Topic Guide
What Is Return on investment?
Return on investment is a subject covered in depth across 1 podcast episode in our database. Below you'll find key concepts, expert insights, and the top episodes to listen to — all distilled from hours of conversation by leading experts.
Key Concepts in Return on investment
Ramsey baby steps
A sequence of seven financial steps designed to guide individuals and families from financial insecurity to wealth building and generosity. This episode frequently references Baby Step 2 (paying off all debt except the house) and Baby Step 6 (paying off the house) to illustrate financial priorities.
Backdoor roth ira / mega backdoor roth 401k
Strategies allowing individuals with high incomes to contribute to a Roth IRA or Roth 401k, even if directly ineligible. A Backdoor Roth IRA involves contributing after-tax dollars to a traditional IRA and immediately converting it to a Roth IRA. A Mega Backdoor Roth 401k involves after-tax contributions to a 401k and then an in-plan conversion to a Roth 401k. These are presented as Baby Step 7 items, to be pursued only after all debt, including a mortgage, is paid off.
Dividend stock
Stock in a mature company that distributes a portion of its earnings to shareholders in the form of dividends, rather than reinvesting all profits back into the company for growth. The episode clarifies that dividend stocks generally offer lower rates of return compared to growth stocks and are not a 'magic trick' for rapidly paying off significant assets like houses without massive initial capital.
Sunk cost fallacy
The economic concept where individuals continue to invest in a failing project or asset because of the time, money, or effort already expended, rather than making a rational decision based on future potential. Chris's uninhabitable house in Eastern Washington is presented as an example of an asset that should be sold despite past investment, as it's an 'alligator' that 'eats money'.
What Experts Say About Return on investment
- 1.A social work degree costing $300,000 for a potential $50,000 annual salary demonstrates a poor return on investment (ROI), indicating a critical need to evaluate education costs versus future earning potential.
- 2.Long-distance landlording, especially for a property that isn't generating a positive return and was acquired by default, is generally a bad financial strategy, as exemplified by Maggie's California condo.
- 3.Attempting to simultaneously pay off debt, save, and invest often leads to no significant progress in any area; focusing on one financial baby step at a time, like debt elimination, is more effective for building momentum.
- 4.Failure to file income tax returns is a federal criminal offense, distinct from failure to pay taxes, and proactive filing with professional help is crucial to avoid severe legal consequences.
- 5.Using student loans to preserve investment accounts, as suggested by Cole's wife, is a flawed strategy, effectively borrowing money to invest and introducing unnecessary risk and debt.
- 6.Separating finances in a marriage is not a solution to money disagreements; rather, it often exacerbates underlying marriage problems rooted in selfishness and a lack of unified financial goals, necessitating marriage counseling.