I select mutual funds that have had a good track record of winning for more than five years, preferably for more than ten years. I don't look at their one-year or three-year track records because I think long-term. I spread my retirement investing evenly across four types of funds. Growth and Income funds get 25 percent of my investment. (They are sometimes called Large Cap or Blue Chip funds.) Growth funds get 25 percent of my investment. (They are sometimes called Mid Cap or Equity funds; and S&P Index fund would also qualify.) International funds get 25
percent of my investment. (They are sometimes called Foreign or Overseas funds.) Aggressive Growth funds get the last 25 percent of my investment. (They are sometimes called Small Cap or Emerging Market funds.)
- First it puts money into retirement automatically. If you work for a company that allows you to put money in before you see it, take advantage of that. Set up the system and put the money in. Every month.
- The system also diversifies the money enough to where you can feel safe. You may want to select individual stocks or another type of fund, but Ramsey (and I) would recommend only doing that above and beyond these investments--and only when you finish steps 5 and 6, as well. In other words, if you want to speculate a bit, that's okay, but wait until you actually have money you can afford to lose. Even at this baby step, you're not there...yet.
15% for the rest of your life will add up quickly. Compound interest is a beautiful thing. Are you beginning to see how Ramsey's plan, combined with a great amount of focus, will pay off? Near the end of the chapter, Ramsey writes:
After completing this step, you have no debt, except the house, around $10,000 cash for emergencies, and you are taking steps to make sure you will retire with dignity. I think I see a smile broadening. (page 166)