Dave Ramsey - 12% per year from mutual funds?

[SB1234]

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.

There is nothing to prove. US is capitalist country.

[SB1234]

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!

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.

Yes which is why I do no go bashing them. They have a value.

[02nz]

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.

There is nothing to prove. US is capitalist country.

Compound annual growth rate is not a socialist idea.

[SB1234]

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.

There is nothing to prove. US is capitalist country.

Compound annual growth rate is not a socialist idea.

And compound growth from zero is?

[02nz]

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.

There is nothing to prove. US is capitalist country.

Compound annual growth rate is not a socialist idea.

And compound growth from zero is?

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

[SB1234]

Thank you for proving my point that DR defenders can't actually defend his investing advice, they can only resort to whataboutism.

There is nothing to prove. US is capitalist country.

Compound annual growth rate is not a socialist idea.

And compound growth from zero is?

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

[02nz]

There is nothing to prove. US is capitalist country.

Compound annual growth rate is not a socialist idea.

And compound growth from zero is?

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

[Third Son]

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 have a much easier time doing a google search and include :bogleheads. Such as Dave Ramsey :bogleheads, or Why bonds :bogleheads. I get right to what I searched for more times than not.

[SB1234]

Compound annual growth rate is not a socialist idea.

And compound growth from zero is?

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

[02nz]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

[rockstar]

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?

I was told this number in 1999 when I started my first job. I should expect a 12% annualized return. What happened instead is that the market returned pretty much zero for the next decade. And there were books and articles out there that warned about this. I just didn't know about them or read them. Now, I follow Jack Bogle's advice in his little book of common sense investing to set reasonable expectations. And I infrequently time to take advantage of opportunities.

[02nz]

And compound growth from zero is?

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

[dh]

I met a woman many years ago who was drowning financially (debt; took a 2nd job in retail at a store called J. Jills where she spent more money than she earned there). She heard Dave Ramsey on the radio and thought "I need to buy his program" (it was going to have multiple cassettes on his program, a book, ... I apologize but I can't remember the name). It was very costly (over $200) and her check ended up bouncing. She didn't receive any of the materials from Ramsey but she was able to purchase the "coffeehouse investor" at a fraction of the price she would have shelled out for Ramsey's canned program. She is doing well today and said that not buying his program was the best thing that ever happened to her financially.

Although, I do believe she did took encouragement from listening to his motivational radio programs. So if you are trying to get out of debt, you may benefit from listening to Ramsey's free radio programs. If you want to put down any money, pick something off from Taylor's wikis on investing gems.

[02nz]

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.

"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair

[Nate79]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page. And as you pointed out other funds performed greater than 12%.

[02nz]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page.

Try purchasing American Funds from Dave's ELP without the load.

[Nate79]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page.

Try purchasing American Funds from Dave's ELP without the load.

Advisors make their money one of three ways. Sales loads, AUM, or a fixed fee of some sort. There are American Funds that can be had through an advisor without a sales load.

[02nz]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page.

Try purchasing American Funds from Dave's ELP without the load.

Advisors make their money one of three ways. Sales loads, AUM, or a fixed fee of some sort. There are American Funds that can be had through an advisor without a sales load.

You mean salespeople. And yes, they have to eat somehow, which explains a big chunk of the difference in the figures above. Now whether their services are worth the cost compared to investing in index funds, everybody has to decide for themselves.

[SB1234]

I don't know what "compound growth from zero" is. Googling does not suggest it's a common accepted/used term. Anyway, a criticism of DR is his use of arithmetic rather than compound growth rates. Others have already explained the difference in this thread, so perhaps you should read.

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

OP is member since 2011.
Anyways I think there many points of debate in this thread. But what's not justifiable is bogleheads coming out with pitchforks against someone who espouses positions outside the mainstream here.

[Helo80]

Try purchasing American Funds from Dave's ELP without the load.

Wouldn't you need to solicit an ELP and then ask questions about the underlying funds and class shares that said ELP is buying on your behalf before you can infer what you're inferring?

[02nz]

Such a basic concept as compounding from zero should not need googling. If principal is zero, no amount of growth will matter

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

OP is member since 2011.
Anyways I think there many points of debate in this thread. But what's not justifiable is bogleheads coming out with pitchforks against someone who espouses positions outside the mainstream here.

Sorry, arithmetic returns aren't a matter of opinion. It's bunk designed to make his pitch sound better than it is in reality.

[02nz]

Try purchasing American Funds from Dave's ELP without the load.

Wouldn't you need to solicit an ELP and then ask questions about the underlying funds and class shares that said ELP is buying on your behalf before you can infer what you're inferring?

Your point being?

[Helo80]

... coming out with pitchforks against someone who espouses positions outside the mainstream here.

The investing topic just resonates with a lot of people here. On one hand, I get it that it's so easy to determine risk tolerance and make a educated guess for a 3-fund portfolio that aligns to ones risk tolerance. On the other, some people, regardless of education and income level, are just terrible with managing money and investing. There are people out there fearful of any investment product that has the risk of losing money.

[Helo80]

Try purchasing American Funds from Dave's ELP without the load.

Wouldn't you need to solicit an ELP and then ask questions about the underlying funds and class shares that said ELP is buying on your behalf before you can infer what you're inferring?

Your point being?

How do you know Dave's ELP charge a load fee?

I've been in American Funds that had zero load fees and the ER I believe was 30 bps. It was their target retirement fund... Z-class IIRC.

[PharmerBrown]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page. And as you pointed out other funds performed greater than 12%.

The 12% comes from the average historical arithmetic return of the S&P 500.

[Helo80]

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).

Financial incentives? Guess what? We live in a world full of that....

Shaq is not necessarily disclosing that he's receiving compensation for advertising Gold Bond. DR endorses several locally owned businesses in my area, far from Nashville, and DR is not saying he's receiving compensation for recommending said company. Lots of YT personalities now are advertising products in their videos. Nobody is mentioning the incentives they're receiving, rather I think normal people realize that it's not for free.

I think it's generally understood by most people that DR is getting a kickback. DR is a salesman, get over it. He also says that using a realtor to buy and sell puts you at a mathematical advantage (or something like that) even though you pay a commission. Personally, I think that's a dubious claim, but he's a salesman.

[SB1234]

So listen to DR for getting out of debt and budgeting. Doesn't change that the investing advice is mathematically flawed and financially conflicted.

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

OP is member since 2011.
Anyways I think there many points of debate in this thread. But what's not justifiable is bogleheads coming out with pitchforks against someone who espouses positions outside the mainstream here.

Sorry, arithmetic returns aren't a matter of opinion. It's bunk designed to make his pitch sound better than it is in reality.

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.
More than the return rate, the savings rate will have an impact on a person's accumulation.

[Helo80]

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.
More than the return rate, the savings rate will have an impact on a person's accumulation.

Also, DR is incredibly condescending towards CD and savings accounts....

[palaheel]

Less than two hours from thread opening to character attack.

Does anyone who's actually listened to his show for more than 5 minutes dispute that the vast majority of his time is spent on debt and household finances? And that the vast majority of his audience is focused on those issues? Does anyone argue that his debt advice, given his audience, is snake oil?

His investing strategy is bad, but it's a tertiary topic, at most.

[Nate79]

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).

Financial incentives? Guess what? We live in a world full of that....

Shaq is not necessarily disclosing that he's receiving compensation for advertising Gold Bond. DR endorses several locally owned businesses in my area, far from Nashville, and DR is not saying he's receiving compensation for recommending said company. Lots of YT personalities now are advertising products in their videos. Nobody is mentioning the incentives they're receiving, rather I think normal people realize that it's not for free.

I think it's generally understood by most people that DR is getting a kickback. DR is a salesman, get over it. He also says that using a realtor to buy and sell puts you at a mathematical advantage (or something like that) even though you pay a commission. Personally, I think that's a dubious claim, but he's a salesman.

DR discloses regularly on his show that ELPs pay a fixed fee to join the program and in return they must follow the investing advice to the letter along with accepting all clients regardless of portfolio size. This would not be news to anyone who listens to the show.

[Nate79]

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.
More than the return rate, the savings rate will have an impact on a person's accumulation.

Also, DR is incredibly condescending towards CD and savings accounts....

I don't understand this comment. So do many Bogleheads. They are pathetic earning accounts but serve an important purpose - for emergency funds. In this case I think DR and Bogleheads are mostly aligned.

[02nz]

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).

Financial incentives? Guess what? We live in a world full of that....

Shaq is not necessarily disclosing that he's receiving compensation for advertising Gold Bond. DR endorses several locally owned businesses in my area, far from Nashville, and DR is not saying he's receiving compensation for recommending said company. Lots of YT personalities now are advertising products in their videos. Nobody is mentioning the incentives they're receiving, rather I think normal people realize that it's not for free.

I think it's generally understood by most people that DR is getting a kickback. DR is a salesman, get over it. He also says that using a realtor to buy and sell puts you at a mathematical advantage (or something like that) even though you pay a commission. Personally, I think that's a dubious claim, but he's a salesman.

I think close to 100% of people who watch a Gold Bond commercial featuring Shaq will understand that he's a paid spokesperson. I very much doubt even a sizable minority of DR listeners understand why he uses arithmetic rather than geometric returns, or even the difference between the two and why it matters.

[02nz]

Try purchasing American Funds from Dave's ELP without the load.

Wouldn't you need to solicit an ELP and then ask questions about the underlying funds and class shares that said ELP is buying on your behalf before you can infer what you're inferring?

Your point being?

How do you know Dave's ELP charge a load fee?

I've been in American Funds that had zero load fees and the ER I believe was 30 bps. It was their target retirement fund... Z-class IIRC.

Well the ELPs have got their costs and they also have to pay DR, so they sure as heck aren't going to be able to sell Americans Funds as though it were a 401k or even the modest transaction fees Vanguard would charge you to buy AF. Front load, back load, or AUM, pick your poison.

[Helo80]

Well the ELPs have got their costs and they also have to pay DR, so they sure as heck aren't going to be able to sell Americans Funds as though it were a 401k or even the modest transaction fees Vanguard would charge you to buy AF. Front load, back load, or AUM, pick your poison.

Wasn't buying through Vanguard... was buying through Payflex. No load and the american fund class share available had the lowest ER.

[willthrill81]

No one is saying it's the best advise. But if the advise is helping the people to save then it's not that bad. Plus in the future when the have accumulated a bit, they can always switch. It's not going to do major harm over a person's lifetime.
Don't let it be just black or white. There are always shades of gray.
Investing over your life can be a multi step process. Not everyone has it figured out from the get go.

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

OP is member since 2011.
Anyways I think there many points of debate in this thread. But what's not justifiable is bogleheads coming out with pitchforks against someone who espouses positions outside the mainstream here.

Sorry, arithmetic returns aren't a matter of opinion. It's bunk designed to make his pitch sound better than it is in reality.

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.

I've heard this claim repeatedly. However, it's basically saying that the ends justify the means. It doesn't matter if someone is grossly misrepresenting the truth, which saying that the S&P 500 has historically returned 12% definitively is, as long as it results in them engaging in the right behavior. I will not acquiesce to such rot.

Further, it seems to be pretty clear why DR continues to push the erroneous '12% returns' statement. First, he has made it crystal clear that he will never, under any circumstances, admit to making an error or changing what he says. I suppose that he's afraid of losing face, so he doubles down when confronted by people who know what they are talking about when it comes to financial matters, which much of DR's audience probably doesn't.

Second, by proclaiming that the funds he recommends have had 12% returns, uninformed listeners are a lot more likely to go to one of his ELPs to get some of that action rather than to a respectable source that is telling that inflation-adjusted compounded returns were actually closer to 7% and that they had better not count on getting even that over their specific investment horizon.

[Helo80]

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.
More than the return rate, the savings rate will have an impact on a person's accumulation.

Also, DR is incredibly condescending towards CD and savings accounts....

I don't understand this comment. So do many Bogleheads. They are pathetic earning accounts but serve an important purpose - for emergency funds. In this case I think DR and Bogleheads are mostly aligned.

In terms of people being motivated to earn 2% returns.... While DR does recommend an Emergency Fund and would have no issues in listeners keeping it in a HYSA somewhere.... he's never recommended CDs/HYSA for long-term retirement saving. He openly mocks people who do that.

[Helo80]

"Use index/target retirement date funds, super easy" or "Go to Bogleheads.org."

Also, we don't have the resources to support his audience. Period.

[02nz]

Well the ELPs have got their costs and they also have to pay DR, so they sure as heck aren't going to be able to sell Americans Funds as though it were a 401k or even the modest transaction fees Vanguard would charge you to buy AF. Front load, back load, or AUM, pick your poison.

Wasn't buying through Vanguard... was buying through Payflex. No load and the american fund class share available had the lowest ER.

So it was a workplace plan, whole different ball of wax. My point was, you're not going to buy those funds without additional costs (front load or other fees) through ELPs.

[02nz]

"Use index/target retirement date funds, super easy" or "Go to Bogleheads.org."

Also, we don't have the resources to support his audience. Period.

What does that mean? His listeners can come here, they can learn, they can give advice.

[arcticpineapplecorp.]

Dave Ramsey's quote of 12% may be the average return of the market, but this is not the compound return of the market.

Paul Merriman discusses this all the time (he just did a couple weeks ago as well on his podcast). Paul gives the example of the difference:

Average returns, often a popular selling tool used by brokers and commission-based investment advisers, may sound good. But investors don’t actually get average returns; they get compound returns.

For example, if you invest $1,000 and it goes up 50% in the first year and then drops by 50% the second year, the average return was zero — leading some people to think you broke even. But you didn’t.

At the end of the first year you had $1,500; at the end of the second year you had only $750. That’s a cumulative loss of 25%, or a compound loss of 13.4% a year.

My advice: Ignore average returns. Instead, focus on multiyear compound returns.
source: https://paulmerriman.com/understanding- ... 500-index/

p.s., dave ramsey has admitted in previous podcasts he doesn't know as much about investing as he does about getting out of debt. So only pay attention to what he admits to others he knows best.

[SB1234]

And that's presumably why the OP has come here from listening to DR's show, and why, in response to OP's question, we pointed out the problems with DR's investing advice. But that is "repeating falsehoods" according to one DR apologist on this thread.

OP is member since 2011.
Anyways I think there many points of debate in this thread. But what's not justifiable is bogleheads coming out with pitchforks against someone who espouses positions outside the mainstream here.

Sorry, arithmetic returns aren't a matter of opinion. It's bunk designed to make his pitch sound better than it is in reality.

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.

I've heard this claim repeatedly. However, it's basically saying that the ends justify the means. It doesn't matter if someone is grossly misrepresenting the truth, which saying that the S&P 500 has historically returned 12% definitively is, as long as it results in them engaging in the right behavior. I will not acquiesce to such rot.

Further, it seems to be pretty clear why DR continues to push the erroneous '12% returns' statement. First, he has made it crystal clear that he will never, under any circumstances, admit to making an error or changing what he says. I suppose that he's afraid of losing face, so he doubles down when confronted by people who know what they are talking about when it comes to financial matters, which much of DR's audience probably doesn't.

Second, by proclaiming that the funds he recommends have had 12% returns, uninformed listeners are a lot more likely to go to one of his ELPs to get some of that action rather than to a respectable source that is telling that inflation-adjusted compounded returns were actually closer to 7% and that they had better not count on getting even that over their specific investment horizon.

You didn't quote my post fully. Here's what you missed

More than the return rate, the savings rate will have an impact on a person's accumulation.

[Mordoch]

The 12% comes from the average historical arithmetic return of the S&P 500.

And for anyone still missing this, part of the problem is the link says nothing about inflation. Of course some of that return occurred when inflation was over 10% during the 1970s, to as high as 14% in 1980 which of course is above the average in question.

The problem is someone without any real experience with high inflation rates may assume the return reflects a relatively recent and low inflation environment so the real return rate is actually quite high, when of course all the evidence is it should be expected to be much lower.

(Of course the 12% return for the S&P 500 is also assuming someone had a low cost index which any active fund with higher fees would need to effectively outperform the S&P in order to actually match that return when you are considering the performance of the fund's investments.)

Basically Dave Ramsey has clearly had plenty of opportunity to clarify his claims and has not effectively done so, and clearly there are scenarios where his investment advice can be dangerous and potentially harmful if taken at face value.

[willthrill81]

You didn't quote my post fully. Here's what you missed

More than the return rate, the savings rate will have an impact on a person's accumulation.

That's because I was only referring to one idea in your post (i.e. "this claim"), not the entirety of it. It's very common on the forum to only quote part of someone else's post.

[SB1234]

You didn't quote my post fully. Here's what you missed

More than the return rate, the savings rate will have an impact on a person's accumulation.

That's because I was only referring to one idea in your post (i.e. "this claim"), not the entirety of it. It's very common on the forum to only quote part of someone else's post.

But not in a way that completely changed the implied meaning.

[willthrill81]

You didn't quote my post fully. Here's what you missed

More than the return rate, the savings rate will have an impact on a person's accumulation.

That's because I was only referring to one idea in your post (i.e. "this claim"), not the entirety of it. It's very common on the forum to only quote part of someone else's post.

But not in a way that completely changed the implied meaning.

You may believe that it does, but I do not. You're still saying that it's alright or even a good thing to grossly misrepresent the truth, borderline lie, to people in order to get them to do the right thing. I entirely disagree on moral grounds.

[SB1234]

You didn't quote my post fully. Here's what you missed

More than the return rate, the savings rate will have an impact on a person's accumulation.

Which is fine.

That's because I was only referring to one idea in your post (i.e. "this claim"), not the entirety of it. It's very common on the forum to only quote part of someone else's post.

But not in a way that completely changed the implied meaning.

You may believe that it does, but I do not. You're still saying that it's alright or even a good thing to grossly misrepresent the truth, borderline lie, to people in order to get them to do the right thing. I entirely disagree on moral grounds.

Which is fine. But morals are not absolute.

[Nate79]

I am willing to agree. And it's just marketing. But what if it is that pitch what gets someone to start saving. E.g someone may not be motivated to save by 2% real returns but may get motivated by a pitch of 12 % nominal arithmetic returns.
More than the return rate, the savings rate will have an impact on a person's accumulation.

Also, DR is incredibly condescending towards CD and savings accounts....

I don't understand this comment. So do many Bogleheads. They are pathetic earning accounts but serve an important purpose - for emergency funds. In this case I think DR and Bogleheads are mostly aligned.

In terms of people being motivated to earn 2% returns.... While DR does recommend an Emergency Fund and would have no issues in listeners keeping it in a HYSA somewhere.... he's never recommended CDs/HYSA for long-term retirement saving. He openly mocks people who do that.

Yes, his advice is 100% stocks for retirement, no debt, very healthy emergency fund, and paid for real estate.

[willthrill81]

You didn't quote my post fully. Here's what you missed

Which is fine.

That's because I was only referring to one idea in your post (i.e. "this claim"), not the entirety of it. It's very common on the forum to only quote part of someone else's post.

But not in a way that completely changed the implied meaning.

You may believe that it does, but I do not. You're still saying that it's alright or even a good thing to grossly misrepresent the truth, borderline lie, to people in order to get them to do the right thing. I entirely disagree on moral grounds.

Which is fine. But morals are not absolute.

You may believe that morals are not absolute. I believe that they are.

Further, take a poll and ask people if they are alright with someone lying to them in order to get them to do what the speaker believes is in their best interest.

[Nate79]

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

Let's take the fund on that page with the highest annual return since inception (AGTHX, Growth Fund of America) and compare with the closest index, Vanguard Growth Index (VIGRX - I'll be generous and use the investor rather than admiral class). Starting in 2000, investing $1000 quarterly (with adjustments for inflation), you end in June 2020 with:

$352,613 with VIGRX
$319,988 with AGTHX. But wait, you invested 5.75% less because of the front load, so actually you get $301,589.

So low-cost indexing outperformed Dave's investing method by about 17%.

I was not saying that the American Funds are better than index funds. I was responding to where the 12% comes from - it's right there on the page.

No, you don't need to subtract the load. These funds can be available without the load (for example I have their EuroPac fund in my 401k) and regardless the return quoted on the page can be seen with and without sales load. So yes, when he says about 12% the source is right on that page. And as you pointed out other funds performed greater than 12%.

The 12% comes from the average historical arithmetic return of the S&P 500.

9 times out of 10 when DR is referring to the subject of returns and the "12%" on his show he is actually quoting his mutual funds returns and those are usually quoted right off the American Funds page. 12% CAGR is usually quoted right off their fund sheet. Sometimes he talks about S&P500 return but not usually.

[Stinky]

In the immortal words of Rodney King:

"People, I just want to say, you know, can we all get along?"

(This kind of disagreement seems to happen with every Dave Ramsey thread .....)