Dave Ramsey Defends His Investment Advice

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Re: Dave Ramsey Defends His Investment Advice

Postby chasely » Wed Mar 13, 2013 7:36 pm

stemikger wrote:You aren’t kidding. Here is his humble little abode.

http://www.google.com/search?hl=en&site ... B500%3B304


If I had that much cash I'd go for a penthouse, but to each their own.

I never got why people give him so much crap for having such a big house.
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Re: Dave Ramsey Defends His Investment Advice

Postby zaboomafoozarg » Wed Mar 13, 2013 7:45 pm

The guy packages common sense spending advice with bad investment advice and makes a fortune doing it.

I found that saying as much can upset his fans, though - already been "Facebook defriended" by a couple people who couldn't stand for a little Ramsey criticism. :D
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Re: Dave Ramsey Defends His Investment Advice

Postby Cut-Throat » Wed Mar 13, 2013 8:25 pm

By the time Dave Ramsey is proven wrong, he will have made all the money he will ever want.

He is good at leading a lot of lemmings off the cliff. He's a salesman and you can tell when he's lying. (His lips are moving)
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Re: Dave Ramsey Defends His Investment Advice

Postby Default User BR » Wed Mar 13, 2013 8:26 pm

TN_INVEST wrote:Dave Ramsey thinks you ought to take your car to the dealership for service.
Bogleheads would rather go to AutoZone.

I do very little work on my vehicle these days. I don't have the time, so the neighborhood garage gets the work.


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Re: Great is the enemy of good in this case.

Postby avalpert » Wed Mar 13, 2013 9:21 pm

SC Hoosier wrote:
Immoral? Come on! Theft is immoral. 8% withdrawal rate is not immoral, nor is it dangerous. Guns are dangerous. Calm down. Reread my post. If 100% of Americans do exactly what he says then 90% of them would be better off than they are today. That, sir, is a home run.


No, 8% withdrawal rate is not immoral - profiting off recommending it is getting closer to theft. And yes, it is dangerous as running out of money at 75 is a danger. I doubt 90% of Americans would be better off doing exactly as he said, but even if that is true it doesn't excuse the bad advice he tacks on which he profits off of. It isn't a home run, it is taking advantage of those who trust you.
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Re: Dave Ramsey Defends His Investment Advice

Postby avalpert » Wed Mar 13, 2013 9:26 pm

burnout454 wrote:
OP here. It seems like you missed my point. Dave may be wrong, but that's different than being dishonest. He believes he is providing a needed service.


Believing one is providing a needed service when one is wrong and being so insistent you are not wrong when even a little bit of honest education would demonstrate it to you seems to be the very definition of the sin of pride. That he is using that sin to lead others astray for his own profit is something not to bless or dismiss but to draw attention to repeatedly until he makes amends.
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Re: Dave Ramsey Defends His Investment Advice

Postby nedsaid » Wed Mar 13, 2013 9:37 pm

My take on this is that the gurus, even the great ones have their flaws.

I learned a lot from Bob Brinker and his radio program. His advice for the most part was very sound and he helped me get diversified. He started sounding dire warnings about the stock market about 1999 and finally by early 2000, I sold about 30 percent of my stocks and went into money markets and bonds. I am glad I did. He later did a disastrous buy signal on the NASDAQ later on and I found out he had his flaws.

Louis Ruykeyser was a big hero of mine. His program "Wall Street Week" was standard Friday night fare for me and I watched it religiously. Yes the "elves", the market technicians were mostly wrong. And yes, the stock recommendations of the panelists underperformed the indexes. But I learned a lot from him and his guests.

Dave Ramsey is the same way. A great radio program, but it has its flaws. I won't recount them here.

Learn from these folks what you can. If their advice doesn't always fit, keep the good and discard the bad. It is seldom a good idea to blindly follow all the advice of any of these gurus. Some of the advice might not be right for your situation.
A fool and his money are good for business.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Wed Mar 13, 2013 9:41 pm

Here's what Dave Ramsey's lawyers have said to someone else who tried to criticize his investment ideas:

Dave Ramsey’s name and image, along with other properties of The Lampo Group, Inc. are legally trademarked. Any opportunistic use (including for-fee and nonprofit services/products) of these items without written consent of The Lampo Group, Inc. is strictly prohibited.


http://bucks.blogs.nytimes.com/2011/05/ ... -solution/

This was in response to a youtube video called “Dave Ramsey, How Could You?” by Rick Kaler:

http://www.youtube.com/watch?v=TSevduEzSDQ

Apparently, the effort to intimate Kaler or get his video off youtube failed.
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Re: Dave Ramsey Defends His Investment Advice

Postby 3CT_Paddler » Wed Mar 13, 2013 9:57 pm

"Those convinced against their will are of the same opinion still." - a quote used by DR often

I think Dave does a lot of good things, but the guy is human. His very direct and get after it attitude serves him well in cheerleading people to get out of debt, and for that he should be commended. But he doesn't strike me as a details guy, or someone who is going to read everything on the technical aspects of investing. He probably had a slick active manager back in the day when his program started going convince him that he could pick winners. And maybe the guy did pick some winners early on, so it clicked for him. How many people on here found Bogleheads because they were fortunate enough to do poorly in the stock market on their own?

For those who think there is something more sinister to his advice, how much money do you think he has made off of ELPs compared to his overall earnings? I highly doubt that he set out to "lead them to slaughter" as another alluded to. I think a lot of people don't like him because of his polarizing takes on politics/religion. Well that's fine, but that doesn't mean the guy is out to get people.

How come Warren Buffett gets a pass for being an active manager, who talks about index investing, but doesn't live it?

The Bogleheads is many good things, but intuitive or simple is not one of them (at least the theory on why it works is not as simple as the idea that good active managers create value in the long term). So I think I can cut people with little background in finance some slack if they don't agree with me on the Boglehead way.
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Re: Dave Ramsey Defends His Investment Advice

Postby FinancialDave » Wed Mar 13, 2013 11:39 pm

ObliviousInvestor wrote:
burnout454 wrote:It would be nice to put together a concise statement for Ramsey followers who may want to understand where he and the Bogleheads differ.

How about something like this?
-----
From the Boglehead perspective, Ramsey's investing advice ranges from very good to very bad.

The very good:
Ramsey suggests that you not try to time the market. Most Bogleheads agree.

Ramsey suggests that you not try to outperform the market by picking individual stocks. Most Bogleheads agree.

The not-so-good:
Ramsey recommends using commission-paid advisors to buy actively managed mutual funds. Bogleheads would suggest using no-load, low-cost, passively managed mutual funds (e.g., index funds) instead. And, in the cases in which it makes sense to use an advisor, most Bogleheads prefer to use a fee-only advisor so as to reduce conflicts of interest.

The bad:
Ramsey recommends a portfolio entirely of stocks -- that is, no bonds or CDs. For most investors, this will simply not be an appropriate level of risk.

Ramsey quotes a 12% annual return as what you can expect from stocks. This is higher than historical figures support. For example, according to the 2012 Ibbotson SBBI Classic Yearbook, from 1926-2011, U.S. stocks (as measured by the S&P 500 while it has existed, and the S&P 90 prior to that) have averaged a 9.8% return. When you adjust for inflation, that figure is just 6.6%. When you account for investment costs or taxes, it's even lower.

To make matters worse, some Bogleheads suspect that the future may look worse than the past century of U.S. results. So, depending on who you ask, even the 6-7% historical after-inflation figure may be too optimistic a projection.

The very bad:
Ramsey recommends using an inflation-adjusted 8% withdrawal rate in retirement, suggesting that doing so would allow your level of spending to keep up with inflation while keeping your nest egg intact. This is a serious problem. An 8% withdrawal rate presents a very significant possibility of portfolio depletion. For example, according to the updated "Trinity Study," such a withdrawal rate (with the 100%-stock portfolio Ramsey recommends) would only have a 44% chance of lasting 30 years. (And again, some Bogleheads would argue that historical figures are too optimistic to use for planning purposes.)


Mike,
I like it. Accurate, and without emotion. I'll leave my bond comments for another time, because they don't really align with Boglehead philosophy, though it has worked great for me.

PS. not to worry about the retirement calculator on the Ramsey site - anyone who has asked in the last two years has got my recommendation to double the DR number and you will be about right, on how much you need to save.
:sharebeer

fd
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Re: Dave Ramsey Defends His Investment Advice

Postby NOLA » Thu Mar 14, 2013 1:21 am

3CT_Paddler wrote:"Those convinced against their will are of the same opinion still." - a quote used by DR often

I think Dave does a lot of good things, but the guy is human. His very direct and get after it attitude serves him well in cheerleading people to get out of debt, and for that he should be commended. But he doesn't strike me as a details guy, or someone who is going to read everything on the technical aspects of investing. He probably had a slick active manager back in the day when his program started going convince him that he could pick winners. And maybe the guy did pick some winners early on, so it clicked for him. How many people on here found Bogleheads because they were fortunate enough to do poorly in the stock market on their own?

For those who think there is something more sinister to his advice, how much money do you think he has made off of ELPs compared to his overall earnings? I highly doubt that he set out to "lead them to slaughter" as another alluded to. I think a lot of people don't like him because of his polarizing takes on politics/religion. Well that's fine, but that doesn't mean the guy is out to get people.

How come Warren Buffett gets a pass for being an active manager, who talks about index investing, but doesn't live it?

The Bogleheads is many good things, but intuitive or simple is not one of them (at least the theory on why it works is not as simple as the idea that good active managers create value in the long term). So I think I can cut people with little background in finance some slack if they don't agree with me on the Boglehead way.



Well, Buffett recommends that most people should use index funds as their investments. Its possible to beat the market if you are a trader and do it for a living. However, its totally different to pay an advisor a hefty price and then believe you are gonna beat the market. Two very different things.
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Re: Dave Ramsey Defends His Investment Advice

Postby Matin » Thu Mar 14, 2013 7:51 am

1. I agree that Dave Ramsey does well to advise people to get control of spending, pay down debt, and get the financial house in order. This represents excellent advice for anyone.

2. I agree that Dave Ramsey is probably over-promising when talking about a 12% return on investment in stocks. However, I'm not sure this is all that damaging since that might convince some people to invest in stock and in the long run that is probably a good investment. For myself, I would probalby talk about 6% return after inflation in the long run. However, through the magic of compound interest, 6% can work miracles given enough time.

3. I think Dave Ramsey started talking about investing in the stock market before the revolution. The Bogleheads as pitchfork and torch carrying members of the indexing revolution wish to convince him to give better investing advice. However, in order to do that, Dave would also have to join the revolution. In other words, he would have to say something along the lines of "I was wrong and my new advice is to invest in index funds and stay the course." I think that would be a very difficult thing to do.

4. I think I like the fact that Dave Ramsey goes out there and tries to help people improve their fortunes. Personally, I never give financial advice. It's much easier to never be wrong when you don't give advice.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Thu Mar 14, 2013 8:12 am

ObliviousInvestor wrote:The bad:
Ramsey recommends a portfolio entirely of stocks -- that is, no bonds or CDs. For most investors, this will simply not be an appropriate level of risk.


Just to be the devil's advocate...

What's wrong with 100% stocks? Using the Trinity Study that you cite later in your post, 100% stocks do well, at least as good as 50% stocks. (75% stocks does a little better, but not much).

One could argue that a investor would be better off paying an adviser 1.5% assuming the adviser could give the investor the backbone to stay in 100% stock rather than 50% stocks. A 100% stock portfolio has about the same safe withdrawal rate and about a 2% higher expected return, so the investor (or his heirs, since it's really the terminal value and not the withdrawal rate that improves) would come out ahead by paying the adviser.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Thu Mar 14, 2013 8:19 am

Matin wrote:1. I agree that Dave Ramsey does well to advise people to get control of spending, pay down debt, and get the financial house in order. This represents excellent advice for anyone.


The situation is just the opposite. He is telling people to use an 8% withdrawal rate in retirement. It's completely impossible to get you financial house in order if your follow his advice. You are ignoring his crazy advice and reasoning only from the part of his advice that seems half way sane to you.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Thu Mar 14, 2013 8:24 am

The Ramsey defenders are actually arguing that Ramsey has merit because nobody would be stupid enough to take his advice!
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Re: Dave Ramsey Defends His Investment Advice

Postby ObliviousInvestor » Thu Mar 14, 2013 8:26 am

tadamsmar wrote:
ObliviousInvestor wrote:The bad:
Ramsey recommends a portfolio entirely of stocks -- that is, no bonds or CDs. For most investors, this will simply not be an appropriate level of risk.


Just to be the devil's advocate...

What's wrong with 100% stocks? Using the Trinity Study that you cite later in your post, 100% stocks do well, at least as good as 50% stocks. (75% stocks does a little better, but not much).

One could argue that a investor would be better off paying an adviser 1.5% assuming the adviser could give the investor the backbone to stay in 100% stock rather than 50% stocks. A 100% stock portfolio has about the same safe withdrawal rate and about a 2% higher expected return, so the investor (or his heirs, since it's really the terminal value and not the withdrawal rate that improves) would come out ahead by paying the adviser.

First a brief note of explanation in case it wasn't clear: In my prior post, rather than presenting my personal views, I was trying to present as close as I could to a Boglehead consensus -- in case somebody wanted to start a wiki article regarding Ramsey and his investing advice for instance.

Same thing applies here.

Two points:

One: Paying the advisor doesn't necessarily guarantee that an investor will refrain from bailing out during a market decline.

Two: Probability of portfolio success is only one measure of risk. Another relevant measure is when the failure scenarios occur (e.g., one year into retirement or 25 years into retirement). From what I've seen, for withdrawal rates in the range most Bogleheads would use, early-in-retirement failure scenarios are more likely with a high stock allocation than they are with a lower stock allocation. See "Figure 7" in this article from Wade Pfau for an example of such an analysis.
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Re: Dave Ramsey Defends His Investment Advice

Postby SeattleCPA » Thu Mar 14, 2013 9:59 am

A while back, when I was (foolishly it turns out) using article marketing to promote my websites, I wrote this article about Dave's financial planning boo-boos. It contains little new commentary compared to the posts already in the thread, was maybe too "nice" to Dave's ideas, but I'll post it anyway because I included Excel formulas and calculations that try to quantify how Dave's numbers work out in the end...

BTW, I was basing my article on what I'd just read in a book of his, not some of the radio talk show stuff people mention here...

So here's the piece:

DAVE RAMSEY'S FINANCIAL PLANNING BOO-BOOS

Before this author identifies a handful of financial planning errors that best-selling author Dave Ramsey regularly makes, one or two comments should be made. First, Dave Ramsey's general advice to work hard, make your marriage a priority and avoid debt is excellent. In fact, no one who followed Ramsey's general philosophy would have gotten into serious trouble with a subprime mortgage in the recent financial crisis. And, a second important comment and commendation for Mr. Ramsey: Perhaps 95% or 99% percent of what Dave says, every knowledgeable financial planning expert will agree with. Dave Ramsey is one of the good guys.

Nevertheless, in a handful of specific areas, one can find some minor yet important faults with the financial planning advice that Ramsey gives--and in particular with the financial calculations Dave shares in, for example, his books.

Overly Optimistic Rate of Return Assumption

One of the first problems that appear to certified public accountants and chartered financial analysts looking at Ramsey's materials concerns the commonly quoted "12%" rate of return used in examples.

That's way too optimistic an assumption. Yes, some years investments do generate 12%. And some specialty categories of investments (like small company stocks) may return roughly 12% over lengthy periods of time. But a traditional portfolio of diversified stocks and bonds will probably over long financial planning horizons deliver average annual returns of more like 7%-9%.

You will not, sadly, find it possible to consistently earn 12% on a well-diversified, moderate-risk investment portfolio. No way.

Inflation Ignored Only Leads to Future Disappointments

Inflation represents another issue that an accountant or good financial planner will want to include in financial plans but an issue that isn't always thoroughly discussed by Dave. Mathematically adjusting financial calculations for the effects of inflation can be complicated. But inflation will probably eat away at the value of the savings you accumulate.

If you're earning 9% on your investments, for example, but inflation runs 3%, you're not really making 9%. You're making 6%. You can more implicitly recognize inflation in your financial planning calculations, by the way, by using the net-of-inflation return in your financial calculations. To adjust for inflation when you expect a 9% return and 3% inflation, make the computations with a 6% return.

Expense Ratios Matter

One final investment issue (for some investors) needs to be highlighted. While investing cost percentages don't matter as much for people just starting to accumulate wealth--in fairness, perhaps Ramsey's typical reader?--by the point one has built a more size-able investment portfolio, investment costs matter quite a lot. And they matter a whole lot.

In fact, if an investment pays a 2% expense ratio--and that sort of expense might be pretty normal once all the investment costs are tallied--that amount doesn't sound so bad. But it's pretty outrageous in most circumstances.

Consider the situation, for example, where you've got a 9% rate of return from an investment but suffer from a 3% inflation rate. In actuality, you're really only earning 6% on your money. (The inflation that's baked into the return is not really profit to you.)

If out of your net 6% investment return, you pay 2% in investment fees--in other words, if you pay out 2/6ths of your profit for investment expenses--that's equivalent to a 33% income tax. Ouch.

In the end--just to play this sad song to the very end--while you start with 9%, after you subtract 3% inflation and 2% in investment fees--you're left with only 4%. And note that value is a pre-tax return. So if you pay income taxes on your investment profits (and you probably will eventually), you'll actually end up with something less than 4%. Double ouch.

Putting These Financial Planning Insights Together

The nit-picking shared in the preceding paragraphs may seem a little unfair. But to illustrate how significant the mistakes become when combined, ponder the following scenarios:

If you and your spouse save $5,000 a year into a retirement fund for 30 years and say you'll earn 12% annually, the calculated future value equals roughly $1,200,000.

Note: If you have access to a computer with Microsoft Excel, you can copy this formula into a spreadsheet cell to test this assertion: =FV(0.12,30,-5000)

In comparison, if you and your spouse save the same $5,000 a year in an IRA or 401(k) plan for 30 years but admit (sheepishly) that you'll really only earn 4% once you adjust for inflation and that friendly financial advisor, the calculated future value equals roughly $280,000.

Note: Again, if you have access to a personal computer and Microsoft Excel, you can copy this formula into a spreadsheet cell to test my math: =FV(0.04,30,-5000)
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Re: Dave Ramsey Defends His Investment Advice

Postby Rob5TCP » Thu Mar 14, 2013 10:17 am

awval999 wrote:
happymob wrote:What part of 70-year track record don't you understand? I mean 70 years!

(For the record, even I might consider an actively managed fund with that track record)


Fidelity Magellan - FMAGX (05/02/1963) Since Inception 16.01

http://investing.schwab.com/public/schw ... =#DataView

Fidelity Contrafund- FCNTX (05/17/1967) Since Inception 12.24

http://markets.on.nytimes.com/research/ ... mbol=FCNTX



Magellan did great when Peter Lynch ran it 30-40 years ago.
The last 25-30 years not so great. Here is a comparison to the S&P
http://finance.yahoo.com/echarts?s=FMAG ... y;compare=^gspc;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

You had to buy in when Lynch began and dump before Stavisky took over.
Hard to know when to get in/out.
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Re: Dave Ramsey Defends His Investment Advice

Postby 1210sda » Thu Mar 14, 2013 10:18 am

It's great that DR advises people to get control of spending and pay down debt. However at an 8% SWR, the probability of their money lasting for 30 yrs in retirement is around 7%. Even at the 15 yr point, their success probability is in the 50% range. I don't know about you, but this is not acceptable to me. (This is for a 50/50 AA.)

So, it seems that the bad advice offsets the good advice.

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Re: Dave Ramsey Defends His Investment Advice

Postby Abe » Thu Mar 14, 2013 10:22 am

SeattleCPA wrote:A while back, when I was (foolishly it turns out) using article marketing to promote my websites, I wrote this article about Dave's financial planning boo-boos. It contains little new commentary compared to the posts already in the thread, was maybe too "nice" to Dave's ideas, but I'll post it anyway because I included Excel formulas and calculations that try to quantify how Dave's numbers work out in the end...

BTW, I was basing my article on what I'd just read in a book of his, not some of the radio talk show stuff people mention here...

So here's the piece:

DAVE RAMSEY'S FINANCIAL PLANNING BOO-BOOS

Before this author identifies a handful of financial planning errors that best-selling author Dave Ramsey regularly makes, one or two comments should be made. First, Dave Ramsey's general advice to work hard, make your marriage a priority and avoid debt is excellent. In fact, no one who followed Ramsey's general philosophy would have gotten into serious trouble with a subprime mortgage in the recent financial crisis. And, a second important comment and commendation for Mr. Ramsey: Perhaps 95% or 99% percent of what Dave says, every knowledgeable financial planning expert will agree with. Dave Ramsey is one of the good guys.

Nevertheless, in a handful of specific areas, one can find some minor yet important faults with the financial planning advice that Ramsey gives--and in particular with the financial calculations Dave shares in, for example, his books.

Overly Optimistic Rate of Return Assumption

One of the first problems that appear to certified public accountants and chartered financial analysts looking at Ramsey's materials concerns the commonly quoted "12%" rate of return used in examples.

That's way too optimistic an assumption. Yes, some years investments do generate 12%. And some specialty categories of investments (like small company stocks) may return roughly 12% over lengthy periods of time. But a traditional portfolio of diversified stocks and bonds will probably over long financial planning horizons deliver average annual returns of more like 7%-9%.

You will not, sadly, find it possible to consistently earn 12% on a well-diversified, moderate-risk investment portfolio. No way.

Inflation Ignored Only Leads to Future Disappointments

Inflation represents another issue that an accountant or good financial planner will want to include in financial plans but an issue that isn't always thoroughly discussed by Dave. Mathematically adjusting financial calculations for the effects of inflation can be complicated. But inflation will probably eat away at the value of the savings you accumulate.

If you're earning 9% on your investments, for example, but inflation runs 3%, you're not really making 9%. You're making 6%. You can more implicitly recognize inflation in your financial planning calculations, by the way, by using the net-of-inflation return in your financial calculations. To adjust for inflation when you expect a 9% return and 3% inflation, make the computations with a 6% return.

Expense Ratios Matter

One final investment issue (for some investors) needs to be highlighted. While investing cost percentages don't matter as much for people just starting to accumulate wealth--in fairness, perhaps Ramsey's typical reader?--by the point one has built a more size-able investment portfolio, investment costs matter quite a lot. And they matter a whole lot.

In fact, if an investment pays a 2% expense ratio--and that sort of expense might be pretty normal once all the investment costs are tallied--that amount doesn't sound so bad. But it's pretty outrageous in most circumstances.

Consider the situation, for example, where you've got a 9% rate of return from an investment but suffer from a 3% inflation rate. In actuality, you're really only earning 6% on your money. (The inflation that's baked into the return is not really profit to you.)

If out of your net 6% investment return, you pay 2% in investment fees--in other words, if you pay out 2/6ths of your profit for investment expenses--that's equivalent to a 33% income tax. Ouch.

In the end--just to play this sad song to the very end--while you start with 9%, after you subtract 3% inflation and 2% in investment fees--you're left with only 4%. And note that value is a pre-tax return. So if you pay income taxes on your investment profits (and you probably will eventually), you'll actually end up with something less than 4%. Double ouch.

Putting These Financial Planning Insights Together

The nit-picking shared in the preceding paragraphs may seem a little unfair. But to illustrate how significant the mistakes become when combined, ponder the following scenarios:

If you and your spouse save $5,000 a year into a retirement fund for 30 years and say you'll earn 12% annually, the calculated future value equals roughly $1,200,000.

Note: If you have access to a computer with Microsoft Excel, you can copy this formula into a spreadsheet cell to test this assertion: =FV(0.12,30,-5000)

In comparison, if you and your spouse save the same $5,000 a year in an IRA or 401(k) plan for 30 years but admit (sheepishly) that you'll really only earn 4% once you adjust for inflation and that friendly financial advisor, the calculated future value equals roughly $280,000.

Note: Again, if you have access to a personal computer and Microsoft Excel, you can copy this formula into a spreadsheet cell to test my math: =FV(0.04,30,-5000)


Thanks SeattleCPA. That was an interesting article. 1.2 million compared to 280 thousand, quite a difference. This is probably old school and I sure you are aware of this, but these calculations can be done with a pocket financial calculator. (Texas Instrument BA-II plus, $28.00 at Walmart). I have several laying around and I usually carry one around in my pocket. I just posted this for people who like to play around with the numbers. I am one of those people. Thanks.
Slow and steady wins the race.
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Re: Dave Ramsey Defends His Investment Advice

Postby sesq » Thu Mar 14, 2013 11:00 am

I had never heard about him suggesting an 8% withdrawal rate. I am just thinking of all the heat a 3% vs 4% SWR generates. Wow.

I like Dave. He doesn't broadcast near me these days, but I like to pick him up when I am on the road. Its entertaining but flawed, like Suze. Clark Howard is less flawed, but a little more boring. I like Brinker and used to like Bruce Williams, but I haven't heard him in ages.
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Re: Dave Ramsey Defends His Investment Advice

Postby 1210sda » Thu Mar 14, 2013 11:13 am

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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Thu Mar 14, 2013 11:48 am

1210sda wrote:Yep, 8%. Try this link.
1210
http://www.daveramsey.com/newsletters/o ... lpinvnl_ov


Here's his defense when accused of spreading misinformation of this sort:

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Re: Dave Ramsey Defends His Investment Advice

Postby Random Musings » Thu Mar 14, 2013 12:00 pm

1210sda wrote:Yep, 8%. Try this link.
1210
http://www.daveramsey.com/newsletters/o ... lpinvnl_ov


Basically, say something that sounds good (but unrealistic, especially at current Shiller PE's and bond yields) to bring the flock to his recommended ELP's that give him a cut. Then hide under some legal wording. Since the example specifically uses an 8% withdrawal rate and 4% inflation, he is, by default, saying 12% annualized returns.

I'm sure the ELP's (on average) are more realistic and temper those wildly optimistic thoughts, but his disengenuous marketing lies get the sheep to them in the first place. I'll pray for him and also recommend that Dave sees a financial counselor to remedy those incorrect financial thoughts as well as a spiritual one to cleanse his soul.

That's what he does. Nuttin' but frickin' scum.

RM
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Re: Great is the enemy of good in this case.

Postby FinancialDave » Thu Mar 14, 2013 1:15 pm

avalpert wrote:
SC Hoosier wrote:
Immoral? Come on! Theft is immoral. 8% withdrawal rate is not immoral, nor is it dangerous. Guns are dangerous. Calm down. Reread my post. If 100% of Americans do exactly what he says then 90% of them would be better off than they are today. That, sir, is a home run.


No, 8% withdrawal rate is not immoral - profiting off recommending it is getting closer to theft. And yes, it is dangerous as running out of money at 75 is a danger. I doubt 90% of Americans would be better off doing exactly as he said, but even if that is true it doesn't excuse the bad advice he tacks on which he profits off of. It isn't a home run, it is taking advantage of those who trust you.


Personally, I am not in the camp that thinks if 90% of Americans are better off following any advice, it is really all that bad!
:oops:

Before everyone jumps off the emotional deep end on this subject why don't we compare a typical 3 Fund Boglehead Portfolio for Dave Ramsey and then what "might be" a 100% equity Portfolio for DR using some of what we know from past DR podcasts and tweets. Maybe this will tell us if this advice has been all that bad -- at least over the last 15 years.

Assumptions:

I used the link in the 3 Fund Portfolio above and answered the questions as Dave might, knowing his risk profile, and then rounded the results slightly to give me a 50/25/25 AA for the 3 funds VTSMX, VGTSX, VBMFX.

Next for the actual DR 100% equity portfolio I decided to go with 2 of Dave's favorite funds AIVSX and AGTHX, which he has tweeted about in the past, to that I added an SP500 index VFINX, and an American small cap World Fund SMCWX - all four of these in a 25/25/25/25 Asset Allocation.

I put both of these allocations in two different Morningstar portfolios, so as to be able to easily compare the 15 year returns. Feel free do this on your own, but the results are much as you might expect with anyone taking on the riskier portfolio -- Their returns CAN very often be higher.

3 Fund Portfolio results over 15 years, as reported by M* --- 4.96%

Dave Ramsey 15 year results 6.12%

I hope this isn't really news to anyone, and it proves nothing about the future -- but maybe it can calm down the emotion!

PS. no external fees or loads are assumed, as Bogleheads would not need to pay any nor would DR most likely.

:sharebeer
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Re: Great is the enemy of good in this case.

Postby avalpert » Thu Mar 14, 2013 1:38 pm

FinancialDave wrote:
Personally, I am not in the camp that thinks if 90% of Americans are better off following any advice, it is really all that bad!
:oops:

:sharebeer


Personally, I'm in the camp that if 90% (again, I don't really believe that but for the sake of argument) are better off following part of his advice but will end up destitute at the age of 75 because they followed his advice of 8% as a safe withdrawal rate then yes is that bad. :oops:
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Re: Dave Ramsey Defends His Investment Advice

Postby FinancialDave » Thu Mar 14, 2013 1:55 pm

I suspect if they follow his advice for 30 years (much like I did, even though I have only known about the advice for 2 years), then their result will be much like mine - or probably even better. In my current retirement, I only need withdraw about 1.5% of my total. As I mentioned before I suspect people don't stop working just because one day their retirement fund is suddenly 12.5 times their income need. Even if some of them did, seems like someone else said (not my fact) that 50% of these people would do just fine, and I really doubt the rest would be eating dog food, as the saying goes.

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Re: Great is the enemy of good in this case.

Postby tadamsmar » Thu Mar 14, 2013 2:07 pm

FinancialDave wrote:Next for the actual DR 100% equity portfolio I decided to go with 2 of Dave's favorite funds AIVSX and AGTHX, which he has tweeted about in the past, to that I added an SP500 index VFINX, and an American small cap World Fund SMCWX - all four of these in a 25/25/25/25 Asset Allocation.
.
.
.
PS. no external fees or loads are assumed, as Bogleheads would not need to pay any nor would DR most likely.


I just Googled AIVSX, and the result says it has a 5.75% load.

So, why would you say we would not have to pay the load?

Also, if you follow his advice and retire without adequate savings, it does not matter how high your return during accumulation was. If he were a Certified Financial Planner, he'd probably get his certification revoked for that.
Last edited by tadamsmar on Thu Mar 14, 2013 2:12 pm, edited 2 times in total.
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Re: Dave Ramsey Defends His Investment Advice

Postby TN_INVEST » Thu Mar 14, 2013 2:09 pm

Default User BR wrote:
TN_INVEST wrote:Dave Ramsey thinks you ought to take your car to the dealership for service.
Bogleheads would rather go to AutoZone.

I do very little work on my vehicle these days. I don't have the time, so the neighborhood garage gets the work.


Brian


Oh man, think of all the money you are wasting by paying for their service. :happy There are tons of horror stories out there about folks in that industry being high on drugs or having sketchy backgrounds and/or just simply incompetent. They often "steal" from their customers by up charging for their products and most will round up on their time (45 minutes = 1 hour billing fee). They are notorious for taking advantage of certain groups of people (women, elderly, etc.). Oh the humanity.

I hope you understand a little of my exaggeration. My point being that some folks do find value in spending their money on products and services (car repairs, financial advice, lawn service, etc.), even though there are tons of resources out there that can help folks "save" some money.
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Re: Great is the enemy of good in this case.

Postby Random Musings » Thu Mar 14, 2013 2:12 pm

FinancialDave wrote:[

Assumptions:

I used the link in the 3 Fund Portfolio above and answered the questions as Dave might, knowing his risk profile, and then rounded the results slightly to give me a 50/25/25 AA for the 3 funds VTSMX, VGTSX, VBMFX.

Next for the actual DR 100% equity portfolio I decided to go with 2 of Dave's favorite funds AIVSX and AGTHX, which he has tweeted about in the past, to that I added an SP500 index VFINX, and an American small cap World Fund SMCWX - all four of these in a 25/25/25/25 Asset Allocation.

I put both of these allocations in two different Morningstar portfolios, so as to be able to easily compare the 15 year returns. Feel free do this on your own, but the results are much as you might expect with anyone taking on the riskier portfolio -- Their returns CAN very often be higher.

3 Fund Portfolio results over 15 years, as reported by M* --- 4.96%

Dave Ramsey 15 year results 6.12%

I hope this isn't really news to anyone, and it proves nothing about the future -- but maybe it can calm down the emotion!

:sharebeer


It's news to me. I know Dave Ramsey suggests 25% Growth, 25 % Aggressive Growth, 25% Growth and Income and 25% International. Replace the S&P with GAIOX (their growth and income). Also, before you blindly put in 25% in international, remember that his two "chosen" funds plus GAIOX already will account for roughly 15% of your international exposure since they have international embedded in those funds. So, since Dave only wants 25% of your exposure in international (that's what he says and his TSP recommendations support the case) you really need about 30% of his two chosen funds, 30% GAIOX and 10% (solely) international. On top of that, the 10% international shouldn't be small cap, but a more large cap based type of fund. Don't forget the 5.75% load up front as well for these four funds since he recommends class A funds.

If you look at his TSP recommendation, he recommends 20% international. That supports the case that he really wants no more than 25% international exposure as in prior look, otherwise Dave's advice is even more suspect than it already is. Although there are no bonds in his TSP recommendations, his 25/25/25/25 portfolio has a touch because of the G&I fund. It's more of a 95/5 equity/bond look.

On top of that, he likes active funds with good track records over a very long time. At the least, replace VGTSX with Primecap, which has a record that Dave would love (well, at least if it were a loaded active fund where he can skim off the top). Plus you need 25% international in your proposed portfolio. My Dave Ramsey Vanguard 25/25/25/25 would be:

28% TSM, 22% TISM, 25% Primecap and 25% Bond - this assumes Primecap has about 12% int'l in the long run (4.87, 4.52, 7.99 and 5.57 over 15 years). Thats 5.75% (roughly) for the Vanguard 75/25. Once you follow Dave's instructions as written on his website and replace S&P in your case with the American Funds G&I and do the 30/30/30/10 approach to properly get 25% international (plus no small cap loading in int'l) and add the 5.75% load funds in - well, once we compare apples to apples a wee little bit closer, your argument falls to pieces even comparing his 95/5 to his 75/25.

More risk, less return. Dave, where are your customers large homes?

RM
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Re: Dave Ramsey Defends His Investment Advice

Postby Nahum » Thu Mar 14, 2013 2:13 pm

I wish the SNP 500 did 12% or better every year. That the returns would never ever fall below 12% every year and that it would be as predictable as seeing the stars in the sky so we wouldn't have any worry. Alas that is only a pipedream. :)
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Re: Great is the enemy of good in this case.

Postby TN_INVEST » Thu Mar 14, 2013 2:19 pm

tadamsmar wrote:
FinancialDave wrote:Next for the actual DR 100% equity portfolio I decided to go with 2 of Dave's favorite funds AIVSX and AGTHX, which he has tweeted about in the past, to that I added an SP500 index VFINX, and an American small cap World Fund SMCWX - all four of these in a 25/25/25/25 Asset Allocation.
.
.
.
PS. no external fees or loads are assumed, as Bogleheads would not need to pay any nor would DR most likely.


I just Googled AIVSX, and the result says it has a 5.75% load.

So, why would you say we would not have to pay the load?


At some point, loads are waived. Usually it is for large account balances ($500,000 to $1,000,000 range). The fees can also be waived if the client is working with certain fee based advisors.
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Re: Great is the enemy of good in this case.

Postby SC Hoosier » Thu Mar 14, 2013 2:34 pm

burnout454 wrote:
SC Hoosier wrote: You all have to understand something. WE ARE NOT NORMAL PEOPLE! We are people that care about and can understand the concepts and math of investing. WE ARE THE MINORITY! Dave is trying to find a one size fits all system for the masses because on a radio show, you can't get into all the specifics to tailor advice to each situation. We don't need hand holding, but one could argue that most do. (See Jason Zweig, "Your money and your brain.")


Agreed. I've always had the impression that many on this board who have their act together forget that most of our friends, family, and neighbors are living beyond their means, not saving, out of control, etc. Many of them probably want or need an advisor, not a go-it-alone approach. Granted, it would be better a low/no-cost advisor and low-cost index funds.


Thank you Burnout. I know I can't get everyone to see my point of view, but it is satisfying that at least one person does. And it is the OP no less! Thank you.

I live in a town of 11,000 people and close to half of those are in poverty because of fatherlessness and poor work ethic. There are bigger fish to fry than Dave Ramsey's investment advice flaws.
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Re: Dave Ramsey Defends His Investment Advice

Postby Matin » Thu Mar 14, 2013 2:36 pm

tadamsmar wrote:The situation is just the opposite. He is telling people to use an 8% withdrawal rate in retirement. It's completely impossible to get you financial house in order if your follow his advice. You are ignoring his crazy advice and reasoning only from the part of his advice that seems half way sane to you.


Oddly enough, I may well decide to use an 8% withdrawal rate in retirement. I can hear you saying, "How can that possible work?"

Some of this is situational dependent. I have no children and I don't feel that obligated to leave money to anyone. I also know that the longer in retirement the more crippled I'm going to be. Therefore, I really need to live up early in my retirement if I'm going ot have serious fun. Finally, running out of money when I'm 95 doesn't seem like a huge problem. After all, how much money can I spend from my bed in the nursing home?

One size fits all financial advice is always going to be problematical. I agree that Dave is promising too high a return and for most people suggesting drawing down too fast. Actually, I find his advice telling people to use actively managed funds to be a problem as well. However, I still feel he might be doing more good than harm.
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Re: Great is the enemy of good in this case.

Postby 1210sda » Thu Mar 14, 2013 2:53 pm

TN_INVEST wrote:
tadamsmar wrote:
FinancialDave wrote:Next for the actual DR 100% equity portfolio I decided to go with 2 of Dave's favorite funds AIVSX and AGTHX, which he has tweeted about in the past, to that I added an SP500 index VFINX, and an American small cap World Fund SMCWX - all four of these in a 25/25/25/25 Asset Allocation.
.
.
.
PS. no external fees or loads are assumed, as Bogleheads would not need to pay any nor would DR most likely.


I just Googled AIVSX, and the result says it has a 5.75% load.

So, why would you say we would not have to pay the load?


At some point, loads are waived. Usually it is for large account balances ($500,000 to $1,000,000 range). The fees can also be waived if the client is working with certain fee based advisors.


Do you happen to know if the "waived load " is offset by adding a 12b1 fee ?
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Re: Dave Ramsey Defends His Investment Advice

Postby reisner » Thu Mar 14, 2013 3:46 pm

Has anyone run the numbers on Dave's advice for the last eight or ten years, since a little before the downturn until today, and compared the results to a 60/40 AA of, say, V's total stock market index fund and total bond fund? That would be the acid test in my opinion. Thanks to winning the real estate jackpot by selling a long-held San Diego home in 2005, right near the peak for that city, I had money to invest. It took me a number of years to find the Boglehead highway, but I was probably around 60/40 for most of that period though too great a variety of funds. Nevertheless, I'm now about 11% up on my total net worth in 2005, despite the crash and despite having supplemented my pension with hefty withdrawals from investments until SS kicked in a about a year ago. I have no complaints, but would like to know if Dave's way would have beat mine over those years.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Thu Mar 14, 2013 4:13 pm

Before your Ramsey fans get too carried away with your back-tests, remember that back-testing should be done on risk-adjusted return. Like use the Sharpe Ratio, not just returns. Part of the reason that Ramsey's advice is bad is that he apparently does not understand the implications of risk. Or, he's counting on the fact his followers won't understand it.
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Re: Dave Ramsey Defends His Investment Advice

Postby awval999 » Thu Mar 14, 2013 6:07 pm

Rob5TCP wrote:
awval999 wrote:
happymob wrote:What part of 70-year track record don't you understand? I mean 70 years!

(For the record, even I might consider an actively managed fund with that track record)


Fidelity Magellan - FMAGX (05/02/1963) Since Inception 16.01

http://investing.schwab.com/public/schw ... =#DataView

Fidelity Contrafund- FCNTX (05/17/1967) Since Inception 12.24

http://markets.on.nytimes.com/research/ ... mbol=FCNTX



Magellan did great when Peter Lynch ran it 30-40 years ago.
The last 25-30 years not so great. Here is a comparison to the S&P
http://finance.yahoo.com/echarts?s=FMAG ... y;compare=^gspc;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

You had to buy in when Lynch began and dump before Stavisky took over.
Hard to know when to get in/out.


Oh I completely agree. Was just devils advocating :)
You just don't know who will be the next Peter Lynch. But if you know let me know please.
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Re: Dave Ramsey Defends His Investment Advice

Postby chasely » Thu Mar 14, 2013 6:54 pm

reisner wrote:Has anyone run the numbers on Dave's advice for the last eight or ten years, since a little before the downturn until today, and compared the results to a 60/40 AA of, say, V's total stock market index fund and total bond fund? That would be the acid test in my opinion. Thanks to winning the real estate jackpot by selling a long-held San Diego home in 2005, right near the peak for that city, I had money to invest. It took me a number of years to find the Boglehead highway, but I was probably around 60/40 for most of that period though too great a variety of funds. Nevertheless, I'm now about 11% up on my total net worth in 2005, despite the crash and despite having supplemented my pension with hefty withdrawals from investments until SS kicked in a about a year ago. I have no complaints, but would like to know if Dave's way would have beat mine over those years.


A quick and very not thorough analysis:

Dave suggest the equities portfolio to be equally split into "good growth stock mutual funds" of Growth, Growth & Income, Aggressive Growth, and International Growth. Using Vanguard funds, we get the portfolio with 10 year returns:

"Dave's" Portfolio

VIGRX - Growth Index Fund - 8.5%
VQNPX - Growth & Income - 8.02%
VSEQX - Strategic Equity (Agg. Growth) - 10.93%
VWIGX - International Growth - 11.2%

Return - (8.5+8.02+10.93+11.2)/4 = 9.66%

"Your" Portfolio

VTSMX - Totl Stock Market - 9.43%
VBMFX - Totl Bond Market - 4.88%

Return - (9.43*0.6 + 4.88*0.4) = 7.61%

These are from Morningstar. Don't think that includes reinvestment of dividends. This doesn't include rebalancing either. Just from looking at the graphs, one could have done quite well with the 60/40 portfolio by rebalancing during the stock market downtorn in 2008/09.

Someone else can do more looking into this if they want.

Additional note
One thing that people seem to forget about with DR is that he owns a lot of real estate. Don't know how much of his portfolio it is but it's probably not insignificant. That probably should go into his investment advice but it's hard to own real estate without taking on debt if you don't have a sizable portfolio.
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Re: Dave Ramsey Defends His Investment Advice

Postby FinancialDave » Thu Mar 14, 2013 7:45 pm

tadamsmar wrote:Before your Ramsey fans get too carried away with your back-tests, remember that back-testing should be done on risk-adjusted return. Like use the Sharpe Ratio, not just returns. Part of the reason that Ramsey's advice is bad is that he apparently does not understand the implications of risk. Or, he's counting on the fact his followers won't understand it.


I did not consider it back-testing -- more like the facts of how much each person has at the present ( DR vs Boglehead.)

There are many who don't understand risk and the most basic of those are the ones that don't understand once you have jumped off the diving board, it really doesn't matter whether the pool has any water in it, as it's too late to do anything about it. Much like the 30% earned on my 401k last year. Now that the money has been moved and reallocated, you can argue all you want about what the Sharpe Ratio on that risky move was last year, but unless I'm trying to analyze whether its a good move for the future, it plays no part in how much money I will be able to spend, or have already spent. My attempt at comparing two different types of portfolios, largely one without bonds and one with 100% equities over the last 15 years was to show that it is very possible that DR has more money in his type portfolio than one particular Boglehead allocation - namely the 3 Fund portfolio. It was not in any way to suggest they are of equal risk caliber because they are not.

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Re: Dave Ramsey Defends His Investment Advice

Postby 3CT_Paddler » Thu Mar 14, 2013 8:03 pm

tadamsmar wrote: Part of the reason that 95% of financial advisor's advice is bad is that he apparently does not understand the implications of risk. Or, he's counting on the fact his followers won't understand it.


Fixed it for you... :)
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Re: Dave Ramsey Defends His Investment Advice

Postby ivesjl » Thu Mar 14, 2013 8:13 pm

Here are some results from 1985 to present. I created a DR portfolio from my limited fund data as follows (shown in red):
  • 25% LCV - VIVAX (Growth)
  • 25% LCG - VIGRX (Growth & Income)
  • 25% SCB - NAESX (Aggresive Growth)
  • 25% INT - VGTSX (Internaal Growth)
To make a comparison to a more Boglehead friendly portfolio, I used the following (shown in blue):
  • 50% TSM - VTSMX
  • 25% ISM - VGTSX
  • 25% TBM - VMBFX
The Total Stock Market is shown in black as a reference.

Image

My thoughts:
1. I am not advocating either of these portfolios.
2. These results DO NOT account for any management fees or loads paid, but they do account for expense ratios.
3. The returns of both of these portfolios are dominated by equity exposure (beta). Correlations to US Stock Market:
  • DR Portfolio = .96
  • Boglehead Portfolio = .95
4. The inclusion of bonds reduces the volatility (std dev), which is why Bogleheads advocate holding bonds. Over time this has dramatic effects on a portfolio, and it reduces the roller coaster effect. By reducing the volatility, the risk adjusted returns are also increased.

Personally, I find Dave Ramsey to be extremely helpful. His advice represents an entire system to take charge of your finances, reduce debt, take care of your family, and give to others. My family has been forever changed because of his advice and guidance.

Back to the original point of the forum, I would like to hear Dave's response to studies comparing active to passive portfolio management. More than any other issue, I could see Dave Ramsey seeing the wisdom in passive portfolio management.
"Successful investing is all about common sense." | ~ John Bogle.
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Re: Dave Ramsey Defends His Investment Advice

Postby FinancialDave » Thu Mar 14, 2013 8:49 pm

tadamsmar wrote: Part of the reason that 95% of financial advisor's advice is bad is that he apparently does not understand the implications of risk. Or, he's counting on the fact his followers won't understand it.


I think it's more basic than that:

They don't understand the mathematics of trying to beat the market long term (something Bogleheads already know.)

They don't remember their own tag-line - "past performance is no guarantee."

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Re: Dave Ramsey Defends His Investment Advice

Postby KyleAAA » Thu Mar 14, 2013 9:50 pm

In the podcast, Ramsey mentions some studies show that investors who use some sort of investment advisor, on average, out-perform DIYers by 3% per year. Does anybody know what study he's talking about? Google isn't being all helpful.
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Re: Dave Ramsey Defends His Investment Advice

Postby Leesbro63 » Thu Mar 14, 2013 9:56 pm

I don't believe that anyone here mentioned that while some fund managers do have a streak that outperforms the market over long periods, these funds (their managers) can't be predicted ahead of time.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Fri Mar 15, 2013 8:10 am

FinancialDave wrote:
tadamsmar wrote:Before your Ramsey fans get too carried away with your back-tests, remember that back-testing should be done on risk-adjusted return. Like use the Sharpe Ratio, not just returns. Part of the reason that Ramsey's advice is bad is that he apparently does not understand the implications of risk. Or, he's counting on the fact his followers won't understand it.


I did not consider it back-testing -- more like the facts of how much each person has at the present ( DR vs Boglehead.)

There are many who don't understand risk and the most basic of those are the ones that don't understand once you have jumped off the diving board, it really doesn't matter whether the pool has any water in it, as it's too late to do anything about it. Much like the 30% earned on my 401k last year. Now that the money has been moved and reallocated, you can argue all you want about what the Sharpe Ratio on that risky move was last year, but unless I'm trying to analyze whether its a good move for the future, it plays no part in how much money I will be able to spend, or have already spent. My attempt at comparing two different types of portfolios, largely one without bonds and one with 100% equities over the last 15 years was to show that it is very possible that DR has more money in his type portfolio than one particular Boglehead allocation - namely the 3 Fund portfolio. It was not in any way to suggest they are of equal risk caliber because they are not.

fd


I am assuming everything is about future decisions.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Fri Mar 15, 2013 8:25 am

KyleAAA wrote:In the podcast, Ramsey mentions some studies show that investors who use some sort of investment advisor, on average, out-perform DIYers by 3% per year. Does anybody know what study he's talking about? Google isn't being all helpful.


Some of those studies are cited here:

http://www.voxeu.org/article/do-financi ... erformance

Don't know about the source of the 3% claim.
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Re: Dave Ramsey Defends His Investment Advice

Postby tadamsmar » Fri Mar 15, 2013 8:49 am

tadamsmar wrote:
KyleAAA wrote:In the podcast, Ramsey mentions some studies show that investors who use some sort of investment advisor, on average, out-perform DIYers by 3% per year. Does anybody know what study he's talking about? Google isn't being all helpful.


Some of those studies are cited here:

http://www.voxeu.org/article/do-financi ... erformance

Don't know about the source of the 3% claim.


The 3% might have come from some interpretation of Odean's work:

http://www.fool.com/investing/general/2 ... erran.aspx

Odean has shown that online traders underperform by 3% over the strategy of holding the stocks they traded. But that was not really an advisor/no-advisor study.
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Re: Dave Ramsey Defends His Investment Advice

Postby LRDave » Fri Mar 15, 2013 9:00 am

Count me in the 100% charlatan category.

Anyone citing ol' Dave's wonderful, sound advice that he his giving out of the kindness of his heart to help the unwashed masses needs to understand how marks are gathered for the con.
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Re: Dave Ramsey Defends His Investment Advice

Postby RadAudit » Fri Mar 15, 2013 9:21 am

SC Hoosier wrote:
burnout454 wrote:
SC Hoosier wrote: You all have to understand something. WE ARE NOT NORMAL PEOPLE! We are people that care about and can understand the concepts and math of investing. WE ARE THE MINORITY! Dave is trying to find a one size fits all system for the masses because on a radio show, you can't get into all the specifics to tailor advice to each situation. We don't need hand holding, but one could argue that most do. (See Jason Zweig, "Your money and your brain.")


Agreed. I've always had the impression that many on this board who have their act together forget that most of our friends, family, and neighbors are living beyond their means, not saving, out of control, etc. Many of them probably want or need an advisor, not a go-it-alone approach. Granted, it would be better a low/no-cost advisor and low-cost index funds.


Thank you Burnout. I know I can't get everyone to see my point of view, but it is satisfying that at least one person does. And it is the OP no less! Thank you.

I live in a town of 11,000 people and close to half of those are in poverty because of fatherlessness and poor work ethic. There are bigger fish to fry than Dave Ramsey's investment advice flaws.


Thanks for the reminder. Sometimes it's easy to forget how fortunate some of us are. That's when we need to remember how far some folks have left to go to get their houses in order. I would guess investing through mutual funds (either load or no load) is way down on the to do list of things that need to be addressed.
"Everything will be all right in the end. If everything is not all right, then it is not the end." - The Best Exotic Marigold Hotel
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