave
Encouraged by this advice? Check out more by Dave in last week’s column on biblical money management.
Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
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