Dave Ramsey Defends his Investing Advice - Again!

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schuyler74
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by schuyler74 » Thu Jun 06, 2013 1:07 pm

Wade Pfau, in [url=http://wpfau.blogspot.com/2013/06/dave-ramseys-8-withdrawal-rate.html]his blog[/url] wrote:I was recently talking to someone about getting started in investing, explaining the benefits of a low-cost index fund approach. The conversation was going fine, and then he asked me what return he should expect from such a portfolio. The question caught me off guard, because once you have a sound strategy you need to be ready to receive whatever the market provides, but then I started getting into some of the issues from the myth of 8% return column. If I had been a financial planner seeking clients, I can see that this is where I would've likely lost this lead. He could have then said, well thank you Mr. Pfau for your time, but I've been listening to Dave Ramsey and he knows how to pick mutual funds that offer a 12% return. I think I will take my business to one of his affiliated advisers so that I can get access to those high earning funds.

This is the fundamental trouble facing honest people trying to make a living in the financial services industry. There is always going to be someone willing to suggest that higher returns are possible. Consumers will naturally gravitate toward whoever is offering them the best story about how they can achieve riches. With his 12% returns, Dave Ramsey sits at the top of the financial services heap. And as his business model of using affiliated advisers who pay him a fee and sell you commissioned high-load mutual funds depends on maintaining the fiction of 12% returns, there is no way he can step down when challenged about this issue. So he sidesteps the issue and makes personal attacks instead.
Wow... exactly the "cynical" conclusion I reached, but now I don't consider it cynical at all. I think it's accurate. Of course it's why Dave perpetuates the 12% idea -- it's for the same reason that people will ALWAYS buy the "7-minute Abs!" over a "8-minute Abs!" workout routine. Uninformed people ask around, find out which guy is promising the best stuff (for who can beat 12%?!) and they'll go with that guy.

It's getting to the point now where I'm almost embarrassed I ever defended Dave Ramsey.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by HardKnocker » Thu Jun 06, 2013 2:58 pm

Dave Ramsey is like a TV preacher.

He says some good things and tells you to do some good things but his primary goal is to get into your wallet.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by carolinaman » Thu Jun 06, 2013 4:03 pm

I enjoy listening to Dave's radio show when I am traveling (it is not on local stations). Also, I find his advice very good regarding home finances, credit, budgets, etc. I am not his target audience because our finances have always been in good shape and we are disciplined about our spending. Not fanatical like he suggests, but disciplined.

My wife and I attended a video series of Dave's at our church a couple of years ago. She lasted one session. I attended 3 sessions and gave up because IMO it was more about him entertaining, cracking jokes and so forth. There was substance in his presentation but you had to endure all of his entertainment to get it. Also, at times he comes across as condescending and a little arrogant. Success can do that to a person.

I totally agree with the criticism regarding his investing statements. He is trying to defend the indefensible and doing a poor job of it. It is best to step up and admit he was wrong. I think he has lost a lot of credibility because of his stubborn refusal to admit a mistake.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Thu Jun 06, 2013 4:23 pm

Johm221122 wrote:
ObliviousInvestor wrote:Wade Pfau's article from today may be of interest to Bogleheads following this thread:

http://wpfau.blogspot.com/2013/06/dave- ... -rate.html
Great link, lets email it to Dave
John
Great - I'm sending it to Dave now!

I guess the old 12% is now the new 2% according to Wade!

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by polyharmonic » Thu Jun 06, 2013 8:18 pm

I think Brian's article was fine. Where I think he erred was in using his title:
Dangerous Retirement Planning Advice From Financial Guru Dave Ramsey

Its just overly broad and has no context. You'd have to read the article to see what Brian is talking about and while that's the whole point of that kind of provocative title I can see why Dave would be upset. Because going by the title ALONE, it sounds like Dave in "general" just gives out "dangerous retirement advice". I mean yes his constant use of 12% return "example" is VERY misleading but in fairness I don't think he has ever quite said anything like 12% return is a given, bank on it. Its something he mentions from time to time but its not like he talks about investing and expect 12% returns all day long. His core message is investing 15% of your income when you are debt free which really can't be said to be "dangerous".

If Brian had titled it:
Dave Ramsey's Misleading But Often Touted 12% Return

would have worked A LOT BETTER and been more fair.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by rec7 » Thu Jun 06, 2013 8:36 pm

He says that 12% is since 1929 I looked it up it was 11%. Ok close enough I have no beef there. The thing I have a beef with is he uses very little bonds maybe 12% that is not enough for most people.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by nedsaid » Thu Jun 06, 2013 9:14 pm

I will take everyone's word about the podcast about this not being Dave's finest moment.

It illustrates that I don't believe in guruism. You can't just blindly follow anyone without doing your own thinking and analysis.

I really like John Bogle. I have minor disagreements with him on a couple of issues. His advice is very sound and I have made adjustments in my investing due to what I have learned from him. But I don't blindly follow him.

If you were going to have a guru, Mr. Bogle would be as good as any. Even with Mr. Bogle, listen to him but don't make him a guru. A person to admire, yes. Guru no.

As far as Dave Ramsey, it sounds like he needs to admit he is wrong. And work on being polite. It sounds like he is losing people who are naturally sympathetic to him. Not good. Guru? Definitely not.
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Random Musings
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Random Musings » Thu Jun 06, 2013 9:20 pm

Dave's just got his panties in a bind because he is being called out for being disingenuous.

A lot of marketing in the financial world is like that. The fact that he won't man up and change his position says a lot about him.

And by the way, he has specifically brought up how much money you could have over long periods of time at 12% annualized. He has always been a closet small-value load guy.

I hope the media keeps the pressure on.

RM
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Hub » Fri Jun 07, 2013 12:57 am

Random Musings wrote: I hope the media keeps the pressure on.
I hope they do too. The fact that he has been willing to take these "attacks" head on in his show has surprised me. People have been critical of Dave Ramsey in one way or another for years and he's pretty much ignored it. There's just something about this 12% thing that he's willing to go to bat for, and I think his reputation is likely to suffer as a result.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by bayview » Fri Jun 07, 2013 1:27 am

There's an extra level of pressure in that he affiliates himself with religious groups, and at some point, there's likely to be criticism from some of them as well. It will be harder to ignore negative feedback from that quarter.

It's really kind of sad. How hard is it, really, to say, "You know, I didn't really have the whole picture on this, and I think I said some things that might have misled people, and I apologize"?

That "walk humbly" thing seems tough to do for a lot of people. :(
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by rustymutt » Fri Jun 07, 2013 5:33 am

bungalow10 wrote:Yesterday I did take the time to listen to the entire segment with Dave and Brian (it would have come up in my podcast queue eventually, but I'm months behind).... and WOW! Dave is a giant jerk.

I don't think he could have come across as more arrogant or defensive if he tried.
If you'd made the money he has off his business, you'd be arrogant also. It's easy to see who Dave's master is.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by IlliniDave » Fri Jun 07, 2013 5:44 am

D-Man wrote:I agree that Dave came across as being arrogant and defensive. The author wrote a specific article about the 12% rate of return Ramsey always references, and Dave was asking questions if the author attended any of his Financial Peace courses, seminars, read his books, listened to his Podcasts, etc. Basically Dave's argument was that he has an overall plan, and the article was attacking his entire empire, which it wasn't doing. I was very disappointed Dave didn't provide an equal opportunity platform.
I listened to a bit of it. Ramsey is Ramsey (personality-wise). He's always seemed a bit arrogant, so that's no surprise to me.

I think the original Motley Fool guy did misrepresent Ramsey's overall position. Ramsey's a "save 15 percent of gross income irrespective of returns" guy. In his book at least he does discuss the possibility of returns being lower than the 12% (only in very general terms, and concludes even if he's wrong [about 12%] the investor is still better off than if he didn't save and invest at all]). He never advocates picking a target number, assuming 12%, and saving the minimum amount to get there, which is the premise for the hypothetical "danger" of his advice per many.

His "8% withdrawal" is actually more worrisome. Ironically what he's trying to say is withdraw 4% less than the returns so your capital is preserved and roughly inflation adjusted. He's just stuck on his notional 12% and his way of expressing that is awful and arguably irresponsible (though people themselves are ultimately responsible for reading carefully and making their own decisions).

That said, he should either revise his numbers or stop giving numerical examples. He's not an investment guy and he freely admits that. I couldn't care less if he admits he's wrong or apologizes. Just refine (or remove) the numbers to reflect that it's no longer 1993 and move on. Keep telling people to save and invest, and when they've done that, to save and invest some more. That's the portion of his message the country needs to hear. Let the Bogleheads handle the numbers 8-)

The strategy is sound (in the large scale sense) even if the predicted results are unrealistic.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Nukeboilermaker » Fri Jun 07, 2013 6:10 am

ObliviousInvestor wrote:
meowcat wrote:Really, how many lives has he destroyed?
Hopefully none. Hopefully by the time his followers get to the point where his investment advice would be relevant, they've found other useful resources (such as this forum), so they know not to use actively managed funds with a 100%-stock allocation, assume a 12% annual return, and use an 8% inflation-adjusted withdrawal rate in retirement.
He does "preach" to understand what you are investing in, use mutual funds etc. So in doing my research to understand what I would be investing in and learn about mutual funds I did find this site and then replaced his investing advice with this forum and "bogleheads guide to investing" book. So without him I likely would not be quite as far along as I currently am (certainly not saving as much) and with out you guys I would likely not be properly investing (just look at returns opposed to costs) and I would not be taking advantage of nearly as much tax advantaged investing space. So I say thanks to Dave and to all of you!

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Fri Jun 07, 2013 10:53 am

Nukeboilermaker wrote:
ObliviousInvestor wrote:
meowcat wrote:Really, how many lives has he destroyed?
Hopefully none. Hopefully by the time his followers get to the point where his investment advice would be relevant, they've found other useful resources (such as this forum), so they know not to use actively managed funds with a 100%-stock allocation, assume a 12% annual return, and use an 8% inflation-adjusted withdrawal rate in retirement.
He does "preach" to understand what you are investing in, use mutual funds etc. So in doing my research to understand what I would be investing in and learn about mutual funds I did find this site and then replaced his investing advice with this forum and "bogleheads guide to investing" book. So without him I likely would not be quite as far along as I currently am (certainly not saving as much) and with out you guys I would likely not be properly investing (just look at returns opposed to costs) and I would not be taking advantage of nearly as much tax advantaged investing space. So I say thanks to Dave and to all of you!
The operative point here is a lot of people who started out being Dave followers are really quite smart and know what things don't make sense, so they seek other advice.

Remember Dave is not a licensed financial advisor of any kind, so he avoids the impression of making actual financial recommendations. He uses what he refers to as "teaching lessons" to get people engaged and create "buzz." I suspect the more buzz created the more he likes it, and the more people he can actually reach with his message.

In the end I think that is really a positive thing, as I think I have said on more than one occasion, it is not really how much return you make - the more important issue is you HAVE TO GET STARTED, because it won't matter if you make 100% on your investment if your investment is $10, unless of course it is compounded daily over 10 years.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by tadamsmar » Fri Jun 07, 2013 3:14 pm

chemeng wrote: 2. [~31:00], regarding whether or not his 12% is adjusted for inflation, Dave says, "I'm having trouble...I cannot find it on my website...it could be there, if it is, it shouldn't be there..but we've looked and we can't find where it says 12% adjusted for inflation...cause if that's on there, we need to correct it, because it is not adjusted for inflation..that's a mistake."

The current FAQ on Dave's website does not say that the 12% is adjusted for inflation. However, a Google cached version from May 29, 2013 does say that the 12% is adjusted for inflation. So the website was just updated very recently. So my question, has Dave always maintained that the 12% is adjusted for inflation?
The exact quote that Motley Fool used was quoted here back in 2008:
Q: My investments are losing money, yet I keep hearing Dave talk about 12 percent returns?
A: Great question and one we get often. The answer is that Dave is referring to the average annual return of the stock market since 1926, which is very near 12 percent annually when adjusted for inflation. Even the past few years of negative returns in your funds do very little to lower the average of the last 78 years.
Remember, Dave considers investing to be a minimum of 5 years. Less than that is simply saving and should not be done with mutual funds. This is a good place to disclaim that the past is not an indicator of the future; but we do highly suggest factoring in long track records of success into your plans for the future.
http://www.automags.org/forums/printthread.php?t=236573

The FAQ on Ramsey's site had this quote as of May 29, 2013 08:33:18 GMT according to the Google cache.

This is evidence that it's been there for over 4 years.

Other sources say that the "12% inflation adjusted" claim was removed from his web site recently in response to the Motley Fool article.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by entyrii » Fri Jun 07, 2013 4:59 pm

Of course Dave defends his (blatantly bad) investing advice. He is financially incentivized to do so.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by 1210sda » Fri Jun 07, 2013 5:01 pm

Seems that the folks who are intially attracted to DR are not very sophisticated in financial matters.

I just can't see that a 100% allocation to stocks is appropriate for them.

That being the case, the 12% return seems even more ridiculous.

1210

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by polyharmonic » Fri Jun 07, 2013 6:44 pm

Hmmm, did Ramsey and his staff make "corrections" based on all the "feedback" he is getting?

Here is cached version of his 12% FAQ:
http://webcache.googleusercontent.com/s ... clnk&gl=us
My investments are losing money, yet I keep hearing Dave talk about 12 percent returns?
Great question and one we get often. The answer is that Dave is referring to the average annual return of the stock market since 1926, which is very near 12 percent annually when adjusted for inflation. Even the past few years of negative returns in your funds do very little to lower the average of the last 78 years. Remember, Dave considers investing to be a minimum of 5 years. Less than that is simply saving and should not be done with mutual funds. This is a good place to disclaim that the past is not an indicator of the future; but we do highly suggest factoring in long track records of success into your plans for the future.
But if you go the site now, you'll see:
http://www.daveramsey.com/article/the-1 ... esting/#a8

I won't quote the whole answer but an excerpt:
The 12% Reality
Can you really get a 12% return on your mutual fund investments?
from daveramsey.com on 23 Apr 2012

Twelve percent—whether you first heard Dave mention it in the Financial Peace University lesson Of Mice And Mutual Funds or you read it on daveramsey.com, it was undoubtedly followed by questions.

But most of those questions boil down to two important ones: “Can I really get a 12% return on my mutual fund investments, even in today’s market?” and “If I can, what mutual funds should I choose?”
Where Does It Come From?

When Dave says you can expect to make 12% on your investments, he’s using a real number that’s based on the historical average annual return of the S&P 500. The S&P 500 gauges the performance of the stocks of the 500 largest, most stable companies in the Stock Exchange. It is often considered the most accurate measure of the stock market as a whole. The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%. That’s a long look back, and most people aren’t interested in what happened in the market 80 years ago.

So let’s look at some numbers that are closer to home. From 1992–2011, the S&P’s average is 9.07%. From 1987–2011, it’s 10.05%. In 2009, the market’s annual return was 26.46%. In 2010, it was 8%. In 2011, it was -1.12%.

So you can see, 12% is not a magic number. But based on the history of the market, it’s a reasonable expectation for your long-term investments. It’s simply a part of the conversation about investing.
But What About The ‘Lost Decade’?

Dave often points out that every 10-year period in the market’s history has made money, and that was true until the latest market drop in 2008. From 2000–2009, the market endured a major terrorist attack and a recession. S&P 500 reflected those tough times with an average annual return of 1% and a period of negative returns after that, leading the media to call it the “lost decade.”

But that is only part of the picture. In the 10-year period right before that, 1990–1999, the S&P averaged 19% annually. Put the two decades together, and you get a respectable 10% average annual return.

But that’s the past, right? You want to know what to expect in the future. In investing, we can only base our expectations on how the market has behaved in the past. And the past shows us that each 10-year period of low returns has been followed by a 10-year period of excellent returns, ranging from 13% to 18%!
If You’re Still Unsure…

Will your investments make that much? Maybe. Maybe more. But the idea here is that you invest and invest for the long haul. Don’t let your opinion over whether or not you think a 12% return is possible keep you from investing.

In fact, if you’d rather project your mutual funds to grow at 10% or 8%—that’s cool with us. Just set a goal and invest whatever you need to in order to meet that goal.
The thing I noticed is that this page is dated 23 Apr 2012. But is the quoted version actually from 23 Apr 2012 or is this a very recent version. Or perhaps this version has in fact existed since 23 Apr 2012 but he now just links to it and removed the FAQ short answer all together. Don't know either way but its interesting to note.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by polyharmonic » Fri Jun 07, 2013 7:05 pm

I would found out that on Dave Ramsey's page where he posts the postcast and has a comment section:
http://www.daveramsey.com/blog/dave-deb ... otley-fool

that he/his staff has closed comments. And I can also say FOR A FACT that he has deleted several comments (in fairness not ALL) critical of how he handled himself. I read all those comments and while critical, none of them were abusive or defamatory, just opinion on that his tone and manner turned them off. He didn't delete ALL OF THEM but enough so that it looked like most people were supportive and only a couple were critical.

Someone also mentioned on TMF's page that a lot of negative comments on Dave Ramsey's FB page about this was removed as well. (This is hearsay not something I can say I saw first hand).

While I think Dave was right to be upset about this very provocative and somewhat unfair article title, I do think he blew it in how he handled it. His fanboys are obviously happy that Dave "put Brian in his place". But they were going to be supportive regardless even if he handled it with class. OTOH, several others have lost some respect for him. IOW its a net loss for Ramsey.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Fri Jun 07, 2013 11:07 pm

tadamsmar wrote:
chemeng wrote: 2. [~31:00], regarding whether or not his 12% is adjusted for inflation, Dave says, "I'm having trouble...I cannot find it on my website...it could be there, if it is, it shouldn't be there..but we've looked and we can't find where it says 12% adjusted for inflation...cause if that's on there, we need to correct it, because it is not adjusted for inflation..that's a mistake."

The current FAQ on Dave's website does not say that the 12% is adjusted for inflation. However, a Google cached version from May 29, 2013 does say that the 12% is adjusted for inflation. So the website was just updated very recently. So my question, has Dave always maintained that the 12% is adjusted for inflation?
The exact quote that Motley Fool used was quoted here back in 2008:
Q: My investments are losing money, yet I keep hearing Dave talk about 12 percent returns?
A: Great question and one we get often. The answer is that Dave is referring to the average annual return of the stock market since 1926, which is very near 12 percent annually when adjusted for inflation. Even the past few years of negative returns in your funds do very little to lower the average of the last 78 years.
Remember, Dave considers investing to be a minimum of 5 years. Less than that is simply saving and should not be done with mutual funds. This is a good place to disclaim that the past is not an indicator of the future; but we do highly suggest factoring in long track records of success into your plans for the future.
http://www.automags.org/forums/printthread.php?t=236573

The FAQ on Ramsey's site had this quote as of May 29, 2013 08:33:18 GMT according to the Google cache.

This is evidence that it's been there for over 4 years.

Other sources say that the "12% inflation adjusted" claim was removed from his web site recently in response to the Motley Fool article.

To be clear on the 12% adjusted for inflation statement on his website - It was taken down (changed) right after the on air interview when Brian brought it up, as I saw it earlier in the day by following the link from Brian's article, which Dave clearly could have done, had he completely read Brian's article.

But to be fair to Dave, as soon as Brian brought it up, he admitted that it was wrong and was never meant to say adjusted for inflation, and he asked his team to correct it while they were one the air, which I believe is true as I have never heard him say it that way -- I just think one of the hired help got it wrong.

fd
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by JoeTaxpayer » Sat Jun 08, 2013 11:02 pm

For what it's worth, American Funds' "The Growth Fund of America" had a positive 2001-10.
But when I run a spreadsheet, starting with $100K and an $8000 initial withdrawal, ten years later the account value is just over $17K.
So anyone who was at Dave's recommended 8% withdrawal rate going into the last decade, came out a hurting puppy. If we started at $4000, the 4% many agree on, we end the decade with $74,576, a decline, but not a disaster. It would be about $80K as of this month. The $8000/yr rate and the account would have already gone negative.

On the 'deposit while paying debt' issue - If one is on a path to pay off their debt in 2 years, even 18% debt, doesn't it make sense to deposit to a matched 401(k) even if that delays final debt payoff by 6-9 months? A dollar for dollar match would take years (4?) for that interest rate to negate. Most plans only match the first 6% or so. That should leave 9% for debt repayment, and three years later, 15% plus the 6% match is a 21% deposit, which will fund the account nicely in the years to come.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by BigOil » Sun Jun 09, 2013 8:14 am

polyharmonic wrote:Hmmm, did Ramsey and his staff make "corrections" based on all the "feedback" he is getting?

Here is cached version of his 12% FAQ:
My investments are losing money, yet I keep hearing Dave talk about 12 percent returns?
...Dave is referring to the average annual return of the stock market since 1926, which is very near 12 percent annually when adjusted for inflation. ... .
But if you go the site now, you'll see:
I won't quote the whole answer but an excerpt:
The 12% Reality
Can you really get a 12% return on your mutual fund investments?
from daveramsey.com on 23 Apr 2012

Twelve percent—...most people aren’t interested in what happened in the market 80 years ago...

some numbers that are closer to home. From 1992–2011, the S&P’s average is 9.07%. From 1987–2011, it’s 10.05%. In 2009, the market’s annual return was 26.46%. In 2010, it was 8%. In 2011, it was -1.12%.

... we can only base our expectations on how the market has behaved in the past. And the past shows us that each 10-year period of low returns has been followed by a 10-year period of excellent returns, ranging from 13% to 18%!...
If... But the idea here is that you invest and invest for the long haul. Don’t let your opinion over whether or not you think a 12% return is possible keep you from investing.
...In fact, if you’d rather project your mutual funds to grow at 10% or 8%—that’s cool with us. Just set a goal and invest whatever you need to in order to meet that goal.
The thing I noticed is that this page is dated 23 Apr 2012. But is the quoted version actually from 23 Apr 2012 or is this a very recent version. Or perhaps this version has in fact existed since 23 Apr 2012 but he now just links to it and removed the FAQ short answer all together. Don't know either way but its interesting to note.
WOW. I perceive this as a fundamental clarification of his 12% number. Finally. Hopefully he or his (now pretty large) Staff gave him good advice here for wordsmithing. I think "12%" is in the category of marketing "puffery" (ask a Lawyer) and is OK --- as his real advice is the aforementioned saving 15%. And his initial audience is NOT typical Bogleheads. Some do get promoted eventually though... ;-)

I do not think most folks (not in Sales) reading this College+ comprehension-level Board can appreciate Dave's Customers of "lesser sophistication", many unmotivated, some lower-IQ, or a majority I suppose are unluckily "ignorant" (Note "ignorant" is NOT an insult at all in this context, it means one just does not know/understand); Suggest you ask a car Salesperson about his customer's common financial state and acumen...it will awaken you on this topic if you care.

He is a Sales Guy and a darn good one at that! I very much respect his Religious approach, but it has negatives for some audiences. He is what he is. Most motivational speakers have gaps... He helps a lot who need it.

(edit fix spelling)

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by IlliniDave » Sun Jun 09, 2013 5:12 pm

JoeTaxpayer wrote: On the 'deposit while paying debt' issue - If one is on a path to pay off their debt in 2 years, even 18% debt, doesn't it make sense to deposit to a matched 401(k) even if that delays final debt payoff by 6-9 months? A dollar for dollar match would take years (4?) for that interest rate to negate. Most plans only match the first 6% or so. That should leave 9% for debt repayment, and three years later, 15% plus the 6% match is a 21% deposit, which will fund the account nicely in the years to come.
Mathematically, yes, and he'll tell you that. Much of what he's trying to overcome with people are emotional and psychological issues. He's encouraging simplicity and clearly identifiable victories as fast/frequently as possible to keep momentum going. Many of these people don't have the inclination or experience to internalize the math. When the bills stop coming and the collectors quit calling--that they can see. His methods will work for about anyone, but they're not optimal for everyone. They're geared for those who initially had little in the way of common sense with money, or who for various reasons wound up deep in the hole. It's like risk for investors. Moderate risk is the optimum for some people, it generally won't "hurt" anyone, but some people deal with risk just fine and want to shoot for a little more.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by jimmo » Sun Jun 09, 2013 5:54 pm

Just listened to the linked radio show. Wow. Is Dave always this condescending? How can a guy with as big of a financial brand as Dave Ramsey have such thin skin, and spend so much time trying to bury some no-name blogger. How very immature and juvenile.

Brian, the author of the article, points out two fair criticisms of Ramsey's investing advice. The 12% returns he regularly quotes are misleading, and the FAQs of his website that had noted the 12% "adjusted for inflation" was flat wrong, honest mistake or not it was there. Those were fair criticisms to point out, and oh by the way, he even prefaced his article with some thoughtful words about Dave. Dave in response went school-yard bully on him.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by stemikger » Sun Jun 09, 2013 6:40 pm

jimmo wrote:Just listened to the linked radio show. Wow. Is Dave always this condescending? How can a guy with as big of a financial brand as Dave Ramsey have such thin skin, and spend so much time trying to bury some no-name blogger. How very immature and juvenile.

Brian, the author of the article, points out two fair criticisms of Ramsey's investing advice. The 12% returns he regularly quotes are misleading, and the FAQs of his website that had noted the 12% "adjusted for inflation" was flat wrong, honest mistake or not it was there. Those were fair criticisms to point out, and oh by the way, he even prefaced his article with some thoughtful words about Dave. Dave in response went school-yard bully on him.
+1

II used to love listening to Dave because it really motivated me. I started listening to him before he was this big and he didn't seem this bad. I don't know if I'm getting more sensitive as I get older or he has gotten worse. There are some times he jumps down people's throats before they even get a chance to finish their sentences. One of the breaking points for me when he went off bad mouthing how stupid one of my favorite televisions shows was which is "Modern Family". It told me (a) he either doesn't have a sense of humor or the gay couple affected him due to his evangelical faith. However, the way he bullied Brian was really the breaking point for me. He lost me as a fan and listener.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Petunia » Mon Jun 10, 2013 8:56 pm

polyharmonic wrote:I think Brian's article was fine. Where I think he erred was in using his title:
Dangerous Retirement Planning Advice From Financial Guru Dave Ramsey

Its just overly broad and has no context. You'd have to read the article to see what Brian is talking about and while that's the whole point of that kind of provocative title I can see why Dave would be upset. Because going by the title ALONE, it sounds like Dave in "general" just gives out "dangerous retirement advice". I mean yes his constant use of 12% return "example" is VERY misleading but in fairness I don't think he has ever quite said anything like 12% return is a given, bank on it. Its something he mentions from time to time but its not like he talks about investing and expect 12% returns all day long. His core message is investing 15% of your income when you are debt free which really can't be said to be "dangerous".

If Brian had titled it:
Dave Ramsey's Misleading But Often Touted 12% Return

would have worked A LOT BETTER and been more fair.
Well, I feel the title is just fine as DR does give very dangerous investing advice. He recommends withdrawing 8% annually from your 100% stock portfolio. According to the Trinity study, the majority of those following DR's recommended strategy will not have any money left 20 years later. Being 85 years old and flat broke sounds very dangerous to me.

If I were to follow DR's investing advice, I would stop saving for retirement now as what I have already accumulated will compound to TWICE my target. I just need to sell my Vanguard ETFs and mutual funds, contact the commissioned salesperson he recommends in my locale, and start paying outrageous fees (from which DR gets a cut). However, using realistic numbers, this decision would be a very bad one. The likely outcome would be falling far short of my retirement goal. It is only when I use DR's unrealistic expected returns, pretend that the high annual costs he recommends don't impact my portfolio at all, and withdraw at an unsustainable rate that my financial future looks rosy. In what way could this advice be considered not dangerous?

And he does say you can count on 12% returns. He has said it over and over. Remember, he calls it "the 12% reality", not "the 12% possibility".

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by zebrafish » Mon Jun 10, 2013 11:24 pm

jimmo wrote:Just listened to the linked radio show. Wow. Is Dave always this condescending? How can a guy with as big of a financial brand as Dave Ramsey have such thin skin, and spend so much time trying to bury some no-name blogger. How very immature and juvenile.

Brian, the author of the article, points out two fair criticisms of Ramsey's investing advice. The 12% returns he regularly quotes are misleading, and the FAQs of his website that had noted the 12% "adjusted for inflation" was flat wrong, honest mistake or not it was there. Those were fair criticisms to point out, and oh by the way, he even prefaced his article with some thoughtful words about Dave. Dave in response went school-yard bully on him.
I don't think it was Dave's finest moment. I don't think he should have addressed it on the air if he couldn't hold the anger in check. It made him look bad. It sounds like he was upset about the Fool taking a shot at him. Despite all the childish behavior, I think Dave's points were: 1) he is trying to encourage people to invest, 2) to call his overall "baby step" plan "dangerous" is hyperbole (especially when you consider 95%+ of his audience is probably completely hosed before starting his plan), 3) he tells people to save 15% of their income, and really doesn't get into using a 12% predicted return to make any decisions about their overall financial plan in his "baby step" program.

I think Dave (without the childish behavior) had reasonable points to bring up. So did the Brian person. I think Dave could have handled it much better and much more to his advantage.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Petunia » Mon Jun 10, 2013 11:43 pm

zebrafish wrote:
jimmo wrote:Just listened to the linked radio show. Wow. Is Dave always this condescending? How can a guy with as big of a financial brand as Dave Ramsey have such thin skin, and spend so much time trying to bury some no-name blogger. How very immature and juvenile.

Brian, the author of the article, points out two fair criticisms of Ramsey's investing advice. The 12% returns he regularly quotes are misleading, and the FAQs of his website that had noted the 12% "adjusted for inflation" was flat wrong, honest mistake or not it was there. Those were fair criticisms to point out, and oh by the way, he even prefaced his article with some thoughtful words about Dave. Dave in response went school-yard bully on him.
I don't think it was Dave's finest moment. I don't think he should have addressed it on the air if he couldn't hold the anger in check. It made him look bad. It sounds like he was upset about the Fool taking a shot at him. Despite all the childish behavior, I think Dave's points were: 1) he is trying to encourage people to invest, 2) to call his overall "baby step" plan "dangerous" is hyperbole (especially when you consider 95%+ of his audience is probably completely hosed before starting his plan), 3) he tells people to save 15% of their income, and really doesn't get into using a 12% predicted return to make any decisions about their overall financial plan in his "baby step" program.

I think Dave (without the childish behavior) had reasonable points to bring up. So did the Brian person. I think Dave could have handled it much better and much more to his advantage.
Please re-read the title of the Motley Fool article. It is "Dangerous Retirement Planning Advice...", not "Dangerous Baby Step Advice...", is it not?

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Tue Jun 11, 2013 12:46 pm

Here is a link to Dave's explanation of the 12% and where does it come from:

http://www.daveramsey.com/article/the-1 ... investing/

It is mostly filled with a balance of different facts, but it's still his conclusion that I think is giving people the most trouble:
So you can see, 12% is not a magic number. But based on the history of the market, it’s a reasonable expectation for your long-term investments. It’s simply a part of the conversation about investing.
:?:

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by nisiprius » Tue Jun 11, 2013 12:55 pm

rec7 wrote:He says that 12% is since 1929 I looked it up it was 11%. Ok close enough I have no beef there. The thing I have a beef with is he uses very little bonds maybe 12% that is not enough for most people.
No, it's not. Where did you get your numbers? I used SBBI data for 1926 through 2009 and extended it by looking up the S&P for 2010, -11, and 12. If anyone has the current volume, it's possible to look up the average return for any pair of years and I'd appreciate it if someone would do that. I might be off by a bit, but I'm not off by 2%!

From 1929 through 2012, inclusive, i.e. including both the full year 1929 and 2012, it is 9.18%.
From 1930 through 2012 inclusive, if that's what "since 1929" means, it is 9.41%.

I don't know where Ramsey get his numbers either, when he says "The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%." This is just plain wrong, as in factually incorrect, as in bogus, as in wrong. The correct number for 1926 through 2011 is 9.96%, not 11.69%, and I just don't even know what to say. Words fail me. He can't have gotten that number from any reliable source. It's inaccurate. Contrary to fact. It's just plain not so.

But then, he is also wrong about 1926 being the year of the S&P's inception; it was 1923. At least, S&P says so and you'd think they would know:
Image

That's a nitpick. But the difference between 9.41% and 12% is no nitpick.

He says "based on the history of the market, it’s a reasonable expectation for your long-term investments." The (all-stocks) Massachusetts Investors' Trust mutual fund seems like a reasonable proxy for what an investor might earn. According to Ramsey, then, a "reasonable expectation" for $10,000 invested in the fund on 12/31/1929 would be have grown to $10,000 * 1.12^83 = $121 million by the end of 2012. In reality, it would only have grown to $9 million. His "reasonable expectation" was thirteen times as high as reality.

Image

I have of course put several kinds of "spin" on that, but still. If you plan on the basis of a 12% "reasonable expectation" and only get 9.41%, that is a shortfall of 2.36% per year (you divide 1.12 by 1.0941, you don't subtract). As the Rule of 72 suggests, 72/2.4 = 30, meaning that over the course of 30 years, planning for 12% and getting 9.41% means you only get half of what Ramsey said was a "reasonable expectation."
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by JoeTaxpayer » Tue Jun 11, 2013 2:09 pm

Image

This image is from an article I wrote http://www.joetaxpayer.com/average-retu ... al-growth/ in which I explained the difference between average anual return and CAGR. Yes, there's a big difference between just under 12% and just under 10%.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by 1210sda » Tue Jun 11, 2013 3:38 pm

JoeTaxpayer wrote:Image

This image is from an article I wrote http://www.joetaxpayer.com/average-retu ... al-growth/ in which I explained the difference between average anual return and CAGR. Yes, there's a big difference between just under 12% and just under 10%.

Hey Joe,
Thanks. This is good stuff. Money Chimp is really cool. This shows how standard deviation reduces the arithmetic average from 11.84% to a geometric average of 9.80%.

If you happen to be in the withdrawal stage, Wade Pfau estimates that "sequence of returns" will further reduce by 2.0% which I guess brings it to 7.8%.

Is there any way to send this to DR ?? (I guess if standard deviation was zero, DR is closer to being right) :wink:

1210
P.S.: If the short to medium term expectations for the market are correct (Berstein and others), the market will not meet the historical averages for some time to come making DR's numbers even more questionable.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Tue Jun 11, 2013 4:05 pm

1210sda wrote:
JoeTaxpayer wrote:Image

This image is from an article I wrote http://www.joetaxpayer.com/average-retu ... al-growth/ in which I explained the difference between average anual return and CAGR. Yes, there's a big difference between just under 12% and just under 10%.

Hey Joe,
Thanks. This is good stuff. Money Chimp is really cool. This shows how standard deviation reduces the arithmetic average from 11.84% to a geometric average of 9.80%.

If you happen to be in the withdrawal stage, Wade Pfau estimates that "sequence of returns" will further reduce by 2.0% which I guess brings it to 7.8%.

Is there any way to send this to DR ??

I sort of think with as much flack as he has gotten in the last week, that if he didn't know the difference before, he does now.

I don't think he cares too much about changing his rhetoric -- his motto is "even if I'm half right, people that follow my plan will be ok."

Feel free to tweet him.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by schuyler74 » Tue Jun 11, 2013 4:18 pm

FinancialDave wrote:I don't think he cares too much about changing his rhetoric -- his motto is "even if I'm half right, people that follow my plan will be ok."
I still think it's primarily due to his "D" personality type; he just doesn't care about details. He's a "big picture" guy. He literally might not get what the big fuss is over these details about 12% vs. 9.80% and CAGR vs. annual returns because he just goes right back to pointing out that his REAL plan is that you invest 15% of your income and stick with it. All that 12% stuff is just details and examples meant to inspire people to start (and then stick with) the grand plan -- the specifics don't mean anything because you can't predict the future anyway, so don't try. Bogleheads and many financial nerds are "C" personality types and enjoy getting into the muck of the %s and the $s, and get frustrated when someone blows them off as being unimportant. Hence, the clash.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Trev H » Tue Jun 11, 2013 4:25 pm

I enjoy listening to his show more than the average talk show anyway.

Its amazing how BAD of financial shape some folks are in ... to the point of being somewhat entertaining :-)

Always laugh at his 12% statement... yeah about right for SV or ISV but not the Market in general.

Trev H

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Petunia » Tue Jun 11, 2013 4:29 pm

schuyler74 wrote:
FinancialDave wrote:I don't think he cares too much about changing his rhetoric -- his motto is "even if I'm half right, people that follow my plan will be ok."
I still think it's primarily due to his "D" personality type; he just doesn't care about details. He's a "big picture" guy. He literally might not get what the big fuss is over these details about 12% vs. 9.80% and CAGR vs. annual returns because he just goes right back to pointing out that his REAL plan is that you invest 15% of your income and stick with it. All that 12% stuff is just details and examples meant to inspire people to start (and then stick with) the grand plan -- the specifics don't mean anything because you can't predict the future anyway, so don't try. Bogleheads and many financial nerds are "C" personality types and enjoy getting into the muck of the %s and the $s, and get frustrated when someone blows them off as being unimportant. Hence, the clash.
If the 12% is just an example, why is it that neither his recommended safe withdrawal rate nor his inflation allowance never change? 8 + 4 = 12, every time.

Am I mistaken in this? Does he ever state a withdrawal rate other than 8% should be used? Does he ever suggest an inflation allowance other than 4% should be used? I have read his Total Money Makeover, and I have read the free parts of his website; I have never seen any other figures used.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Random Musings » Tue Jun 11, 2013 10:02 pm

Since it doesn't matter, I'm going to tout the long term average returns of small-value stocks at 16% a year.

Good thing, since I want to ramp up the withdrawal rate to 10% since it sounds, shall I say, freakin' awesome?

That's the flaw in his story that is repeated over and over and over - you can't eat average returns.

Better hope Saint Peter isn't a Boglehead, bud. I don't think they allow listening to radio hosts who are mixing the truth with lies. Conflict of interest up there.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by zebrafish » Tue Jun 11, 2013 11:21 pm

Petunia wrote:Please re-read the title of the Motley Fool article. It is "Dangerous Retirement Planning Advice...", not "Dangerous Baby Step Advice...", is it not?
Yes, it is. And this doesn't change my points a bit.
Petunia wrote:If I were to follow DR's investing advice, I would stop saving for retirement now as what I have already accumulated will compound to TWICE my target. I just need to sell my Vanguard ETFs and mutual funds, contact the commissioned salesperson he recommends in my locale, and start paying outrageous fees (from which DR gets a cut). However, using realistic numbers, this decision would be a very bad one. The likely outcome would be falling far short of my retirement goal. It is only when I use DR's unrealistic expected returns, pretend that the high annual costs he recommends don't impact my portfolio at all, and withdraw at an unsustainable rate that my financial future looks rosy. In what way could this advice be considered not dangerous?
I don't disagree with you, but most of the people "consuming" Dave Ramsay are not in a position to find this subtlety relevant. For most of the people around here, this type of calculation could be a problem. I'm not some Ramsay apologist, but he had some valid points buried in his ranting. I do think the "blogger" was taking a bit of a cheap shot and using Dave's name to draw hits.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Wed Jun 12, 2013 12:21 am

Petunia wrote:
schuyler74 wrote:
FinancialDave wrote:I don't think he cares too much about changing his rhetoric -- his motto is "even if I'm half right, people that follow my plan will be ok."
I still think it's primarily due to his "D" personality type; he just doesn't care about details. He's a "big picture" guy. He literally might not get what the big fuss is over these details about 12% vs. 9.80% and CAGR vs. annual returns because he just goes right back to pointing out that his REAL plan is that you invest 15% of your income and stick with it. All that 12% stuff is just details and examples meant to inspire people to start (and then stick with) the grand plan -- the specifics don't mean anything because you can't predict the future anyway, so don't try. Bogleheads and many financial nerds are "C" personality types and enjoy getting into the muck of the %s and the $s, and get frustrated when someone blows them off as being unimportant. Hence, the clash.
If the 12% is just an example, why is it that neither his recommended safe withdrawal rate nor his inflation allowance never change? 8 + 4 = 12, every time.

Am I mistaken in this? Does he ever state a withdrawal rate other than 8% should be used? Does he ever suggest an inflation allowance other than 4% should be used? I have read his Total Money Makeover, and I have read the free parts of his website; I have never seen any other figures used.
I have never seen or heard anything other than 12-4=8% withdraw rate, but this is not what I would call the core part of his plan which is save 15% until you retire -- nowhere have I heard him say to ever stop saving just because you hit some magic target.

There have been a number of articles on his own investing forum pointing out that 4% is a much better number to use for retirement estimates. I also always qualify the 15% number with "before age 30" -- if you start later you need to save more, and don't count the company match.

In all fairness to the DR retirement calculator Form that uses the 12-4=8% withdraw rate, it does not factor in SS. In effect this really means if you work to full retirement age and your expenses were as you estimated, SS is going to make up some percentage of them, and if you have a pension it is much better. In my opinion it is nothing more than a SWAG at a point in time that is hard to predict to begin with. I usually suggest that people multiply his result by 1.5 to 2, but that it is appropriate to factor in other income sources.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by 1210sda » Wed Jun 12, 2013 7:07 am

FinancialDave wrote:
In all fairness to the DR retirement calculator Form that uses the 12-4=8% withdraw rate, it does not factor in SS. In effect this really means if you work to full retirement age and your expenses were as you estimated, SS is going to make up some percentage of them, and if you have a pension it is much better. In my opinion it is nothing more than a SWAG at a point in time that is hard to predict to begin with. I usually suggest that people multiply his result by 1.5 to 2, but that it is appropriate to factor in other income sources.
fd
The SWR and the Trinity study are all about how much you can withdraw from your portfolio. SS, pensions, work in retirement, etc. are added to your portfolio withdrawals. They do not serve to reduce the "4%" (or whatever percent you choose).

1210

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by nisiprius » Wed Jun 12, 2013 7:48 am

Oh, you are bothered by Bernard Madoff? Hey, it's just a little personality thing, you need to understand that Madoff is a type S personality (sociopath). Then it all becomes clear. You shouldn't understand expect Madoff to fuss about little details like "truth." That 12% number Madoff was always touting, it was really OK, you shouldn't hold him to it in any petty literal-minded way as if it were, you know, a number. He didn't meant for anyone to believe, it he just wanted to inspire people into giving him their money.
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by JoeTaxpayer » Wed Jun 12, 2013 8:38 am

1210sda wrote: Hey Joe,
Thanks. This is good stuff. Money Chimp is really cool. This shows how standard deviation reduces the arithmetic average from 11.84% to a geometric average of 9.80%.
I'm sure the David has had this (the average vs CAGR) put in front of him.

The "save 15%" is great advice, and would serve most people very well over their lifetime. But it's a separate message. I'm called to task, as we all are, on everything we write. We don't get a pass on one major mistake for the fact that other writing has been excellent.

If one saves 15%, and at 45, sees that 12%/yr will put their retirement savings far above what they really need, that would be bad, they'd save less, and be in some trouble as retirement approaches.
  • 15% saved to retirement? Perfect
  • 12% return? Wrong
  • 8% withdrawal rate? Wrong
When it comes to retirement planning, the David is 1 for 3. Good for baseball, not financial planning.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by rec7 » Wed Jun 12, 2013 9:06 am

nisiprius wrote:
rec7 wrote:He says that 12% is since 1929 I looked it up it was 11%. Ok close enough I have no beef there. The thing I have a beef with is he uses very little bonds maybe 12% that is not enough for most people.
No, it's not. Where did you get your numbers? I used SBBI data for 1926 through 2009 and extended it by looking up the S&P for 2010, -11, and 12. If anyone has the current volume, it's possible to look up the average return for any pair of years and I'd appreciate it if someone would do that. I might be off by a bit, but I'm not off by 2%!

From 1929 through 2012, inclusive, i.e. including both the full year 1929 and 2012, it is 9.18%.
From 1930 through 2012 inclusive, if that's what "since 1929" means, it is 9.41%.

I don't know where Ramsey get his numbers either, when he says "The current average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%." This is just plain wrong, as in factually incorrect, as in bogus, as in wrong. The correct number for 1926 through 2011 is 9.96%, not 11.69%, and I just don't even know what to say. Words fail me. He can't have gotten that number from any reliable source. It's inaccurate. Contrary to fact. It's just plain not so.

But then, he is also wrong about 1926 being the year of the S&P's inception; it was 1923. At least, S&P says so and you'd think they would know:
Image

That's a nitpick. But the difference between 9.41% and 12% is no nitpick.

He says "based on the history of the market, it’s a reasonable expectation for your long-term investments." The (all-stocks) Massachusetts Investors' Trust mutual fund seems like a reasonable proxy for what an investor might earn. According to Ramsey, then, a "reasonable expectation" for $10,000 invested in the fund on 12/31/1929 would be have grown to $10,000 * 1.12^83 = $121 million by the end of 2012. In reality, it would only have grown to $9 million. His "reasonable expectation" was thirteen times as high as reality.

Image

I have of course put several kinds of "spin" on that, but still. If you plan on the basis of a 12% "reasonable expectation" and only get 9.41%, that is a shortfall of 2.36% per year (you divide 1.12 by 1.0941, you don't subtract). As the Rule of 72 suggests, 72/2.4 = 30, meaning that over the course of 30 years, planning for 12% and getting 9.41% means you only get half of what Ramsey said was a "reasonable expectation."
I got the numbers from http://www.moneychimp.com/features/market_cagr.htm
His numbers are close to 11.1 which it show but I don't believe in his 8% withdraw rate.
Dave also holds almost no bonds which I don't like.
PS money chimp is so cool.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by 1210sda » Wed Jun 12, 2013 9:25 am

rec7 wrote: I got the numbers from http://www.moneychimp.com/features/market_cagr.htm
His numbers are close to 11.1 which it show but I don't believe in his 8% withdraw rate.
Dave also holds almost no bonds which I don't like.
PS money chimp is so cool.
rec7, what is "11.1" ?

Again, the average return for the SP 500 is 11.88% (1926-2012). This means very little. The std dev of 20.4 reduces the 11.88% to a CAGR of 9.87%. This is what counts during the accumulation stage. During the distribution stage, there is a possible further reduction to approx 7.8% (due to sequence of returns). However, you would have to stay 100% in equities for this. Not a reasonable expectation for most retirees.

Just guessing, but maybe 5% to 6% is closer to what a retiree could generate. Dave Ramsey's numbers are twice as big.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by schuyler74 » Wed Jun 12, 2013 9:46 am

nisiprius wrote:Oh, you are bothered by Bernard Madoff? Hey, it's just a little personality thing, you need to understand that Madoff is a type S personality (sociopath). Then it all becomes clear. You shouldn't understand expect Madoff to fuss about little details like "truth." That 12% number Madoff was always touting, it was really OK, you shouldn't hold him to it in any petty literal-minded way as if it were, you know, a number. He didn't meant for anyone to believe, it he just wanted to inspire people into giving him their money.
Just to be clear, I don't think the personality thing justifies using wrong numbers. In a previous post in this thread, I explained how Dave Ramsey uses the "DiSC" personality profile in FPU Lesson 12 of 13 (in his older-style Financial Peace University class) to illustrate how different personalities look at money and behavior and so on. Combine this quote
Dave Ramsey, in [i]The Total Money Makeover[/i] wrote:"Winning at money is 80 percent behavior and 20 percent head knowledge."
with the fact that he is clearly a "D" personality type, and it explains why he has trouble changing his tune even when confronted with facts -- because he belittles knowledge of math and real numbers and emphasizes personality and behavior. Of course that doesn't make it right. I'm saying that nobody should expect him to change because I'm sure he's heard the numbers many times before -- he just doesn't care because...

Psychology is 4x as important as actual Math!

Petunia
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Petunia » Wed Jun 12, 2013 10:32 am

zebrafish wrote:
I don't disagree with you, but most of the people "consuming" Dave Ramsay are not in a position to find this subtlety relevant. For most of the people around here, this type of calculation could be a problem. I'm not some Ramsay apologist, but he had some valid points buried in his ranting. I do think the "blogger" was taking a bit of a cheap shot and using Dave's name to draw hits.
You're saying that because DR's target audience is financially illiterate, it is OK that his investing advice is not based on real math? I disagree. Here is a man with the ear of millions; he is in a position to help a lot of people, but instead he takes the opportunity to fleece them.

I also disagree that the blogger took a cheap shot. Rather, the blogger is pointing out the huge flaws in the advice that millions take as gospel. He is hardly the first to have done so. Wade Pfau has written a similar piece, but as DR cannot belittle Pfau's credentials, Pfau will not be asked as a guest on the Dave Ramsey show.

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Hub
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by Hub » Wed Jun 12, 2013 11:08 am

Petunia wrote:
zebrafish wrote: Wade Pfau has written a similar piece, but as DR cannot belittle Pfau's credentials, Pfau will not be asked as a guest on the Dave Ramsey show.
True that.

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by FinancialDave » Wed Jun 12, 2013 12:18 pm

1210sda wrote:
FinancialDave wrote:
In all fairness to the DR retirement calculator Form that uses the 12-4=8% withdraw rate, it does not factor in SS. In effect this really means if you work to full retirement age and your expenses were as you estimated, SS is going to make up some percentage of them, and if you have a pension it is much better. In my opinion it is nothing more than a SWAG at a point in time that is hard to predict to begin with. I usually suggest that people multiply his result by 1.5 to 2, but that it is appropriate to factor in other income sources.
fd
The SWR and the Trinity study are all about how much you can withdraw from your portfolio. SS, pensions, work in retirement, etc. are added to your portfolio withdrawals. They do not serve to reduce the "4%" (or whatever percent you choose).

1210
My statement was that the calculator really uses expenses (the actual wording in "annual income today you wish to retire on") and calculates the size of the nest egg you need based on that, and does not consider that you will have other sources of income in retirement other than this one nest egg (in most cases.) It therefore oversized the nest egg by whatever these other sources are.

The end result of the calculator is how much you need to save per month - not anything to do with how much you can withdraw.

I'm not saying this is any way to calculate your retirement requirements, just that it is probably not a 2:1 error as might be implied.

fd
I love simulated data. It turns the impossible into the possible!

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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by IlliniDave » Wed Jun 12, 2013 12:29 pm

1210sda wrote:
rec7 wrote: I got the numbers from http://www.moneychimp.com/features/market_cagr.htm
His numbers are close to 11.1 which it show but I don't believe in his 8% withdraw rate.
Dave also holds almost no bonds which I don't like.
PS money chimp is so cool.
rec7, what is "11.1" ?

Again, the average return for the SP 500 is 11.88% (1926-2012). This means very little. The std dev of 20.4 reduces the 11.88% to a CAGR of 9.87%. This is what counts during the accumulation stage. During the distribution stage, there is a possible further reduction to approx 7.8% (due to sequence of returns). However, you would have to stay 100% in equities for this. Not a reasonable expectation for most retirees.

Just guessing, but maybe 5% to 6% is closer to what a retiree could generate. Dave Ramsey's numbers are twice as big.
The average returns are what you would feed into a Monte Carlo situation, matched with the standard deviation, so they have value in their own right for those of us that do that sort of thing. But you can't simply compound them using the (1+r)^n calculation.

His 8% "rule-of-thumb" is bad. No question. That's a withdrawal strategy more so than investment advice per se. That he uses 12% as a notional investment return (implicitly he's using 12% annualized in his computations) is less egregious (though inaccurate is inaccurate, no matter how you slice it). It's not like people who look at fund company ads that show lofty past performance (with a somewhat hidden past performance disclaimer buried somewhere) haven't made less on investments than they thought they might in the past. And he's not trying to sell you his investment "products" to get that return (a side note: I think he gets far less revenue than some people imagine from his ELPs, who I believe are just paid advertisers who certify they operate their businesses on a fee-only basis).
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Re: Dave Ramsey Defends his Investing Advice - Again!

Post by nisiprius » Wed Jun 12, 2013 12:42 pm

schuyler74 wrote:
nisiprius wrote:Oh, you are bothered by Bernard Madoff? Hey, it's just a little personality thing, you need to understand that Madoff is a type S personality (sociopath)....
Just to be clear, I don't think the personality thing justifies using wrong numbers....
Yes, I was being snarky... I apologize to you. I've never actually listened to Ramsey or read his stuff so I don't know what the overall gestalt is. I'm more loosey-goosey about numbers than a lot of forum members so, pot, kettle...
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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