Dave Ramsey: What happens to money when stock market goes down?
If you invest in the stock market, and the market goes down, what happens to the money? Is it lost?
Think about it this way. What happens when you buy a car for $25,000 and its value drops to $15,000? There’s no actual money involved. It’s not like you took bills out of your wallet and threw them away, although it may seem like it when you first roll off the showroom floor. You bought an item for $25,000, and now, after time has passed, it’s not worth $25,000 anymore. It works the same way with stocks. If you bought a company’s stock at $50 and the price of it drops to $40, that $10 didn’t go anywhere. It’s just lost in terms of market value, or what someone else will pay you for it. Make sense?
This is a great question! So many people misunderstand how investments work when the market declines. No actual money disappears. What goes away is value!
So many people believe we operate with a fixed-pie economy. They think money is gone forever if it leaves one place, but this is a faulty premise, because it can just as easily go to another place. My good friend Rabbi Daniel Lapin has a wonderful explanation for how this works. He calls it a comparison of cake versus candles. If you slice a cake and give yourself a bigger piece, there’s less for me. But money isn’t like the cake, it’s like the candles! If you light a candle and use it to light other candles, no candle is diminished. There is even more light!
Communists and socialists believe money is like a cake, and if you get some, there’s less left for me. But if you understand and believe that money is more like the candles, then you’re probably a capitalist. In capitalism, it doesn’t mean you lose just because I win; it can just as easily mean that we both win. Once you get adjusted to this kind of thinking, the marketplace isn’t nearly as scary!
That’s an outrageous interest rate!
We did a rent-to-own deal to buy a musical instrument. We were late paying it off, and the company charged us a $250 late fee and then sold that debt to a collector about four months ago. Now, the collector says we owe $1,800 with interest. We’ve asked them for documentation and tried to talk to them about making payment arrangements, but they’re not interested. What should we do?
I wouldn’t fool with any documentation at this point. By law you can accrue only so much interest on a bad debt. At this point, they’re charging you 5,000 percent interest, and that’s illegal. Even payday lenders don’t charge this kind of interest, and they’re scum. There’s no way I’d send these clowns $1,800!
Get in touch with them and let them know that you’ll send a cashier’s check for $250 if they’ll provide you with a letter stating that the $250 will settle the account in full. If they don’t like this offer and they threaten to sue, tell them to go jump in the lake. I’m sure a judge would love to hear about this!
Dave Ramsey is a nationally known personal finance expert. Visitwww.davesays.org for more financial advice.