Dave Ramsey cannot abide criticism, which he almost always seems to take personally. Ramsey simply is not one to meaningfully consider different perspectives and to try to see how those opinions might influence the advice he gives. Instead, Ramsey doubles down on his opinions (e.g., the "Baby Steps"), which he presents as gospel and insists one should never deviate from. When sensing criticism, Ramsey circles the wagons, attacks his "critics" by calling them names (e.g., "financial idiots," "morons," folks who don't know what the "flip" they're talking about" -- see below), and dismisses all contrary views that do not support what has become his own dogma.
This may come across as odd for someone who, in his own book, The Total Money Makeover, criticizes Americans for following dogmatic views on credit. (When his listeners call in to scream that they are debt free, he revels in calling them "Weird" -- one of the highest Ramsey compliments -- because they have listened to him and chose not to heed traditional advice about the use of credit.) In the process of attacking what he characterizes as mainstream financial views, Ramsey ironically ends up developing his own dogmatic views that he literally preaches at churches and other worship gatherings across the country.
In fact, Ramsey often insists that his views on personal finance are ordained by God and the Bible, and that those who are financially successful (such as himself) have achieved this success because that is what God wanted. By the way, and as a bit of an aside, this is a common response to those who favor progressive economic or social policies that would address the growing economic disparity in this country (it's all "Socialism," according to Ramsey). By Ramsey's tautology, these policies must interfere with God's will because those who are "winning" have done so because of God's grace. As for those who are struggling economically--implicitly, "losing" using Ramsey's lingo--the audience is left to conclude that they simply need to get right with God before they'll be able to get on their feet.
During the 2nd hour of his show on Monday, February 16, Ramsey lashed out at his financial critics for daring to challenge the providence of his investment advice (see relevant portions of the transcript, excerpted below). In no particular order here follows some initial analysis, a few Ramsey gems, and some questions for further Boglehead analysis:
(1) Ramsey's major point here is that an individual's savings rate drives his investment success. He accuses his critics as suffering from "paralysis analysis" by overly focusing on rates of return and the corresponding importance of minimizing investment fees and costs. Ramsey takes credit for getting people to save and invest those savings. He summarily dismisses any criticism regarding his investment methodology by concluding that everyone who saves will "retire with dignity" as long as they invest in four types of mutual funds: growth, growth and income, aggressive growth, and international.
(2) Ramsey continues to stick to his assertion that investors who follow his advice will realize a 12% rate of return. To his challengers, including those on this board, who have criticized this 12%-figure as overly optimistic and perhaps even dangerous to those using it as an assumption for retirement planning purposes, Ramsey suggests that the number may range between 11% and 14%, but that these nominal differences don't matter in the long run.
By doing so, Ramsey suggests that these numbers represent the rates of return that his critics are quibbling over--a misleading approach given that many advise retirees to plan for 3-4% rates of return upon retirement. If a Ramsey listener finds himself earning 3% when he planned on a 14% rate of return, this could very well end up affecting that listener's ability to "retire with dignity." These differences would huge, particularly when compounded over time. And Ramsey's attempt to characterize them as insignificant is misleading.
(3) Once again, Ramsey tells us that he only buys "mutual funds that beat the S&P 500." And how does he do it? It's simple. Ramsey finds these outperforming mutual funds "in about 30 seconds with a basic Google search." In other words, Ramsey looks at a mutual fund's past performance to predict its future returns--obviously, despite all SEC-mandated warnings to the contrary. Because Ramsey only picks mutual funds that have done well in the past, he asserts this guarantees they will perform well in the future.
(4) Ramsey points out how much the DJIA and the S&P 500 have grown since June 25, 1992--i.e., the first day he went on the air. On that day, he says the DJIA was at 3,284 whereas today it is at 18,000. Ramsey calls this a 6-fold increase (it's actually 5.5). For comparison purposes, Ramsey says the S&P was at 403 whereas today it is at 2,096--a 5-fold increase. Based on these numbers, Ramsey asserts that if his listeners had simply followed his investment strategy (remember: 1/4 each in growth, growth and income, aggressive growth, and international), they would have realized these 5- and 6-fold market returns.
Question for Bogleheads capable of researching the question: now that we have the benefit of hindsight, how many mutual funds have survived since June 1992 that have realized these rates of returns after fees and expenses? Of the hundreds, if not thousands of mutual funds that existed in 1992, what is the likelihood that one would have selected any fund that kept up with the market, let alone beat it? I assume the odds are low but would love to see somebody come up with the answer.
If true, it seems that by following Ramsey's advice, his listeners would have realized significantly less than these returns, particularly after fees and costs have been accounted for. Perhaps the best--if not the only--way one could have kept up with the market during this time period would have been by investing in low-cost, no load index funds.
So on the one hand Ramsey attacks his critics--"morons in the financial world--who concern themselves with such trivial "crap" as no-load funds, conflicts of interest, fiduciary obligations. He does so even though it is very likely that his listeners could only have realized the 5-6-factor growth since 1992 had they been concerned with these issues. On the other hand, Ramsey takes credit for providing investment advice that he claims would have resulted in these market returns ("So had you followed my advice 25 years ago, you’d have six-fold return on your money."), even though it is highly unlikely that the funds whose past investment returns looked good in June 1992 have continued to do well to this day, equaling or exceeding the market (particularly after fees and costs).
(5) Even if Ramsey understood that his audience is better served by following a Boglehead approach to investing than paying high fees and costs and signing up with financial advisors to select individual investments, could he ever admit this in light of how such an approach would affect his bottom line??? Ramsey earns significant profits from his ELP network. How long would Ramsey continue to reap profits from his ELPs if he were to embrace a Boglehead investment approach?
(6) Ramsey suggests that his critics would urge his listeners not to invest. Any idea where he gets this from? It appears this is just another straw man that Ramsey sets up to mischaracterize the opinions of those that disagree with him so that he can respond to the ineffective arguments he wishes they made. No one is saying that Ramsey's listeners should not invest. In fact, many would urge his listeners to begin investing in their 401ks earlier than Ramsey does -- i.e., before they have reached Baby Step 4 (after paying off all of their debt (except their house) and funding a 3-6 month emergency fund). By waiting to begin investing for retirement until that point, many end up foregoing employer matches and the benefits of compounding interest over time.
Instead, Ramsey's critics would urge him to provide better investment advice to those who are in a position to invest. He would do many of them a favor, for example, by referring his audience to the resources available on this forum.
Dave Ramsey Show, February 16, 2015 -- Hour 2: 1:09 through 8:06
Now I have been teaching people how to save and invest money for longer than some of you have been alive. I’m getting old. 54 is officially old; especially if you are in your 20s or your 30s, right? Now, if you’re 60 then 54 is just a spring chicken, I get that.
But I’ve been teaching this stuff on the radio for 25 years. I’ve been teaching it in books and in seminars, and in classes – like Financial Peace University – for about the same period of time.
So we’ve inspired people, not only to get out of debt, but we’ve taught them how to invest in good growth stock mutual funds, spreading your investing across four types of growth stock mutual funds, one-fourth in each: growth, growth and income, aggressive growth, and international. That’s what my personal 401K is in. Unlike some people in the financial world, I actually do what I teach you to do. And I don’t do anything else, other than what I teach you to do. Period. My investments are the same as I talk to you about investing. I believe in good growth stock mutual funds, investing in America’s best and brightest companies. And I believe in their future. And I’ve been saying that since the first day I ever put on a microphone. . . .
But the information was exactly the same, which is kinda weird. “Well, you just don’t know enough to update your information.” No, it’s continued to work. And the research has continued to bear out that what we are teaching you is right.
I’ve often [sic] quoted that the stock market has averaged, since its inception, were you to study the S&P 500, right around 12%. And so I use a 12% factor when I’m often calculating what you’ll have at retirement if you call in and ask a question for that.
Some members of the financial community have been very vocal of late, saying “Oh, Dave Ramsey is good at getting people out of debt, but he doesn’t know anything about investing.” And yet I’ve got more people to invest than all of them put together. And I wonder how my investment advice has turned out. And I wonder if we’re right. Now you may not be able to get 12%. You may only get 13 or 14%. You may only get 11%. I don’t know.
But it turns out, that that is not the major factor in whether you retire with dignity – the 12% average rate of return and 11.2% is not the difference in whether you retire with dignity. As a matter of fact, some recent research that we just got our hands on was done by the Association of Administrators and Retirement Plan Professionals; the Association of Financial nerds, just to tell you. Financial Planning Nerds R Us, just finished a huge piece of research. And they asked the question in their research, “What are the factors that drive positive outcomes in your retirement success.”
Translation: as they studied 401ks – thousands and thousands of them. And 401k and 403b participants, they studied thousands and thousands and thousands of them. They asked, “What actually causes people to have money in the 401k. What causes you to retire with dignity; with wealth; with millions of dollars in your 401k—that’s a “positive outcome” in your 401k. Asset quality, which would be the rate of return on your investments was 2% of the reason of your future success. So whether you earned 10 or whether you earned 12 or whether you earned 14 is only 2% of the equation, as an indicator as to whether or not you retire with dignity.
And so, to all of my critics who gripe about the rate of return that I calculate things on. Once again, you don’t know what the flip you’re talking about. You’re an idiot. Financial idiot who gets all tied up in paralysis of the analysis.
You know what the number 1 factor that contributed, according to this detailed study? The number 1 factor that contributed to positive outcomes in your 401k—meaning you had the money? 74%--not even a close second—all of the others put together didn't even equal a quarter; just barely a quarter. But 74% of the outcome was simply this: savings rate.
Translation: you have money in your retirement account if you freaking put money in your retirement account. Duhhhhh!!! That was hard, wasn’t it?!
So your rate of return, the sophistication of your expense ratio, whether you’re load or no load, all this other crap that you financial people spend all of your lives with your heads stuck up, has nothing to do with whether or not people retire with dignity. People retire with dignity when they actually save money to retire with dignity. That’s from financial goobs in the profession.
And so, I went on the air, on June 25th, 1992—was the first day I strapped on this microphone. Do you know what the Dow & Jones Industrial’s Average was that day? It’s 18,000 today, by the way. Anybody got any ideas, what it was in June 1992? I looked it up because I didn’t know: 3,284. . . . The stock market has grown six-fold to 18,000 while I’ve been on the air telling people to save money in good growth stock mutual funds. Oh – if you want to measure it by the S&P, we can do that. The S&P that day was 403. Today it is 2,096. So it’s grown five-fold.
So had you put your money in a good growth stock mutual fund, your money would have grown six-fold or five-fold while I’ve been on the air giving all this bad advice, according to you morons in the financial world. While you’ve got paralysis of the analysis, and telling people not to invest, and that they’ve got to, they’ve got to worry about load and no-load and load. They’ve got to worry about conflict [indecipherable]. They’ve got to worry about fiduciary responsibility. They’ve got to worry about all of this crap that you people spend all your time analyzing instead of actually inspiring people to save money, which is all I’ve been doing for 25 years.
So had you followed my advice 25 years ago, you’d have six-fold return on your money. Your money would have grown six-times. And/or five times, the S&P, so right in there. And that’s if you invested it in a basic mutual fund that only kept up with the market. During that same period of time, my personal mutual funds have done better than the market has done. Because I don’t buy mutual funds that are S&P 500 only. I buy mutual funds that beat the S&P 500, which is possible to find in about 30 seconds with a basic Google search. Jeez. Amazing.
So you know why you succeed financially saving money? If you save money. Ta da!! You have money in your retirement account if you put money in your retirement account. So, you might make a mistake on your choice? But be putting some money in. Starting right now. Go!
LOL