In a forum thread called “Why do so many people hate on Dave Ramsey?”, Rush complained that Ramsey's advice is too conservative. Squished18 replied by saying: “You're advising me to invest my $100K ‘at 10%'. Where am I going to invest my money? There are ZERO investments that will guarantee me a 10% return.” The following was Rush's response.
You asked the million-dollar question: “Where am I going to invest my money [to realize at least 10%]?” Obviously no one can answer that question. What we can do is try and then measure the results. If the results indicate that 10% were achieved, then you've answered your question. It seems that most people who talk about “investing” and returns automatically develop visions of the stock market, mutual funds, CDs, and the like. In reality there are many opportunities around us that will return much more than a paltry 10%. Unfortunately, there is no “canned” answer. I can give you examples.
Everything about earning returns boils down to buying low and selling high. To realize a return, one must first spend cash and then one must redeem for cash. If you buy a stock, you spend $1,000 and wait a certain amount of time and then sell the stock. Same with mutual funds. Same with any other type of investment you can imagine. The “stock market” requires very little participation on your part. You make the purchase and pretty much wait. However, if you think outside the market, you'll find plenty of scenarios in which you can buy low and sell high and you'll be directly responsible for the return.
What you buy low and sell high depends greatly on you and your life experiences. For example:
- Joe Blow has a niece with a 2000 Ford Taurus she wants to sell for $4,000. Joe also know someone at his church who is looking for a good car for their son. Joe buys the Taurus for $4,000 and sells it to his friend for $4,600. That investment activity took 3 days and returned 1,500% APY. That's one-thousand-five-hundred percent interest. Joe knows cars and he had a good idea that the Taurus would make a good investment. Yes, there was a risk involved, but Joe is a car guy which minimized the risk. I'm not a car guy and don't mess with flipping cars because I don't have the needed knowledge and experience with cars. I have my own niches.
- Plenty of folks can buy a $100,000 house at a sheriff's sale and sell it the following month for $107,000 – it happens daily. This scenario yields an 84% return. EIGHTY FOUR PERCENT RETURN!!!
- I know pinball machines. When I see one at a garage sale or listed in the paper, I know what price I need to buy it at to sell at a great return. My friend is an antique aficionado and he goes to estate sales and grabs up stuff throughout the house that I wouldn't touch. He'll drop $5,000 on a Friday morning and after a week on eBay he'll have $10,000. A nice little 5,200% APY.
- A friend goes to Dunkin' Donuts every morning. The clerk there knows my friend by name and they regularly visit when it's not too busy. One morning the clerk was telling my friend that their dough mixer was on it's last leg. My friend found a suitable mixer for $6,000 and sold it to the owner of the doughnut shop for $9,000 and even included a 60 day warranty. That was nice 18,250% APY deal and all he did was eat some doughnuts each morning.
- How about renting residential real estate? Take $20,000 as a down payment and buy a $100,000 duplex. For merely $20,000 you'll own all the income, deductions, appreciation, and other intangibles that $100,000 generates. That $20,000 can often easily kick off $2,000 per year in cash (10% APY), but you also get to lower your tax bill (let's say $600 or 3% APY), get appreciation of the property (15% APY against your $20k), and you get the equity accumulation as your tenants pay off the mortgage (2% APY which grows yearly). One can easily realize a 30% APY in cash and cash equivalents by diving into landlording.
- Another friend works for a big company. That company buys 1,000 Dell laptop computers every two years. Normally the retired laptops were sold to a laptop broker. My friend now buys them every two years and pays more for them than the broker did. He makes more than a years salary flipping laptops on eBay. All because he works where he does and took the initiative (and risk) to make a sweeter deal for his employer.
- There was a convenience store in a small town that was owned by a husband and wife team. Their marriage went bad and a judge forced them to work different shifts. He would steal money, she would steal money. Soon they could no longer afford to put gasoline in the tanks. The store inventory dwindled. The store soon become filthy and local residents learned to hate the place. A look at the county records told the whole story. A call to the attorneys handling the divorce revealed that the store was in receivership and ordered sold by a third attorney. A call to the third attorney revealed the store could be had at a great price. The deal was made. The store was remodeled, renamed, and reopened to incredible fanfare and profits. Being a local resident and watching the couple's purchase and subsequent demise and dilapidation of the store set the wheels in motion for a great investment.
You see, there are plenty of opportunities around us outside of our regular jobs. Telling you how to make these fantastic returns is not possible because I don't know your skills, knowledge, geography, financial situation, or even your daily routine. Joe knows cars. Steve knows antiques. I know pinball machines. Someone else simply eats doughnuts. Jack knows his employer sells 1,000 laptops every couple of years. What is certain is that if you look for these opportunities and act on them you can easily beat the 10% expected market return.
Notice that in none of my scenarios do you have to quit your day job nor do you have to spend an inordinate amount of time to achieve these results. Most people will not act on these opportunities for fear of failure. I suppose their risk tolerance is too low. But if you load up on retirement mutual funds and put the rest of your money into paying off your home mortgage, you won't be in a position to seize a deal when it does come up.
Rush isn't saying that you shouldn't invest in mutual funds or pay down your mortgage; he's advising that you keep some of your money liquid so that you can seize opportunities. In essence, he's encouraging diversification. His ideas aren't “get rich quick” schemes. They're examples of the creative thinking that can lead to extra income.