QUESTION: Sandy asks Dave what he thinks about transferring an IRA over to gold. Dave leaves little doubt that he believes this would be a really bad idea.
ANSWER: That’s one of the dumbest things a human could possibly do. I hope I wasn’t unclear.
Gold is going down like a rock right now. As people start to believe in the economy and the economic direction of the country — and the stock market indicates they are — gold becomes worth less and less. Gold is a fear-based product. When people thought Obama was going to screw everything up, that’s when gold went through the roof. Or in 2008, when Bush and Obama were working together to screw everything up and everyone was scared to death, gold shot way up. But it’s a fear-based thing. The less fear there is, the cheaper gold is.
That’s not how you want to fund your IRA. You want to fund your IRA with something that has a track record that’s based on growth, and the growth is based on the performance of the companies involved — not someone’s greed or fear. Gold is a horrible investment. I do not own any gold, except for one really nice watch and a pair of cufflinks. That’s it.
QUESTION: Valerie and her husband have three young grandchildren. They’re in good shape financially and would like to give the grandkids something for their futures instead of the usual toys for Christmas. Dave guides them on the saving aspect, but advises them to include a few toys in the mix as well.
ANSWER: I would do both. I don’t think you want to be those grandparents who only hand their grandkids envelopes at Christmas. They need things to play with. They’re kids, and they should be allowed to act like kids and be happy at Christmas.
You could work with their parents to launch Educational Savings Accounts (ESAs) for them. This would get their college funds started, and it’s what’s we do. We use mutual funds in their ESAs, where each child is allowed to have up to $2,000 added in their name per year.
The beauty of the ESA with the mutual fund inside it is that it’s growing completely tax-free. You have to name a custodian of the account until the child turns 18, and that could be you guys or their parents. Make sure that together you don’t overfund the ESAs and cause yourselves tax problems.
QUESTION: Allison’s daughter is a college freshman. Her daughter got some bad information from an instructor recently, and Allison wants to know how she should explain to her the professor was wrong. The instructor told the class the only way to buy a home without a high credit rating is by having a huge amount of assets or savings. Dave gives his take and recalls an interesting situation from a few years ago.
ANSWER: Well, the first thing you explain to an 18-year-old is that tenured college professors have the right to be absolute morons and keep their jobs. There’s no sense in arguing with them, because many times they’re some of the most arrogant human beings on the planet.
A few years ago my daughter took a personal finance class in college, and on the first day the instructor went on a rant saying Dave Ramsey is stupid. She went through the entire class and never said a word. When she called home and asked what she should do, I said take the tests and answer the questions the way he wants them answered. You’re just taking a class — that doesn’t mean you have to form your opinions around it.
Anyway, what I would do here is just explain to her the college professor doesn’t know what he or she is talking about. You can get a home loan with no credit score. People do it all the time. You can call Churchill Mortgage if you want and have one of them give you an example of it. All you need is a reasonable down payment, have two years at the same job, and provide two years of tax returns.