Dave Ramsey - 12% per year from mutual funds?

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goshenBogle
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Dave Ramsey - 12% per year from mutual funds?

Post by goshenBogle »

Listening to Dave Ramsey. A listener called and asked for retirement advice. His answer: Invest in good quality mutual funds where you can "safely" (his word) make 12% per year. You can take out 8% per year and still see your investment grow.

WHAT?? Am I missing something? What "safe" mutual funds will provide 12% per year? How does he come up with this number?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Triple digit golfer »

His advice for getting out of debt is fine.

His investing advice is as bad as it gets. Ignore it completely.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by goshenBogle »

My apology - I had noticed previous posts on this subject.

If an administrator reads this, please remove the post. Sorry for cluttering up the forum.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by willthrill81 »

goshenBogle wrote: Sun Jul 19, 2020 9:52 am Listening to Dave Ramsey. A listener called and asked for retirement advice. His answer: Invest in good quality mutual funds where you can "safely" (his word) make 12% per year. You can take out 8% per year and still see your investment grow.

WHAT?? Am I missing something? What "safe" mutual funds will provide 12% per year? How does he come up with this number?
It's because he's referring to the arithmetic average (and rounding it up) for returns instead of geometric (i.e. compounded) returns.

Here's an example. If you buy stocks that go up 100% in one year and then down by 50% the next, you're back to where you started. Any thinking person would say that your returns are zero. But the arithmetic annual return from these returns is +25% ([+100-50]/2). For this reason, virtually no one uses arithmetic returns for anything, except Dave Ramsey.

At least in the past, even the sources that Dave quoted on his website that showed the arithmetic return of U.S. stocks being close to 12% specifically said that this number was pretty much useless to investors.

And the idea of 'safely' is robustly absurd. Over the last ~150 years of the U.S. stock market, there have been at least five times where stocks fell in value by about 50% or more. And smaller corrections have been very common indeed.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by nisiprius »

Don't worry about cluttering up the forum, and sorry you got criticized. Sure, us regulars hate topics that keep coming up again and again, but, frankly, the PHPbb (forum software)'s search function sucks, and it's not really that easy to find the older discussions.

I think that Dave Ramsey's investing advice is unforgivably misguided in several ways. Three of them are his use of the arithmetic mean, his claim of an 8% safe withdrawal rate, and his recommendation of holding no bonds.

He constantly uses arithmetic mean returns, which he calls the "average." This kind of average is appropriate for some technical purposes, but not for projecting long-term compounding and not for retirement planning. What's unforgivable is that his mistake has been pointed out to him and he obstinately refuses to correct it. Instead of correcting it, he simply attacks his critics by saying "I've helped more people than they have," which has nothing to do with whether he's providing accurate information. The SEC explicitly requires that mutual funds use the word "average" but that they report the "average" as the geometric mean--in finance, the compound average growth rate (CAGR). Ramsey is actually doing something that would be illegal if a mutual fund company did it.

He claims an 8% return which is double the traditional 4% rule of thumb. I don't want to go down that rabbit hole except to say that this is inexcusably bad advice.

Finally, his 0% bonds is odd. I have some guesses about a possible ideological reason but I haven't found any backing for this on his website, and to be sure it is less odd than it was five years ago--but I think he has always been opposed to bonds, any bonds. That is, I think he is opposed to debt in general, even when you are the person lending the money and thus putting someone else in debt.

I think he gets away with this because he is not really giving "advice" in the legal sense, he would probably say that he steers all his listeners to his "endorsed local providers" ELP's for the actual "advice." What his ELP's actually advise, I don't know.
Last edited by nisiprius on Sun Jul 19, 2020 10:37 am, edited 2 times in total.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Katietsu »

nisiprius wrote: Sun Jul 19, 2020 10:07 am Finally, his 0% bonds is odd. I have some guesses about a possible ideological reason but I haven't found any backing for this on his website, and to be sure it is less odd than it was five years ago--but I think he has always been opposed to bonds, any bonds.
It is odd. However, I do not think it is as far off from convention as it at first seems. First, he does recommend a 3-6 month emergency fund stashed in a safe place. Second, he does recommend no debt except a mortgage. And even the mortgage should be paid off before extra savings beyond 15% of income towards retirement. So if you view debt as a negative bond, someone following his advice might not be different than another with a 70/30 allocation plus auto loans, mortgages, etc. Finally, he sort of does recommend some bonds but in a strange out of date way, at least last time I listened to him. He recommends that part of your retirement savings be in a “Balanced” Fund. I believe his personal investments literally include the American Funds Balanced Fund which is about 40% bond and cash, mostly bond.


Ramsey:
Invest in good quality mutual funds where you can "safely" (his word) make 12% per year. You can take out 8% per year and still see your investment grow.
If you listen long enough, you may hear where he admits that his choice to use this number is partially motivational. He will also admit it may be even twice what you end up experiencing. But then will go on to illustrate how you will “still” be in great shape. I do think it is very misleading and irresponsible. But, I also know many who are in a better place financially because his program is motivational and easy to follow.
Last edited by Katietsu on Sun Jul 19, 2020 10:35 am, edited 1 time in total.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

Dave Ramsey does not specifically mention nor endorse specific mutual funds though it is generally inferred by what he says that he is quoting returns off the webpage of American Funds whose funds like Growth Fund of America and other very old funds have returned 11-12% annualized returns. Getting all upset on whether he is quoting average return or CAGR completely missed the point because he is quoting the returns right off of American Funds fund sheets. And it doesnt matter because no decision related to his advice in any single way is determined based on whether it is CAGR, average return, 8% or 12%.

It just doesn't matter.
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Re: Dave Ramsey - 12% per year from mutual funds?

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I removed an off-topic post. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

nisiprius wrote: Sun Jul 19, 2020 10:07 am Don't worry about cluttering up the forum, and sorry you got criticized. Sure, us regulars hate topics that keep coming up again and again, but, frankly, the PHPbb (forum software)'s search function sucks, and it's not really that easy to find the older discussions.

Most of use think that Dave Ramsey's investing advice is unforgivably misguided in several ways. Three of them are his use of the arithmetic mean, his claim of an 8% safe withdrawal rate, and his recommendation of holding no bonds.

He constantly uses arithmetic mean returns which is appropriate for some technical purposes, but not for projecting long-term compounding and not for retirement planning. What's unforgivable is that his mistake has been pointed out to him and he obstinately refuses to correct it. Instead of correcting it, he simply attacks his critics by saying "I've helped more people than they have," which has nothing to do with whether he's providing accurate information. The SEC explicitly requires that mutual funds use the geometric mean, AKA the compound average growth rate (CAGR) when stating their "average return," so Ramsey is actually doing something that would be illegal if a mutual fund company did it in their literature.

He claims an 8% return which is double the traditional 4% rule of thumb. I don't want to go down that rabbit hole except to say that this is inexcusably bad advice.

Finally, his 0% bonds is odd. I have some guesses about a possible ideological reason but I haven't found any backing for this on his website, and to be sure it is less odd than it was five years ago--but I think he has always been opposed to bonds, any bonds. That is, I think he is opposed to debt in general, even when you are the person lending the money and thus putting someone else in debt.

I think he gets away with this because he is not really giving "advice" in the legal sense, he would probably say that he steers all his listeners to his "endorsed local providers" ELP's for the actual "advice." What his ELP's actually advise, I don't know.
Dave Ramsey recommends 100% stock (recommendations for a balanced funds are for ultra risk adverse and the outliers). His ELPs not only recommend but are required to follow his basic 4 fund advice exactly or are kicked out of the program.

So yes, there are hundreds of financial advisors out there who strongly believe in, are advising and putting their clients in 100% stocks.

Right or wrong advice there is nothing preventing such advice.
Last edited by Nate79 on Sun Jul 19, 2020 10:43 am, edited 1 time in total.
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Re: Dave Ramsey - 12% per year from mutual funds?

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nisiprius wrote: Sun Jul 19, 2020 10:07 am Don't worry about cluttering up the forum, and sorry you got criticized. Sure, us regulars hate topics that keep coming up again and again, but, frankly, the PHPbb (forum software)'s search function sucks, and it's not really that easy to find the older discussions.
The search box in the upper-right corner of the page goes to Google, which is much better. However, I would agree that it's still difficult to find older discussions. If you don't have the right search terms, you won't find it.

The search icon for mobile devices uses Google search only.
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Re: Dave Ramsey - 12% per year from mutual funds?

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If you have listened to Dave Ramsey (he used to be on at drive time when I was still working), you will come to understand that he is a Real Estate guy at heart. If you call in to discuss investment property, he has his calculator out doing free-cash-flow and mortgage amortization calculations. He loves that stuff. If I needed answers in this area I would call him.

When it comes to investment portfolios, the discussion is always very cursory: "growth mutual funds" and that is about it. It just isn't in his wheelhouse. Which in some ways is a shame because 401K plans have become the dominant retirement vehicle for most people.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by nisiprius »

"Safe withdrawal rates" are a perennially debated topic in the forum. Let me say this much. Dave Ramsey claims an 8% safe withdrawal rate. This is exactly double the traditional 4% which was based on studies made in the late 1990s that used data starting from 1926. There is a fair amount of concern nowadays that 4% might be too optimistic going forward. You can all kinds of numbers with all kinds of assumptions, but I am just going to show you one of them. This is Vanguard's Retirement nest egg calculator.

Image

They give complete details of their assumptions.
For stock market returns we use the Standard & Poor’s 500 Index from 1926 to 1970, the Dow Jones Wilshire 5000 Index from 1971 through April 2005, and the MSCI US Broad Market Index thereafter.
As you can see, using 8% withdrawals on that stock portfolio would have run you out of money more than half the time.

I can't believe that those American Funds are so much better than the stock market that you can double what every researcher has found as the safe rate, nor that a plan that fails over half the time in Vanguard's simulations could become safe just by substituting actively managed stock funds (given that over the last fifteen years 90% of all actively managed stock funds underperformed the market index).
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Re: Dave Ramsey - 12% per year from mutual funds?

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nisiprius wrote: Sun Jul 19, 2020 11:11 am "Safe withdrawal rates" are a perennially debated topic in the forum. Let me say this much. Dave Ramsey claims an 8% safe withdrawal rate. This is exactly double the traditional 4% which was based on studies made in the late 1990s that used data starting from 1926. There is a fair amount of concern nowadays that 4% might be too optimistic going forward. You can all kinds of numbers with all kinds of assumptions, but I am just going to show you one of them. This is Vanguard's Retirement nest egg calculator.

Image

They give complete details of their assumptions.
For stock market returns we use the Standard & Poor’s 500 Index from 1926 to 1970, the Dow Jones Wilshire 5000 Index from 1971 through April 2005, and the MSCI US Broad Market Index thereafter.
As you can see, using 8% withdrawals on that stock portfolio would have run you out of money more than half the time.

I can't believe that those American Funds are so much better than the stock market that you can double what every researcher has found as the safe rate, nor that a plan that fails over half the time in Vanguard's simulations could become safe just by substituting actively managed stock funds (given that over the last fifteen years 90% of all actively managed stock funds underperformed the market index).
But if the 8% withdrawal is only for the stock-bond portfolio, which is probably going to be supplemented by SS. Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
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Re: Dave Ramsey - 12% per year from mutual funds?

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SB1234 wrote: Sun Jul 19, 2020 11:35 am Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
I’m sorry, but I think that any thought to withdraw 8% per year, knowing that the failure rate is over 50%, is really, really bad advice.

Relying on SS alone when the portfolio runs dry is a pretty bad option.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Clever_Username »

One of these days, a doctor with a flashlight will show us where Dave Ramsey gets his numbers from.

As pointed out elsewhere in this thread, Ramsey uses the word 'average' in a way that would be illegal if a mutual fund did it. He opposes debt because he irresponsibly used debt when he was younger, and therefore assumes no one else can use it responsibly from either side. 100% stocks is bad advice for just about anyone, and it's particularly bad for those whose advice comes from him, as I suspect they're less able to ride out volatility.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by whodidntante »

Treat Dave Ramsey as an entertainer, not a financial authority. Then things make a lot more sense.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

Clever_Username wrote: Sun Jul 19, 2020 12:03 pm One of these days, a doctor with a flashlight will show us where Dave Ramsey gets his numbers from.

As pointed out elsewhere in this thread, Ramsey uses the word 'average' in a way that would be illegal if a mutual fund did it. He opposes debt because he irresponsibly used debt when he was younger, and therefore assumes no one else can use it responsibly from either side. 100% stocks is bad advice for just about anyone, and it's particularly bad for those whose advice comes from him, as I suspect they're less able to ride out volatility.

Here you go. Fund lifetime return is what he quotes. Implicit that it is American funds that he is referring (he had stated a few times the specific American fund mutual fund).

https://www.capitalgroup.com/individual ... =quarterly
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by jibantik »

Clever_Username wrote: Sun Jul 19, 2020 12:03 pm One of these days, a doctor with a flashlight will show us where Dave Ramsey gets his numbers from.
LOL :sharebeer
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by SB1234 »

Stinky wrote: Sun Jul 19, 2020 11:59 am
SB1234 wrote: Sun Jul 19, 2020 11:35 am Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
I’m sorry, but I think that any thought to withdraw 8% per year, knowing that the failure rate is over 50%, is really, really bad advice.

Relying on SS alone when the portfolio runs dry is a pretty bad option.
I think you are missing my point. The 50% failure rate is only for the stock-bond portfolio. Say, If your basic expenses are met with SS + 2% withdrawal from your portfolio. What's the harm that you take 6% more for luxuries+splurges after good years. After bad years you can dial down to 2% and still be safe.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

Stinky wrote: Sun Jul 19, 2020 11:59 am
SB1234 wrote: Sun Jul 19, 2020 11:35 am Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
I’m sorry, but I think that any thought to withdraw 8% per year, knowing that the failure rate is over 50%, is really, really bad advice.

Relying on SS alone when the portfolio runs dry is a pretty bad option.
Sadly people continue to repeat falsehoods in this thread. I would say DR proposes a variable withdrawal rate primarily taking no more than the growth for the year while being competely debt free, live below your means, have a significant portfolio built up, and have social security. He doesn't propose a fixed withdrawal rate.

Unfortunately people have translated the guidance of if you get growth of 8% for this specific year so you take no more than 8% (preferably much less) as = 8% SWR. Sad.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Spin »

nisiprius wrote: Sun Jul 19, 2020 10:07 am Don't worry about cluttering up the forum, and sorry you got criticized. Sure, us regulars hate topics that keep coming up again and again, but, frankly, the PHPbb (forum software)'s search function sucks, and it's not really that easy to find the older discussions.
Does searching the forum via Google (outside the forum software) help? I generally go to Google and type in:

12% mutual funds bogleheads.org

The results look halfway decent and the first result is from 2011.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

Nate79 wrote: Sun Jul 19, 2020 12:14 pm
Stinky wrote: Sun Jul 19, 2020 11:59 am
SB1234 wrote: Sun Jul 19, 2020 11:35 am Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
I’m sorry, but I think that any thought to withdraw 8% per year, knowing that the failure rate is over 50%, is really, really bad advice.

Relying on SS alone when the portfolio runs dry is a pretty bad option.
Sadly people continue to repeat falsehoods in this thread. I would say DR proposes a variable withdrawal rate primarily taking no more than the growth for the year while being competely debt free, live below your means, have a significant portfolio built up, and have social security. He doesn't propose a fixed withdrawal rate.
LOL, so if the market is up 20% in a year, you can take that much. What about when the market is down 50%?

Part of why 4% has worked in the past is that you're not taking out larger amounts when the market is doing well. 12% is a recipe for disaster.

Also, please point to where "DR proposes a variable withdrawal rate," unless you're just spinning DR's advice to make it sound something other than bad advice based on not just wrong math but also financial conflicts of interest that DR does not adequately disclose.
Last edited by 02nz on Sun Jul 19, 2020 12:20 pm, edited 1 time in total.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

Spin wrote: Sun Jul 19, 2020 12:16 pm
nisiprius wrote: Sun Jul 19, 2020 10:07 am Don't worry about cluttering up the forum, and sorry you got criticized. Sure, us regulars hate topics that keep coming up again and again, but, frankly, the PHPbb (forum software)'s search function sucks, and it's not really that easy to find the older discussions.
Does searching the forum via Google (outside the forum software) help? I generally go to Google and type in:

12% mutual funds bogleheads.org

The results look halfway decent and the first result is from 2011.
This topic was discussed a few months ago. And probably every few months.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

02nz wrote: Sun Jul 19, 2020 12:17 pm
Nate79 wrote: Sun Jul 19, 2020 12:14 pm
Stinky wrote: Sun Jul 19, 2020 11:59 am
SB1234 wrote: Sun Jul 19, 2020 11:35 am Then the strategy of starting with 8% withdrawal (from the stock-bond portfolio) may not be bad strategy to maximize consumption over the retirement horizon. Considering there will be at least some SS to fallback on and the withdrawal can also be adjusted downward if returns are not seen early.
I’m sorry, but I think that any thought to withdraw 8% per year, knowing that the failure rate is over 50%, is really, really bad advice.

Relying on SS alone when the portfolio runs dry is a pretty bad option.
Sadly people continue to repeat falsehoods in this thread. I would say DR proposes a variable withdrawal rate primarily taking no more than the growth for the year while being competely debt free, live below your means, have a significant portfolio built up, and have social security. He doesn't propose a fixed withdrawal rate.
Also, please point to where "DR proposes a variable withdrawal rate."
On his shows. All the time when the topic comes up. What I wrote is what he says. I'm not sure how this is so difficult. Do you listen to the show?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by abyan »

goshenBogle wrote: Sun Jul 19, 2020 9:55 am My apology - I had noticed previous posts on this subject.

If an administrator reads this, please remove the post. Sorry for cluttering up the forum.
I had no idea that Dave Ramsey gave bad investment advice, so I for one am glad you brought this up!
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Helo80 »

DR bash thread.... sweet!
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by nisiprius »

If anyone has a link to somewhere on his website that spells out exactly what he means by 8% withdrawals, it seems relevant. In all discussions of systematic withdrawal strategies I've ever seen, X% means that X% of portfolio in the first year, then the same dollar amount with COLA in subsequent years--decoupled from portfolio value. My opinion you can do that with 8% is unforegivably bad advice. It's also my opinion that simply taking 8% every year is seriously bad advice because it does not provide any buffering or leveling relative to the fluctuations of the stock market. It amounts to saying that you will not mind having your retirement income suddly cut in half.

But it is fair to say that we need to discuss exactly what he actually advising, if he spells it out in detail.

For example, if he explicitly said that his withdrawal strategy is "8% initial, then COLAed, and fall back on Social Security if the portfolio is spent down to zero," then we could discuss that.

[Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Helo80 »

David Jay wrote: Sun Jul 19, 2020 10:39 am If you have listened to Dave Ramsey (he used to be on at drive time when I was still working), you will come to understand that he is a Real Estate guy at heart. If you call in to discuss investment property, he has his calculator out doing free-cash-flow and mortgage amortization calculations. He loves that stuff. If I needed answers in this area I would call him.


DR is just not a BH at the end of the day.

He was making something like $250k a year in his early 20s flipping real estate. ($250k in 1980s dollars). Then, when the market crashed, the bank he was taking commercial notes from got bought out by a larger bank, and said new bank decided to call all of his loans. While he had never missed a payment before, suddenly he was owing millions of dollars (again, in 1980s money).... so, of course he had to declare bankruptcy.

He lost his fortune, once.

Now, he's obviously made it back and then some... He's said several times he owns hundreds of millions in real estate and paid for his new office building in cash ($70 million).

Most people on this site have a much more conservative approach to careers and building wealth than DR does. DR likes aggressive growth mutual funds. BHs believe that long-term, index funds are superior. I think that's part of the disconnect, and there will never be a happy medium. I don't like sales, I like real estate, but not turning my whole career towards it. Obviously, licensed realtors are a dime a dozen, and 99% of them will never be as successful as Dave because homeboy thinks big.

BHs don't like the shadiness of his ELPs... but DR is a salesman, and BHs loathe that profession (making gross generalization). Even a simple oil change at a dealership, BHs get spidey senses and feel like there must be some level of deceit.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

nisiprius wrote: Sun Jul 19, 2020 12:28 pm If anyone has a link to somewhere on his website that spells out exactly what he means by 8% withdrawals, it seems relevant. In all discussions of systematic withdrawal strategies I've ever seen, X% means that X% of portfolio in the first year, then the same dollar amount with COLA in subsequent years--decoupled from portfolio value. My opinion you can do that with 8% is unforegivably bad advice. It's also my opinion that simply taking 8% every year is seriously bad advice because it does not provide any buffering or leveling relative to the fluctuations of the stock market. It amounts to saying that you will not mind having your retirement income suddly cut in half.

But it is fair to say that we need to discuss exactly what he actually advising, if he spells it out in detail.

For example, if he explicitly said that his withdrawal strategy is "8% initial, then COLAed, and fall back on Social Security if the portfolio is spent down to zero," then we could discuss that.

[Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
How many of his shows have you listened to?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by SB1234 »

Through my perhaps cloudy lenses, it would appear that the folks who call in to the show are not terribly sophisticated. (Disclaimer: I have not listened in even once).
But the opposition over here really stems from the advice being non-boglehead.
But in reality, who over here has been a boglehead from the get go. Perhaps a few. Most become bogleheads after they realize the returns they could get by going the passive way. But the only realize that when the have
1. Accumulated a bit of savings
2. Have an income in excess of their consumption.

That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
anecdotes are not data
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by megabad »

I actually agree with most of what Dave Ramsay publishes. I don’t pay much attention to his one off comments on his show because there is usually no context or explanation given.

The argument against his return prediction has been raging for ages across the internet. I think 12% is laughable but I know a good number of folks on this forum that are proposing pretty laughably high returns as well. I hope they and Ramsay are right, but I certainly won’t be counting on it.

Only place where I disagree with Ramsay significantly is on the need for financial advisors. I think some folks might want them and some folks might not, but everyone does not need them. Ramsay is certainly biased on that front with his ELP program.

And yes, I am vehemently opposed to any salesperson claiming to be a financial advisor. In a lot of cases what this looks like to me is a “financial advisor” stealing money from grandma and lying to her about the products she is investing in, hard to support that. I am much more inclined to support a fiduciary who by definition must be an advisor first and salesperson last.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by renegade06 »

Triple digit golfer wrote: Sun Jul 19, 2020 9:54 am His advice for getting out of debt is fine.

His investing advice is as bad as it gets. Ignore it completely.
+1
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

Nate79 wrote: Sun Jul 19, 2020 12:43 pm
nisiprius wrote: Sun Jul 19, 2020 12:28 pm If anyone has a link to somewhere on his website that spells out exactly what he means by 8% withdrawals, it seems relevant. In all discussions of systematic withdrawal strategies I've ever seen, X% means that X% of portfolio in the first year, then the same dollar amount with COLA in subsequent years--decoupled from portfolio value. My opinion you can do that with 8% is unforegivably bad advice. It's also my opinion that simply taking 8% every year is seriously bad advice because it does not provide any buffering or leveling relative to the fluctuations of the stock market. It amounts to saying that you will not mind having your retirement income suddly cut in half.

But it is fair to say that we need to discuss exactly what he actually advising, if he spells it out in detail.

For example, if he explicitly said that his withdrawal strategy is "8% initial, then COLAed, and fall back on Social Security if the portfolio is spent down to zero," then we could discuss that.

[Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
How many of his shows have you listened to?
They're all online, so feel free to cite episodes/timings where he explains this variable withdrawal model, or arithmetic vs geometric returns, or provides a proper disclosure of his financial incentives from pushing these "12%" funds.

OP, here's an actual variable withdrawal model: https://www.bogleheads.org/wiki/Variabl ... withdrawal
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Mr.BB »

renegade06 wrote: Sun Jul 19, 2020 12:59 pm
Triple digit golfer wrote: Sun Jul 19, 2020 9:54 am His advice for getting out of debt is fine.

His investing advice is as bad as it gets. Ignore it completely.
+1
+1
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

OP, you might notice in this thread (and similar ones) that the DR apologists defend some interpretation of what Dave Ramsey says on investing, or wave the argument away with "but what really matters is getting out of debt and living below your means" (no dispute from most of us that he gives good advice there), rather than what he actually says about investing. That should tell you something.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

nisiprius wrote: Sun Jul 19, 2020 12:28 pm [Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
Her's another page on his site that specifically cites the misleading 12% figure (well he calls it "the 12% reality" LOL): https://www.daveramsey.com/blog/the-12-reality

I don't listen to the show, but I'm happy to be proven wrong if DR's defenders can point to episodes/timings where DR:
- Explains this alleged "variable withdrawal model" and risks;
- Explains why he uses arithmetic instead of geometric average; and/or
- Properly discloses the financial incentives for his investing advice.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 1210sda »

SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Just like "Whole Life Insurance is forced savings". Can't be that bad.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

1210sda wrote: Sun Jul 19, 2020 1:25 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Just like "Whole Life Insurance is forced savings". Can't be that bad.
Front loads aren't that bad, just spread 5.75% over your whole life! :oops:
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Nobody is saying he's doing anything illegal, but nothing obligates us to either accept or reject 100% of what DR does either. That's a false choice (as I wrote above, I think it's telling that the apologists keep resorting to this rather than defending what DR's actual investing advice). He could just as easily tell people for investing, "Use index/target retirement date funds, super easy" or "Go to Bogleheads.org." Instead he tells them "you need a professional", because of his financial incentives (which he doesn't disclose properly IMHO, especially for his - as you say - unsophisticated audience).
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by SB1234 »

1210sda wrote: Sun Jul 19, 2020 1:25 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Just like "Whole Life Insurance is forced savings". Can't be that bad.
It's not the same thing. Whole life policies start with a negative value because of the surrender value.
anecdotes are not data
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by SB1234 »

02nz wrote: Sun Jul 19, 2020 1:25 pm
1210sda wrote: Sun Jul 19, 2020 1:25 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Just like "Whole Life Insurance is forced savings". Can't be that bad.
Front loads aren't that bad, just spread 5.75% over your whole life! :oops:
It's still better than those people not saving anything. From what I have read the funds the advisors recommend are not too bad. And they track pretty much track the market.
anecdotes are not data
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by Nate79 »

02nz wrote: Sun Jul 19, 2020 1:00 pm
Nate79 wrote: Sun Jul 19, 2020 12:43 pm
nisiprius wrote: Sun Jul 19, 2020 12:28 pm If anyone has a link to somewhere on his website that spells out exactly what he means by 8% withdrawals, it seems relevant. In all discussions of systematic withdrawal strategies I've ever seen, X% means that X% of portfolio in the first year, then the same dollar amount with COLA in subsequent years--decoupled from portfolio value. My opinion you can do that with 8% is unforegivably bad advice. It's also my opinion that simply taking 8% every year is seriously bad advice because it does not provide any buffering or leveling relative to the fluctuations of the stock market. It amounts to saying that you will not mind having your retirement income suddly cut in half.

But it is fair to say that we need to discuss exactly what he actually advising, if he spells it out in detail.

For example, if he explicitly said that his withdrawal strategy is "8% initial, then COLAed, and fall back on Social Security if the portfolio is spent down to zero," then we could discuss that.

[Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
How many of his shows have you listened to?
They're all online, so feel free to cite episodes/timings where he explains this variable withdrawal model, or arithmetic vs geometric returns, or provides a proper disclosure of his financial incentives from pushing these "12%" funds.

OP, here's an actual variable withdrawal model: https://www.bogleheads.org/wiki/Variabl ... withdrawal
I'm not going to go back thru his thousands of episodes to get these details. They have been discussed many times on his show but it's not worth my time and effort because I don't think it would do any good because it would satisfy a certain crowd on here. Maybe next time he discusses one of these topics I'll bump this thread for the fun of it. My guess those that like to continue to post false information doesn't want to spend the time neither.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by SB1234 »

02nz wrote: Sun Jul 19, 2020 1:29 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Nobody is saying he's doing anything illegal, but nothing obligates us to either accept or reject 100% of what DR does either. That's a false choice (as I wrote above, I think it's telling that the apologists keep resorting to this rather than defending what DR's actual investing advice). He could just as easily tell people for investing, "Use index/target retirement date funds, super easy" or "Go to Bogleheads.org." Instead he tells them "you need a professional", because of his financial incentives (which he doesn't disclose properly IMHO, especially for his - as you say - unsophisticated audience).
Why should our morals apply to others.
Why does Google track you every where. Why does FB sell you out to the highest bidder
Because there is a buck to be made.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

SB1234 wrote: Sun Jul 19, 2020 1:49 pm
02nz wrote: Sun Jul 19, 2020 1:29 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Nobody is saying he's doing anything illegal, but nothing obligates us to either accept or reject 100% of what DR does either. That's a false choice (as I wrote above, I think it's telling that the apologists keep resorting to this rather than defending what DR's actual investing advice). He could just as easily tell people for investing, "Use index/target retirement date funds, super easy" or "Go to Bogleheads.org." Instead he tells them "you need a professional", because of his financial incentives (which he doesn't disclose properly IMHO, especially for his - as you say - unsophisticated audience).
Why should our morals apply to others.
Why does Google track you every where. Why does FB sell you out to the highest bidder
Because there is a buck to be made.
Thank you for proving my point that DR defenders can't actually defend his investing advice, they can only resort to whataboutism.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 1210sda »

02nz wrote: Sun Jul 19, 2020 1:14 pm Her's another page on his site that specifically cites the misleading 12% figure (well he calls it "the 12% reality" LOL): https://www.daveramsey.com/blog/the-12-reality
Thank you 02nz.

After reading this,

1. The writer doesn't understand Sequence of Returns, or
2. He/she is only addressing investors in the accumulation phase,

This come to mind.... some innocent soul, freshly off having paid off all his enormous debt, is told to go to 100% stocks and also told that it takes "endurance, patience and will power". I wonder what he/she does when their portfolio drops by more than 50%?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

Nate79 wrote: Sun Jul 19, 2020 1:45 pm
02nz wrote: Sun Jul 19, 2020 1:00 pm
Nate79 wrote: Sun Jul 19, 2020 12:43 pm
nisiprius wrote: Sun Jul 19, 2020 12:28 pm If anyone has a link to somewhere on his website that spells out exactly what he means by 8% withdrawals, it seems relevant. In all discussions of systematic withdrawal strategies I've ever seen, X% means that X% of portfolio in the first year, then the same dollar amount with COLA in subsequent years--decoupled from portfolio value. My opinion you can do that with 8% is unforegivably bad advice. It's also my opinion that simply taking 8% every year is seriously bad advice because it does not provide any buffering or leveling relative to the fluctuations of the stock market. It amounts to saying that you will not mind having your retirement income suddly cut in half.

But it is fair to say that we need to discuss exactly what he actually advising, if he spells it out in detail.

For example, if he explicitly said that his withdrawal strategy is "8% initial, then COLAed, and fall back on Social Security if the portfolio is spent down to zero," then we could discuss that.

[Added]I did find this:
You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000.
This isn't a variable withdrawal strategy. This is an assertion that 8% withdrawals will generate a fixed income of exactly $50,000 every year. Or, that because you investments will "average" 12% growth per year, you will get an average of $50,000 per year, and the fluctuations will be small enough to ignore.

That's my interpretation. What else can "you will live on $50,000 per year" mean?
How many of his shows have you listened to?
They're all online, so feel free to cite episodes/timings where he explains this variable withdrawal model, or arithmetic vs geometric returns, or provides a proper disclosure of his financial incentives from pushing these "12%" funds.

OP, here's an actual variable withdrawal model: https://www.bogleheads.org/wiki/Variabl ... withdrawal
I'm not going to go back thru his thousands of episodes to get these details. They have been discussed many times on his show but it's not worth my time and effort because I don't think it would do any good because it would satisfy a certain crowd on here. Maybe next time he discusses one of these topics I'll bump this thread for the fun of it. My guess those that like to continue to post false information doesn't want to spend the time neither.
I see, so those who disagree with you and have cited directly from DR's website are "posting false information," but you can't be bothered to cite anything to correct the record. Got it. Nevertheless, I look forward to when DR next discusses his variable withdrawal system so we can compare its advantages and disadvantages with the Bogleheads VPW.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by JohnFiscal »

Lots of discussions about DR, but I have to say that I'm astonished that Ramsey is still promulgating this nonsensical return information. He must know himself that this is patently false and yet he continues to mislead his -mostly unsophisticated- listeners. It's like he helps them get out of debt (though I disagree even with his "snowball" theory) just to get them hooked on his investing schemes.

goshenBogle wrote: Sun Jul 19, 2020 9:52 am Listening to Dave Ramsey. A listener called and asked for retirement advice. His answer: Invest in good quality mutual funds where you can "safely" (his word) make 12% per year. You can take out 8% per year and still see your investment grow.

WHAT?? Am I missing something? What "safe" mutual funds will provide 12% per year? How does he come up with this number?
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

1210sda wrote: Sun Jul 19, 2020 2:03 pm
02nz wrote: Sun Jul 19, 2020 1:14 pm Her's another page on his site that specifically cites the misleading 12% figure (well he calls it "the 12% reality" LOL): https://www.daveramsey.com/blog/the-12-reality
Thank you 02nz.

After reading this,

1. The writer doesn't understand Sequence of Returns, or
2. He/she is only addressing investors in the accumulation phase,

This come to mind.... some innocent soul, freshly off having paid off all his enormous debt, is told to go to 100% stocks and also told that it takes "endurance, patience and will power". I wonder what he/she does when their portfolio drops by more than 50%?
Or if things do go pretty well for a few years, they project their portfolio using the wildly optimistic 12% and undersave for retirement.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by PharmerBrown »

He'll make cursory statements such as "if the markets down, well then you don't take as much" but he doesn't advocate a strategy.

He sounds like an Edward Jones salesman because he has the same conflict of interest as they do.
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Re: Dave Ramsey - 12% per year from mutual funds?

Post by 02nz »

SB1234 wrote: Sun Jul 19, 2020 1:40 pm
02nz wrote: Sun Jul 19, 2020 1:25 pm
1210sda wrote: Sun Jul 19, 2020 1:25 pm
SB1234 wrote: Sun Jul 19, 2020 12:48 pm That's why I feel that even if DR is shilling for the advisory service, it's better than not doing anything. It may not the best. That's why I don't like these bashing threads. He's not doing anything illegal. Most bogleheads were non-bogleheads before.
Just like "Whole Life Insurance is forced savings". Can't be that bad.
Front loads aren't that bad, just spread 5.75% over your whole life! :oops:
It's still better than those people not saving anything. From what I have read the funds the advisors recommend are not too bad. And they track pretty much track the market.
You can say exactly the same thing about Edward Jones. They push the same funds (American Funds) as DR.
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