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Dave Ramsey says: A brief explanation how growth stock mutual funds work

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Dear Dave,

I’m new to investing, and recently I began putting money into growth stock mutual funds inside a Roth IRA.

On my last statement, it said that my investment had grown.

Can you explain how it grew?

— Matt

Dear Matt,

In most cases, you’ll have anywhere from 90 to 200 different company’s stocks in a growth stock mutual fund.

Over a period of time, some of them will go up and some will go down. If the overall effect is that the group is worth more now than it was before, you made money.

The value of that overall group of stocks went up, in other words.

OK, now pay close attention to what I’m about to say next.

I love the fact that you’re investing and thinking about the future. It shows wisdom and maturity to be able to grasp the need for a good financial plan now and in the years ahead.

However, I’d advise you to not put any more money into that investment until you understand exactly what it is and how it works.

Talk to your financial adviser immediately, and let him or her know you’re not clear on things.

A quality investing professional has the heart of a teacher. Someone like this will take as much time as necessary to better explain your investment, your options, and answer other questions so you can become an informed investor and, over time, make your own wise investing decisions.

Never put money into something you don’t fully understand!

— Dave

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