Dave Ramsey's advice on investing?

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neveragain
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Dave Ramsey's advice on investing?

Post by neveragain »

I know not everyone follows Dave Ramsey, but I took a Dave Ramsey course a couple of years ago and applied some of his principles. As for his other advice, some I took with a grain of salt. I read online that Dave Ramsey(on the Dave Ramsey blog) advises it's better to use investment professionals to invest, rather than "online brokerage services". And then says "Cheap isn't always better" and then this: "Most online brokers lure you in with 100 free trades and fees that are less than $10. It’s easy to think you’ll save on commissions or other fees you’d pay a pro to do the same job."

So this seems to conflict with what I read in the Boglehead book which seems to support self-investing more so, and using an adviser only if you can find one with no possible conflicts of interest.

Ramsey also consistently seem to talk about investing being "complicated". Bogleheads says investing can be simple with index funds and such. Does anyone here agree with Dave Ramsey's investing advice.
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Devil's Advocate
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Re: Dave Ramsey's advice on investing?

Post by Devil's Advocate »

Not many. His investing advice really sucks...bad.

DA
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oldzey
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Re: Dave Ramsey's advice on investing?

Post by oldzey »

There are many posts about Dave Ramsey on this forum:

https://www.google.com/search?sitesearc ... eheads.org
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badbreath
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Re: Dave Ramsey's advice on investing?

Post by badbreath »

When Dave does talk about how he invest a lot of his money (which is not very often) he uses the S&P 500 index fund, surprise!!!
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whodidntante
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Re: Dave Ramsey's advice on investing?

Post by whodidntante »

Dave Ramsey's investing advice puts you into high fee investments. He also recommends that you trust someone who paid him for a recommendation/referral. It's the opposite of the approach that many here follow.
MindTheGAAP
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Re: Dave Ramsey's advice on investing?

Post by MindTheGAAP »

neveragain wrote:I know not everyone follows Dave Ramsey, but I took a Dave Ramsey course a couple of years ago and applied some of his principles. As for his other advice, some I took with a grain of salt. I read online that Dave Ramsey(on the Dave Ramsey blog) advises it's better to use investment professionals to invest, rather than "online brokerage services". And then says "Cheap isn't always better" and then this: "Most online brokers lure you in with 100 free trades and fees that are less than $10. It’s easy to think you’ll save on commissions or other fees you’d pay a pro to do the same job."

So this seems to conflict with what I read in the Boglehead book which seems to support self-investing more so, and using an adviser only if you can find one with no possible conflicts of interest.

Ramsey also consistently seem to talk about investing being "complicated". Bogleheads says investing can be simple with index funds and such. Does anyone here agree with Dave Ramsey's investing advice.
Let's examine why Dave Ramsey might want you to use an investment professional instead of managing it yourself. It isn't clear from the site/show, but the people on his certified lists are those people who are willing to pay an annual fee to be a 'Dave Ramsey Approved' resource. So, if you stump up the money, you gain access to a marketing list and will get referrals. He's also a big proponent of Active Investing and frequently states that it is reasonable to get 11-12% annual return (year-over-year for an extended period of time). He stands to gain from people using his advisors.

Dave Ramsey does a good job of helping a specific group of people (those without much financial education) a plan of how to get out of a situation. He is a straight-shooter when it comes to the stupidity of spending more than you make. HOWEVER, I struggle to take him seriously outside of this small core competency.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

whodidntante wrote:Dave Ramsey's investing advice puts you into high fee investments. He also recommends that you trust someone who paid him for a recommendation/referral. It's the opposite of the approach that many here follow.
His site can refer people to "investment professionals". I don't know what they are or what qualifications they have. I was going to fill out the form online but don't want to get bombarded with phone calls or emails.
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3CT_Paddler
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Re: Dave Ramsey's advice on investing?

Post by 3CT_Paddler »

This is a common topic. The general takeaway from those who support his approach to debt is that his investing advice is very flawed. I don't think Ramsey is doing it to make an extra buck... I think he believes that like many service businesses, you get what you pay for.
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

MindTheGAAP wrote: Let's examine why Dave Ramsey might want you to use an investment professional instead of managing it yourself. It isn't clear from the site/show, but the people on his certified lists are those people who are willing to pay an annual fee to be a 'Dave Ramsey Approved' resource. So, if you stump up the money, you gain access to a marketing list and will get referrals. He's also a big proponent of Active Investing and frequently states that it is reasonable to get 11-12% annual return (year-over-year for an extended period of time). He stands to gain from people using his advisors.
Oh, I see. So there's a financial motivation there. When I took his course at my local church, there was a broker in the class who wanted to talk to us about his services. Eventually, I invested with him. No wonder I got sucked into that trap.

:annoyed
Helo80
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Re: Dave Ramsey's advice on investing?

Post by Helo80 »

Dave Ramsey is not a bad-guy, though I know very little about his personal life. That being said, you have to think about his target audience.... there are numbskulls out there that may be intellectually very smart (doctors, engineers, advance degrees), but don't know how to handle money worth a darn. The people and their car debt are almost comical.... if you ever want a good laugh, reddit's r/personalfinance has a "Best of car debt" of people in way over their head in car.

So, they listen to Dave Ramsey whom is calm, cool, and soothing about how to handle their debt. Again, I don't know how Ramsey's personal enterprise is setup and if he truly has listeners best interests in mind when it comes to financial investing.... but I'd hope his suggestion or direction kicks some money ignorant people in the right direction.

Honestly, if you're that bad at managing money such that you are living paycheck to paycheck or not accumulating wealth nearly as fast as you should be for your occupation, having a Ramsey approved financial advisor may be the best thing for you. I'm sure there are bright people out there that have MD, PhD, and other letters after their name that will argue with all of us to the end of time that AUM is infinitely better than index funds for everybody. I'm sure there are investors out there whom have spanked us indexers in the last 20 years... but statistically and over the long-term.... I'd still take index funds. Plus, the Boglehead three fund portfolio is so boring that most people would not believe that it works better than AUM. There are some mornings I wake up and wonder if 3=fund is best-fund. But, I don't touch my portfolio after said thoughts.
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Re: Dave Ramsey's advice on investing?

Post by Helo80 »

neveragain wrote: Oh, I see. So there's a financial motivation there. When I took his course at my local church, there was a broker in the class who wanted to talk to us about his services. Eventually, I invested with him. No wonder I got sucked into that trap.

:annoyed

It's a little-underhanded, but some people need to be prodded. Then again, that's their retirement --- not mine.
sschoe2
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Re: Dave Ramsey's advice on investing?

Post by sschoe2 »

It has all been said. He gives great personal finance advice but a lot of people don't care at all for his investment advice, including myself. He pushes advisors that make money selling you front loaded funds.
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whodidntante
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Re: Dave Ramsey's advice on investing?

Post by whodidntante »

sschoe2 wrote:It has all been said. He gives great personal finance advice but a lot of people don't care at all for his investment advice, including myself. He pushes advisors that make money selling you front loaded funds.
I don't think his personal finance advice is good. He preaches extreme debt aversion instead of rational use of credit, and to avoid modern day conveniences like credit cards. That advice is not harmless. For example, it would lead to someone losing time in the market and tax advantaged space because they are burning cash flow to pay down low interest debts. And it would lead to a lack of liquidity which could really matter if you have a major health issue down the road.
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arcticpineapplecorp.
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Re: Dave Ramsey's advice on investing?

Post by arcticpineapplecorp. »

neveragain wrote:Ramsey also consistently seem to talk about investing being "complicated". Bogleheads says investing can be simple with index funds and such. Does anyone here agree with Dave Ramsey's investing advice.
Investing is simple. But not easy. You should be able to explain investing in a way that a child in school can understand. However, staying the course during difficult economic times, being patient to see the effects of compounding interest, assessing your risk tolerance, etc...these are not always easy. Temperament is very important when it comes to investing. Some have it, some don't. Those that don't could possibly be better served by using an advisor if for no other reason than they might be able to keep you from doing financial harm to yourself.

Vanguard published a study on this (https://personal.vanguard.com/pdf/fwm_c ... letter.pdf) showing advisors can add alpha of up to 3%, but that is mainly because people never get the return of the market because of behavioral errors. So they're not claiming they're getting 3% above the MARKET, just up to 3% above what the AVERAGE investor earns.

That being said, you still need to consider why someone is saying something. Vanguard makes the argument that their PAS can add alpha above what investors earn (on average) because they're trying to sell a service which costs 0.3% per year. But Dave is also trying to sell his services, or those of his ELPs (I know he recently changed his model or not calling them ELPs anymore) so he has a vested interest in convincing you and others that investing is complicated therefore he and his people can help you out...for a fee.

Even if you go with an advisor because you have been convinced by Dave that investing is too complicated, you should at least get the best advice for the lowest cost. The links below shows what you'd lose over time by paying more. In investing you don't get what you pay for, you get to keep what you DON'T pay for. Most advisors charge around 1% per year in fees. Vanguard charges 0.30% (a third as much). Vanguard helps you to keep more of what you earn.

https://vanguardblog.com/2011/10/28/sto ... f-returns/
https://personal.vanguard.com/us/insigh ... about-cost
viewtopic.php?f=10&t=217026&p=3336685#p3336685
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Dave Ramsey's advice on investing?

Post by mhalley »

The main problems with daves advice imho:
Use a manager to help you pick funds that will outperform. (This will probably result in fees around 2%).
No bonds because they underperform
Expect to to get a 12% return on your investments
You can withdraw 8% a year from your retirement accounts
In addition, do not invest if you have any debt besides your house, not even to get a company match.
Always take a pension cash value instead of a pension.
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

whodidntante wrote: I don't think his personal finance advice is good. He preaches extreme debt aversion instead of rational use of credit, and to avoid modern day conveniences like credit cards. That advice is not harmless. For example, it would lead to someone losing time in the market and tax advantaged space because they are burning cash flow to pay down low interest debts. And it would lead to a lack of liquidity which could really matter if you have a major health issue down the road.
That makes sense. His debt aversion program seemed too extreme to me also. It seemed to be designed for someone with no impulse control over their spending habits. He also says he only uses a debit card. I've had my debit card cloned a number of times and someone attempted to drain my bank account drained. I cut up the debit card and don't use it anymore. Debit card cloning is so common now and the risk is that you can lose all your money in the bank. So for me, his advice to "use a debit card" is stupid advice. I also feel safer using a credit card for certain types of purchases. A couple of times I've had to dispute things on my credit card where a merchant did something they shouldn't. I would have lost paying cash. Grateful that Am Ex treats me like a valued customer.
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

arcticpineapplecorp. wrote:. In investing you don't get what you pay for, you get to keep what you DON'T pay for.
Makes sense.
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Re: Dave Ramsey's advice on investing?

Post by 3CT_Paddler »

whodidntante wrote:
sschoe2 wrote:It has all been said. He gives great personal finance advice but a lot of people don't care at all for his investment advice, including myself. He pushes advisors that make money selling you front loaded funds.
I don't think his personal finance advice is good. He preaches extreme debt aversion instead of rational use of credit, and to avoid modern day conveniences like credit cards. That advice is not harmless. For example, it would lead to someone losing time in the market and tax advantaged space because they are burning cash flow to pay down low interest debts. And it would lead to a lack of liquidity which could really matter if you have a major health issue down the road.
Attitude (aka motivation) not intellect is by far the most important part of getting on the right path financially. In an academic vacuum, the optimum path is all about paying down the biggest interest rates. People are not machines, and if you can get them excited about paying off credit card debt quickly by not eating out and taking cheaper vacations, then those actions dwarf the savings approach with a higher cognitive burden.

PS Ramsey still advocates for tax advantaged savings while paying down mortgage debts.

Edited Last sentence for accuracy.
Last edited by 3CT_Paddler on Sun Jul 09, 2017 6:56 pm, edited 1 time in total.
Helo80
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Re: Dave Ramsey's advice on investing?

Post by Helo80 »

neveragain wrote:That makes sense. His debt aversion program seemed too extreme to me also. It seemed to be designed for someone with no impulse control over their spending habits. He also says he only uses a debit card.

That's what we all need to keep in mind about Dave's advice. He's not a monster, but he deals with people that cannot budget everyday. That's why I think it's not the worst thing in the world he has a network of financial advisors to send people to. Though, I'm sure said CFPs are paying him coin on the backend for the referral.
sschoe2
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Re: Dave Ramsey's advice on investing?

Post by sschoe2 »

whodidntante wrote:
sschoe2 wrote:It has all been said. He gives great personal finance advice but a lot of people don't care at all for his investment advice, including myself. He pushes advisors that make money selling you front loaded funds.
I don't think his personal finance advice is good. He preaches extreme debt aversion instead of rational use of credit, and to avoid modern day conveniences like credit cards. That advice is not harmless. For example, it would lead to someone losing time in the market and tax advantaged space because they are burning cash flow to pay down low interest debts. And it would lead to a lack of liquidity which could really matter if you have a major health issue down the road.
The people who need him are not able to use debt responsibly just like alcoholics can't drink responsibly. Therefore the best thing to do is teach them to avoid it entirely.
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Re: Dave Ramsey's advice on investing?

Post by Helo80 »

mhalley wrote:The main problems with daves advice imho:
Use a manager to help you pick funds that will outperform. (This will probably result in fees around 2%).
No bonds because they underperform
Expect to to get a 12% return on your investments
You can withdraw 8% a year from your retirement accounts
In addition, do not invest if you have any debt besides your house, not even to get a company match.
Always take a pension cash value instead of a pension.

Good grief.... maybe I shouldn't defend the guy.
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Re: Dave Ramsey's advice on investing?

Post by palaheel »

3CT_Paddler wrote:
Attitude (aka motivation) not intellect is by far the most important part of getting on the right path financially. In an academic vacuum, the optimum path is all about paying down the biggest interest rates. People are not machines, and if you can get them excited about paying off credit card debt quickly by not eating out and taking cheaper vacations, then those actions dwarf the savings approach with a higher cognitive burden.

PS Ramsey still advocates for tax advantaged savings while paying down most debts.
+1
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

I wonder how much longer investment brokers will continue to be able to sell loaded mutual funds to the public and charge AUM fees? Eventually, a large percentage of the investing population is going to wise up and refuse these services. Just how much longer can such an expensive business model last.
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Re: Dave Ramsey's advice on investing?

Post by Jags4186 »

neveragain wrote:I wonder how much longer investment brokers will continue to be able to sell loaded mutual funds to the public and charge AUM fees? Eventually, a large percentage of the investing population is going to wise up and refuse these services. Just how much longer can such an expensive business model last.
As the great George Carlin used to say:

"Think about how stupid the average person is and realize half are stupider than that."
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Re: Dave Ramsey's advice on investing?

Post by arcticpineapplecorp. »

neveragain wrote:I wonder how much longer investment brokers will continue to be able to sell loaded mutual funds to the public and charge AUM fees? Eventually, a large percentage of the investing population is going to wise up and refuse these services. Just how much longer can such an expensive business model last.
they're already looking at different models of pricing:

https://www.kitces.com/blog/clean-share ... rovements/
https://www.kitces.com/blog/passive-inv ... -managers/
https://www.kitces.com/blog/investment- ... er-dealer/
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

arcticpineapplecorp. wrote:=
they're already looking at different models of pricing:
Probably because they're losing too many people to Vanguard, Schwab, etc. And they know it's going to get worse.
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Re: Dave Ramsey's advice on investing?

Post by badbreath »

neveragain wrote:
I wonder how much longer investment brokers will continue to be able to sell loaded mutual funds to the public and charge AUM fees? Eventually, a large percentage of the investing population is going to wise up and refuse these services. Just how much longer can such an expensive business model last.
With a 401k no longer due to the fiduciary rual but if you have a taxable no issue.
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Re: Dave Ramsey's advice on investing?

Post by jeffh19 »

I think Dave Ramsey is outstanding for people who are clueless about personal finance and have wasted money their entire life etc like the average American. He tells you things that don't make sense from a pure financial perspective to get people in the right behaviors, patterns and mindset and stay there. So I get it 100%.

But for people who actually know what they are doing, or when those people actually get to the investing part or out of debt, run far far away from anything he says as basically everything he says isn't the right thing to do or just pushes people to do things that will make him money....which I get he has a massive business and the entire point is to make money etc...but ya..
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

Here's a Ramsey rant I found on youtube (that I found when I did a search on this forum). Dave says its just "math nerds" who get caught up in the issue with fees. He gets quite upset when discussing this.

https://www.youtube.com/watch?v=mHkXjEO ... NJQ6G6gAxw
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jazman12
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Re: Dave Ramsey's advice on investing?

Post by jazman12 »

Devil's Advocate wrote:Not many. His investing advice really sucks...bad.

DA
ditto!
Act soon... time is running out
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Re: Dave Ramsey's advice on investing?

Post by nedsaid »

This thread is a good reminder of a couple of things. First, the dangers of guruism. That is where people uncritically follow the advice of somebody they admire. Second, the need to separate the wheat from the chaff, in other words, to be able to tell the difference between good advice and bad advice.

Dave Ramsey's investment advice is decidedly mixed. People are naïve if they think they can effortlessly obtain 12% investment returns. Newbies to investing don't realize how volatile and emotionally trying that a 100% stock portfolio can be. He has recommended the S&P 500 Index Fund but he has also recommended American Funds through his network of advisors. Investors could do a whole lot worse than American Funds, I actually do like the fund group. It is just that there are cheaper alternatives available. Also I don't get his aversion to bonds.
A fool and his money are good for business.
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Re: Dave Ramsey's advice on investing?

Post by lowndes »

neveragain wrote:Here's a Ramsey rant I found on youtube (that I found when I did a search on this forum). Dave says its just "math nerds" who get caught up in the issue with fees. He gets quite upset when discussing this.

https://www.youtube.com/watch?v=mHkXjEO ... NJQ6G6gAxw
Wow, he is fairly ridiculous.
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Re: Dave Ramsey's advice on investing?

Post by noco-hawkeye »

neveragain wrote: ...
Ramsey also consistently seem to talk about investing being "complicated". Bogleheads says investing can be simple with index funds and such....
Investing 20% of your pay in a collection of 3 index funds is simple. It's not easy for most, but it IS simple. If you do this (and are not accumulating debt along the way) I'd think your are 99% of the way home. This advice does not support a talk radio show, as it really is that simple.
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Re: Dave Ramsey's advice on investing?

Post by llama1963 »

jeffh19 wrote:I think Dave Ramsey is outstanding for people who are clueless about personal finance and have wasted money their entire life etc like the average American. He tells you things that don't make sense from a pure financial perspective to get people in the right behaviors, patterns and mindset and stay there. So I get it 100%.

But for people who actually know what they are doing, or when those people actually get to the investing part or out of debt, run far far away from anything he says as basically everything he says isn't the right thing to do or just pushes people to do things that will make him money....which I get he has a massive business and the entire point is to make money etc...but ya..
This reply is exactly on point.

Also, Ramsey is great for the novice investor.

Flawed Ramsey philosophies - A. Credit card has more consumer protections than a debit card. Never use a debit card to make large purchases. B. You can survive without a credit card. Yes, but it is darn difficult. C. Your credit score will go to zero when you quit using credit cards and pay off your balances.

Otherwise, he does give solid advice on insurance products and becoming debt free.
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Re: Dave Ramsey's advice on investing?

Post by coincollector »

llama1963 wrote:
jeffh19 wrote:I think Dave Ramsey is outstanding for people who are clueless about personal finance and have wasted money their entire life etc like the average American. He tells you things that don't make sense from a pure financial perspective to get people in the right behaviors, patterns and mindset and stay there. So I get it 100%.

But for people who actually know what they are doing, or when those people actually get to the investing part or out of debt, run far far away from anything he says as basically everything he says isn't the right thing to do or just pushes people to do things that will make him money....which I get he has a massive business and the entire point is to make money etc...but ya..
This reply is exactly on point.

Also, Ramsey is great for the novice investor.

Flawed Ramsey philosophies - A. Credit card has more consumer protections than a debit card. Never use a debit card to make large purchases. B. You can survive without a credit card. Yes, but it is darn difficult. C. Your credit score will go to zero when you quit using credit cards and pay off your balances.

Otherwise, he does give solid advice on insurance products and becoming debt free.
Living without a credit card isn't hard at all, I've done it all my life. That being said Dave Ramsey's investing advice is atrocious and down right dangerous. He would be better served to stick to personal finance and leave the investing advice to others.
chinto
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Re: Dave Ramsey's advice on investing?

Post by chinto »

I generally have issues with people who built their personal wealth by aggressively hawking generic advice to the masses. That goes for Dave Ramsey and Robert (who is your daddy) Kiyosaki.
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Re: Dave Ramsey's advice on investing?

Post by 1210sda »

neveragain wrote:Here's a Ramsey rant I found on youtube (that I found when I did a search on this forum). Dave says its just "math nerds" who get caught up in the issue with fees. He gets quite upset when discussing this.

https://www.youtube.com/watch?v=mHkXjEO ... NJQ6G6gAxw
Thanks for the link. I watched the video (all 9min and 35 seconds of it). These points stood out for me.

1. He said "I own several mutual funds that have averaged well over 12%. Many of them are very old, 50, 60, or 70 years old". He didn't provide the names or when he purchased them. (Although how is he going to prove it, if challenged)
2. All you have to do is buy a "good growth stock mutual fund". This is so simplistic. Of course everyone wants a "good" investment. It's just not that easy to find (other than index funds) :-)
3."Past performance is the #1 forecasting method". Gimme a break!

1210
Admiral
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Re: Dave Ramsey's advice on investing?

Post by Admiral »

One of the few things under your control when you invest--and one thing guaranteed to either save you money or reduce your returns--is expense ratio.

Ramsey pushes products/advice/advisers associated with higher-than-necessary ERs.

You do the math.
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Re: Dave Ramsey's advice on investing?

Post by Nate79 »

95% of Dave's advice is about debt reduction and taking control of your finances. After someone has dug themselves out of their hole he gives investing advice. This includes 15% for retirement in tax advantage accounts, 529 plans for kids college (so they don't go into debt), pay off home, and maybe invest the rest, usually in low cost S&P500 index fund. Using high cost investments are such a small part of DR. He is also pretty spot on about insurance (especially how horrible Whole life junk is).

He pushes Roth accounts a little too much and messes up that math but that's a minor point.
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Re: Dave Ramsey's advice on investing?

Post by foamypirate »

mhalley wrote:The main problems with daves advice imho:
Use a manager to help you pick funds that will outperform. (This will probably result in fees around 2%).
No bonds because they underperform
Expect to to get a 12% return on your investments
You can withdraw 8% a year from your retirement accounts
In addition, do not invest if you have any debt besides your house, not even to get a company match.
Always take a pension cash value instead of a pension.
This one really screwed me over when I first started following Ramsey's plan; sadly, I didn't know any better at the time. It caused me to miss out on much of the market gains from 10-15', when I finally learned enough to realize it was a completely brain dead move. For perspective, in the last 1.5 years, I've more than doubled the entire accumulative balance from 2010-2015. Imagine where I'd be had I ignored Ramsey's advice and socked it to my 401k like that for the last 7 years...
Helo80
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Re: Dave Ramsey's advice on investing?

Post by Helo80 »

neveragain wrote:Here's a Ramsey rant I found on youtube (that I found when I did a search on this forum). Dave says its just "math nerds" who get caught up in the issue with fees. He gets quite upset when discussing this.

https://www.youtube.com/watch?v=mHkXjEO ... NJQ6G6gAxw

Good chat... my only issue is that he keeps saying you can get 12%, but does not provide a start or stop date or way he's determining that. He did not go into fees and expense ratios on this particular video.

Rather, his whole point was similar to what I was alluding to earlier this thread ---- if you don't begin investing in the stock market in some mutual fund somewhere, you're going to get exactly a 0.00% rate of return. Some of his listeners don't make great financial decisions and are terrible with money, so hopefully they listened to him on this one. Ramsey directing people to a financial advisor... for some of these people, it could be the best thing that ever happened to them.

As terrible as it sounds, in one way Ramsey was going after a lot of BH type philosophers out there that are missing the human element here as to why people don't have savings in retirements --- they don't invest in the stock market, or they invest in "safe" returns like the certificate of depression, and then gain hardly anything --- we can have philosophical discussions all day long about the three-fund portfolio and domestic vs. international allotments, but there are tons of people that all of this goes way over their head. To be honest, a AUM that shaves 1.3% per year off of your portfolio in expenses and management fees is probably going to do better in the long-run than somebody stuffing their money away in the bank, CDs, or some bonds.

I'm not a shill for Ramsey --- rather I see where he's coming from
deltaneutral83
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Re: Dave Ramsey's advice on investing?

Post by deltaneutral83 »

Bogleheads are some of the most analytical, wise, and informed people. But even they get caught up in the emotion of it all with DR. The guy's entire schtick is mostly one size fits all and it's for the average American. BH's represent the most prudent type of person, both in every day finance and investing, so 98% of DR's teachings are useless to us. I've picked up some good advice on insurance products from him and I'm thankful for that.

The typical American (and quite a few 160 IQ's in the legal and medical field) has no idea how to use index funds. Encouraging these people to open up accounts at Vanguard/Fidelity/Schwab/TDA and to start indexing is going to be bad news for 99 out of 100 of them. A lot will just start trading single stocks which DR is hugely against as he and any outsider not named Warren Buffet should be. You don't really see BH's give him credit on that because their ears are still releasing steam from DR's "12% returns" clickbait. I wish he wouldn't do that, but he does. His AF portfolio is getting beaten by their respective indexing benchmarks over the last 10 years even before fees, but he obviously will not say that as he likes to tout the returns over 30/40 years which is flawed as all BHs know for a host of reasons.

To actually think that DR's teachings are anything other than a huge help for 90% of Americans is disingenuous. He's certainly confrontational, but he is also a straight shooter. While I avoid using terms like "always" and "never" I highly doubt his brokers churn accounts and I doubt the majority of them use AUMs. I know they charge the 5.5% front end load on A shares for the American Funds with high ER's, but as far as active goes, that's pretty good. If you all who claim he is doing it for his own bottom line, he'd steer people into the 1.25% AUM guys who churn accounts on top of front end loads. In the active world (which is useless here on BH's) his investing advice helps a lot of people as compared to what they would have done, certainly not to what BH's would have done. "Apples to Apples" comparisons are key here.
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Nate79
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Re: Dave Ramsey's advice on investing?

Post by Nate79 »

foamypirate wrote:
mhalley wrote:The main problems with daves advice imho:
Use a manager to help you pick funds that will outperform. (This will probably result in fees around 2%).
No bonds because they underperform
Expect to to get a 12% return on your investments
You can withdraw 8% a year from your retirement accounts
In addition, do not invest if you have any debt besides your house, not even to get a company match.
Always take a pension cash value instead of a pension.
This one really screwed me over when I first started following Ramsey's plan; sadly, I didn't know any better at the time. It caused me to miss out on much of the market gains from 10-15', when I finally learned enough to realize it was a completely brain dead move. For perspective, in the last 1.5 years, I've more than doubled the entire accumulative balance from 2010-2015. Imagine where I'd be had I ignored Ramsey's advice and socked it to my 401k like that for the last 7 years...
Hind sight is 20/20. It's really nice to look back at a bull market. But that the market even gained over any period of time is not guaranteed. But paying off debt was a guaranteed return of the interest rate. I don't follow DR's advice on paying off debt but the stock market has zero guarantee of any return.
foamypirate
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Re: Dave Ramsey's advice on investing?

Post by foamypirate »

Nate79 wrote:
foamypirate wrote:
mhalley wrote:The main problems with daves advice imho:
Use a manager to help you pick funds that will outperform. (This will probably result in fees around 2%).
No bonds because they underperform
Expect to to get a 12% return on your investments
You can withdraw 8% a year from your retirement accounts
In addition, do not invest if you have any debt besides your house, not even to get a company match.
Always take a pension cash value instead of a pension.
This one really screwed me over when I first started following Ramsey's plan; sadly, I didn't know any better at the time. It caused me to miss out on much of the market gains from 10-15', when I finally learned enough to realize it was a completely brain dead move. For perspective, in the last 1.5 years, I've more than doubled the entire accumulative balance from 2010-2015. Imagine where I'd be had I ignored Ramsey's advice and socked it to my 401k like that for the last 7 years...
Hind sight is 20/20. It's really nice to look back at a bull market. But that the market even gained over any period of time is not guaranteed. But paying off debt was a guaranteed return of the interest rate. I don't follow DR's advice on paying off debt but the stock market has zero guarantee of any return.
I'll definitely agree with you there. I just wish I had cut the difference and at least contributed up to the company match (because that is a guaranteed return), while paying down debts.
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fourwedge
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Re: Dave Ramsey's advice on investing?

Post by fourwedge »

I actually followed Dave Ramsey's advice and got out of debt. It was actually a google search for Dave Ramsey investing advice that brought up a topic from BH forum. That is how I found the BH's. Dave's advice has changed the path my life was on. Went from in debt with a mortgage to no debt of any kind, including our house...it is good to be debt free. Now my wife and I own a very lucrative business and we are maxing out all retirement investing and piling up money on the side as well.

Life is good and it all started with my wife asking me if I ever heard of Dave Ramsey. Of course his investing advice is to help out people that have no idea what they are doing. He loses a BH pretty quickly with the loaded mutual funds his advisors recommend. But I was all individual stocks and day trading when he pointed me towards mutual funds. Then I found this forum as my investing advice home.

~FW
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

deltaneutral83 wrote: The typical American (and quite a few 160 IQ's in the legal and medical field) has no idea how to use index funds. Encouraging these people to open up accounts at Vanguard/Fidelity/Schwab/TDA and to start indexing is going to be bad news for 99 out of 100 of them. A lot will just start trading single stocks which DR is hugely against as he and any outsider not named Warren Buffet should be. You don't really see BH's give him credit on that because their ears are still releasing steam from DR's "12% returns" clickbait. I wish he wouldn't do that, but he does. His AF portfolio is getting beaten by their respective indexing benchmarks over the last 10 years even before fees, but he obviously will not say that as he likes to tout the returns over 30/40 years which is flawed as all BHs know for a host of reasons.
Not sure how it requires 160 IQ to use index funds? According to Boglehead's book, index investing is fairly simple.

Does DR invest in American Funds? That is what Edward Jones uses. Ramsey is smart though, and I doubt he pays advisory fees, AUM, all that.
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Re: Dave Ramsey's advice on investing?

Post by deltaneutral83 »

neveragain wrote:
Not sure how it requires 160 IQ to use index funds? According to Boglehead's book, index investing is fairly simple.

Does DR invest in American Funds? That is what Edward Jones uses. Ramsey is smart though, and I doubt he pays advisory fees, AUM, all that.
It doesn't and that's my point, the fact that their are people (BH's) who make 1/6 of what physicians and lawyers make and yet their CAGR will be higher on their indexed portfolio vs the high priced active. There is a myth that higher earners have access to better brokers and they eat up the fact that they have 37 different mutual funds (that get churned every quarter) to talk about in the locker-room at the country club.

All that being said, Ramsey's portfolio is cheap for the active space. Again, apples to apples. I don't know exactly how it works, but I highly doubt he has a lot of AUM guys. He (from what I can tell) is mostly into the front loaded "A" share AF's. I'd much rather pay 5.5% up front than 1% for 25 consecutive years if I had no Boglehead education. Now of course any broker that sells AF's also get 20-25 (I think) basis points off of the high ER's (0.7%-1.1%) kicked back to them as well per year. Ramsey isn't teaching the BH crowd although you will occasionally see a BH post about his car lease where the cost of capital was 13-15% when you back into the effective interest rate. Ramsey could have helped them there.

In most any active account where you're bringing significant assets you will usually see breakpoints. With "A" Shares of AF's, once you get to 100k you get a reduction from 5.5% down to 3.5% which is worth noting on the front end load. It phases out until you get to a million which then nullifies the front end load completely. Obviously Ramsey is well over that and pays $0 in his taxable account(s), in fact, he may have a sweet deal worked out with AF that charges him very little for his company sponsored 401k because of his nationwide following. None of that would be an issue with me. AF has certainly been acknowledged as decent for the active space. As far as Edward Jones, I have yet to hear a story from BH's here where there wasn't a 1% or worse AUM with churning at some point over the life of the account as well as ridiculous annuities being pushed. Ramsey's advice on annuities and life ins. seems to be much more in line with BH thinking but some people refuse to get past the "12% returns" which of course is understandable. Some BH's have a line in the sand and just refuse to think anything other than indexing is tragic when there are far worse situations than having $2.4M in investments rather than $2.8M at age 65 from a decent 2x median salary over a career on average. I wouldn't be surprised if the gap between a BH portfolio and a Ramsey portfolio (after 35 years) will probably be as wide as a Ramsey portfolio and an Edward Jones portfolio on the equity side.
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neveragain
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Re: Dave Ramsey's advice on investing?

Post by neveragain »

deltaneutral83 wrote:
neveragain wrote:
Not sure how it requires 160 IQ to use index funds? According to Boglehead's book, index investing is fairly simple.

Does DR invest in American Funds? That is what Edward Jones uses. Ramsey is smart though, and I doubt he pays advisory fees, AUM, all that.
It doesn't and that's my point, the fact that their are people (BH's) who make 1/6 of what physicians and lawyers make and yet their CAGR will be higher on their indexed portfolio vs the high priced active. There is a myth that higher earners have access to better brokers and they eat up the fact that they have 37 different mutual funds (that get churned every quarter) to talk about in the locker-room at the country club. .
To be honest, I've often wondered why intelligent/super wealthy people used brokers like Ed Jones, Lynch, etc. The only explanation I have is perhaps they are too busy with their professional lives to focus on investing. And so they don't realize they could be losing big chunks of money from their portfolio with brokers. And if they see their investments going up, that might be all that matters.

I've only been able to learn more once I quit working full time. And actually had time to sit down and read the Boglehead book and other books like it. I wouldn't be able to focus on investing much if I worked 50 hours a week.
asif408
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Re: Dave Ramsey's advice on investing?

Post by asif408 »

neveragain wrote:To be honest, I've often wondered why intelligent/super wealthy people used brokers like Ed Jones, Lynch, etc. The only explanation I have is perhaps they are too busy with their professional lives to focus on investing. And so they don't realize they could be losing big chunks of money from their portfolio with brokers. And if they see their investments going up, that might be all that matters.

I've only been able to learn more once I quit working full time. And actually had time to sit down and read the Boglehead book and other books like it. I wouldn't be able to focus on investing much if I worked 50 hours a week.
Sounds like you answered your own question. I have co-workers and relatives who are much smarter than me in their chosen field of work. But their knowledge of investing is way below mine, primarily because they are not motivated/interested in learning and have less free time than me. The only reason I got interested in investing was a gift of money several years ago and the free time available to learn what to do with it.

Very intelligent/super wealthy people are generally not the most balanced. They got to be very intelligent/super wealthy because they were driven and motivated in the area they are successful in. To get to that level you have to sacrifice quite a bit, and that generally means you will be lacking in other areas of life. But then again, if you're super wealthy it doesn't matter as much how you invest as it does for smaller investors.
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Re: Dave Ramsey's advice on investing?

Post by willthrill81 »

deltaneutral83 wrote:Bogleheads are some of the most analytical, wise, and informed people. But even they get caught up in the emotion of it all with DR. The guy's entire schtick is mostly one size fits all and it's for the average American. BH's represent the most prudent type of person, both in every day finance and investing, so 98% of DR's teachings are useless to us. I've picked up some good advice on insurance products from him and I'm thankful for that.

The typical American (and quite a few 160 IQ's in the legal and medical field) has no idea how to use index funds. Encouraging these people to open up accounts at Vanguard/Fidelity/Schwab/TDA and to start indexing is going to be bad news for 99 out of 100 of them. A lot will just start trading single stocks which DR is hugely against as he and any outsider not named Warren Buffet should be. You don't really see BH's give him credit on that because their ears are still releasing steam from DR's "12% returns" clickbait. I wish he wouldn't do that, but he does. His AF portfolio is getting beaten by their respective indexing benchmarks over the last 10 years even before fees, but he obviously will not say that as he likes to tout the returns over 30/40 years which is flawed as all BHs know for a host of reasons.

To actually think that DR's teachings are anything other than a huge help for 90% of Americans is disingenuous. He's certainly confrontational, but he is also a straight shooter. While I avoid using terms like "always" and "never" I highly doubt his brokers churn accounts and I doubt the majority of them use AUMs. I know they charge the 5.5% front end load on A shares for the American Funds with high ER's, but as far as active goes, that's pretty good. If you all who claim he is doing it for his own bottom line, he'd steer people into the 1.25% AUM guys who churn accounts on top of front end loads. In the active world (which is useless here on BH's) his investing advice helps a lot of people as compared to what they would have done, certainly not to what BH's would have done. "Apples to Apples" comparisons are key here.
I get your point, but I think that you could tell the average American to just open up an IRA with Vanguard, Schwab, or Fidelity and put 100% of their money into a target date fund, and they'd be substantially better off than what DR recommends. Of course, this strategy wouldn't line his pockets the way his current methods do.

But beyond that, the "12% returns" he preaches are even more dangerous when combined with his "8% withdrawals." Not only are such withdrawals not sustainable over a typical retirement period, they suggest that you need a portfolio half the size of what you 'probably' need in order to have a good margin of safety (i.e. 4% WR, which many Bogleheads still think is too high :shock: ). So he's telling people that they'll make it to their goal faster than they historically would have, and that their goal is half of what it probably should be. That's very, very dangerous advice that is very likely to fail for most people. Many have pointed out the error of his ways, but DR simply refuses to change his stance.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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