Dave Ramsey investing advice

[disneysteve]

I'm among those who typically criticize Dave Ramsey's investing advice. I think his system can be great for those needing to get out of debt but have always felt his investment advice was lacking.

Earlier today, I listened to a recent episode of his podcast (March 11 to be exact) and he pretty much spent the entire hour talking about how he constantly gets criticized for his advice and what he tells his listeners. I must say that after hearing the whole hour of him talking about his investment method in greater detail than I've ever heard before, I really couldn't find a whole lot to disagree with. I don't do what he suggests and I don't think most of the regulars here do either but it actually isn't awful advice.

Most folks would be far better served following his plan than doing what they are currently doing on their own. He strongly preaches investing in the stock market, dollar cost averaging, not trying to time the market, buy and hold investing, not listening to the talking heads on TV, etc., all concepts that I certainly support.

Now there are still elements of his plan with which I disagree, but overall, it's a much more solid plan than I thought.

[lorraineb]

That is what his advice is overall -- generic for those who aren't willing to take the time to figure out how to adapt personal finances to their specific needs. It's better advice than not having a plan at all, but with a bit of effort on your own part, you can do better. It's personal finance for the lazy.

[disneysteve]

That is what his advice is overall -- generic for those who aren't willing to take the time to figure out how to adapt personal finances to their specific needs. It's better advice than not having a plan at all, but with a bit of effort on your own part, you can do better. It's personal finance for the lazy.

Not everyone has the interest or the aptitude to learn all of the ins and outs of investing on their own. For those folks, I think following Dave's plan really wouldn't be such a bad idea, especially if the alternative is keeping their money in a savings account or CDs. If paying a commissioned adviser gets these folks invested in the market with a long-term outlook and appropriate asset allocation, that's a good thing.

Again, I still would debate specifics of his plan (like suggesting that everyone should be 100% stock all the time) but in general, for those who need a plan and hand-holding, the plan would certainly work.

[Wino]

I listened to the same podcast, and was wondering what some of his nay-sayers would say. Let's assume you were talking to one million random people - probably a conservative estimate of his audience size - what would you tell them differently? I would certainly not suggest they invest in gold (apologies to the doom cultists out there). I would probably not suggest bonds right now, as they have nowhere to go but up in interest; but I'm just starting to read about and follow bonds, so I could be wrong about this. I guess in this case, I would not recommend bonds because I don't understand them, and no one should invest in anything they don't understand - which is another of Dave's tenets.

His other advice, though he didn't really go in to it on the podcast in question, is to buy real estate at 70% of its value, using only cash. I think this along with his mutual fund stock advice would put pretty much anyone in a position to retire with enough reserves to allow them to not have to watch pennies until the social security check arrives.

I've said before that I didn't follow Dave's plan when I put myself into serious debt, but I did listen to his show while getting myself out of debt. I still listen, and recommend his show for those who are still in one of his baby steps. I listen for those who have managed to overcome debt and do their "screams."

Lastly, DS is getting married in about two months. I'm seriously thinking about gifting him and his bride with DR's DVD, etc. Any plan is better than no plan.

[Aleta]

I read his books and thought that I knew a lot of what he was saying. The class interaction proved me wrong. My husband and I enrolled in a class and found his teachings to be very update with the current financial situation in our country.

What I found out that was interacting with other people in the class brought on more financial understanding where most of us are in today.

I would encourage anyone to attend his classes because as I learned there is always an area that you thought you covered that you didn't.

He also offers people in your area that can help you with a particular situation that you have. They cannot charge you for their advice. I live in FL and there were only 2 people that he recommended. He gives solid advice on todays issues and has podcasts to keep you up to date.

[kv968]

Earlier today, I listened to a recent episode of his podcast (March 11 to be exact) and he pretty much spent the entire hour talking about how he constantly gets criticized for his advice and what he tells his listeners. I must say that after hearing the whole hour of him talking about his investment method in greater detail than I've ever heard before, I really couldn't find a whole lot to disagree with. I don't do what he suggests and I don't think most of the regulars here do either but it actually isn't awful advice.

I've recently found myself adding some of his podcasts to my daily listening list and I heard the same episode. Although I tend to disagree with some of his suggestions (never use CC's even for rewards, don't use 0% financing because you're going to get burned, pay off the lowest balance CC first no matter the interest rate, etc...) I think he does make a lot of sense for the audience he's applying his method to.

Some, if not most, of the people on these boards are pretty disciplined with their money, have at least some knowledge of investing and have or are trying to attain a good financial base. There are many out there who have some or none of those qualities and that's really who he's targeting and trying to help. In doing so some of the suggestions he makes doesn't really make sense to me personally, but psychologically that's the approach that may work for others.

I can't believe that I'm actually defending him, but after listening to him for awhile and hearing some of the situations he's trying to help people out of and how they're currently approaching it, his advice might not be that bad after all for a majority of them.

Now back to trashing him ... One thing I didn't like about that "investment" episode is that when it was brought up that most of the mutual funds that his "approved advisors" used were load funds, he just shrugged it off as no big deal in that "everyone has to get paid". Although I agree with the latter, there are other ways of "getting paid" (i.e. fee-only) besides putting up 5.5% of your money every time you make an investment. For as much as he'll tell people to cut back on things, NEVER pay interest, etc..., paying a load of 5.5% could be just as detrimental (if not moreso) in the long run than paying interest on a CC but he just glosses over it as being no big deal. I think that is a real disservice to the people he's trying to help.

[MonkeyMama]

Three thoughts:

I was so shocked to read his investing advice online because I have never heard him say the bulk of the "crazy" stuff on the air. I know he exaggerates, but never heard really reckless advice otherwise.

As an accountant, I think he does a huge disservice to his listeners with the "pay someone else to figure it out" attitude. I just see so much fraud when you rely on financial types, and especially when you don't know anything about investing and aren't paying attention. Which probably doesn't matter when you are first starting out and don't have anything. But if these people stick with it and amass wealth they are going to find themselves losing a lot of it if they aren't careful. Whether it's blindly agreeing with bad investment advice, not understanding ponzi schemes (which is probably likely to fall for if you expect a 12% return), or having such a hands-off attitude that you don't notice money being siphoned from your account.

Likewise, though I understand his "12% returns" are obviously exaggerated and intended to motivate, but he then tells people to invest with advisors in load funds, which is such a huge drag on returns. We can only hope these people wake up and learn more about investing at some point. I'd agree that early in their debt journey they probably have other things to worry about. I suppose his argument is that his listeners are types who buy high and sell low, so maybe that is the best they can do is have someone else manage their money for them. So that they stick with it.

I think overall Dave Ramsey does a great service for people. I don't agree with everything he says, but that doesn't bother me so much. I recognize I am not his core audience. His investment advice has always seemed far more reasonable on the air.

[disneysteve]

One thing I didn't like about that "investment" episode is that when it was brought up that most of the mutual funds that his "approved advisors" used were load funds, he just shrugged it off as no big deal in that "everyone has to get paid". Although I agree with the latter, there are other ways of "getting paid" (i.e. fee-only) besides putting up 5.5% of your money every time you make an investment.

As an accountant, I think he does a huge disservice to his listeners with the "pay someone else to figure it out" attitude. I just see so much fraud when you rely on financial types, and especially when you don't know anything about investing and aren't paying attention. Which probably doesn't matter when you are first starting out and don't have anything. But if these people stick with it and amass wealth they are going to find themselves losing a lot of it if they aren't careful. Whether it's blindly agreeing with bad investment advice, not understanding ponzi schemes (which is probably likely to fall for if you expect a 12% return), or having such a hands-off attitude that you don't notice money being siphoned from your account.

Likewise, though I understand his "12% returns" are obviously exaggerated and intended to motivate, but he then tells people to invest with advisors in load funds, which is such a huge drag on returns. We can only hope these people wake up and learn more about investing at some point. I'd agree that early in their debt journey they probably have other things to worry about. I suppose his argument is that his listeners are types who buy high and sell low, so maybe that is the best they can do is have someone else manage their money for them. So that they stick with it.

I think overall Dave Ramsey does a great service for people. I don't agree with everything he says, but that doesn't bother me so much. I recognize I am not his core audience. His investment advice has always seemed far more reasonable on the air.

I was actually surprised to hear him say that he invests in both load and no-load funds. He even said that if all someone does is put all of their money into an S&P 500 index fund, that would be great and the long term average is over 11% - and that doesn't involve a paid adviser or a 5.75% load. So he isn't totally glued to the load fund path.

As for fraud, he didn't specifically address that but I suspect his answer would be that's why he has a network of approved advisers who he promotes. I'm sure there is some vetting process required to earn his endorsement and that he isn't making every sleazy used-car salesman an ELP that he gives his blessing to.

I also realize I'm not his target audience. I think we have to keep in mind that his target audience is largely made up of people who haven't got a clue how to manage money. Using a quality adviser who will teach you about investing and get you to invest regularly in decent investments and not panic every time the news says the Dow was down a couple hundred points is probably well worth paying, at least until you know enough to take over the reins and do it yourself.

[Petunia 100]

I read his books and thought that I knew a lot of what he was saying. The class interaction proved me wrong. My husband and I enrolled in a class and found his teachings to be very update with the current financial situation in our country.

What I found out that was interacting with other people in the class brought on more financial understanding where most of us are in today.

I would encourage anyone to attend his classes because as I learned there is always an area that you thought you covered that you didn't.

He also offers people in your area that can help you with a particular situation that you have. They cannot charge you for their advice. I live in FL and there were only 2 people that he recommended. He gives solid advice on todays issues and has podcasts to keep you up to date.

That bolded part is absolutely untrue, Aleta. They do charge you for their advice. If they didn't, it would be rather difficult for them to stay in business.

Dave Ramsey's ELPs pay for his endorsement, and pay him each time he refers someone to them.

Use his ELP if you like, but understand you ARE paying, and quite a lot.

http://www.erictyson.com/articles/20090313#.UVhkGqDn9rQ

[Aleta]

Dave Ramsey

I have used an ELF from Dave Ramsey. She was trying to help me with our health insurance by going to an employee in the state of Fl insurance agency. She gave me recommendation on the type of ins to buy for me but never the company or from someone she knew.

She has truly been trying to help since Oct. I do understand that there are times and situations where one of these people could try to solicit your business, but that hasn't been the case with me. There is also the other possibility that he got some blow back. Very nice article, thank you for sharing.

[disneysteve]

They cannot charge you for their advice.

Of course they charge you for their advice. That's how they make their living. They can't give advice for free.

http://www.erictyson.com/articles/20090313#.UVhkGqDn9rQ

There are some inaccuracies in that article. For example, at least according to Dave Ramsey, he has a degree in Finance as well as being previously licensed to sell all types of investments and insurance. He no longer maintains those licenses except for his real estate license but he did have them and did have experience in the field.

That article was written in 2011 and says that DR's advice to invest 100% in stocks was bad because of the 2008-09 market crash. Dave actually addressed this very issue on the show the other day, pointing out that the market is now at a record high so folks who hung in there have regained all of their losses and then some. It took a while - 4 years from the low point - and longer than average historically, but the market did recover. The people who really lost out are the ones who panicked and pulled out of the market at the bottom and parked their money in cash.

The article also says that he dislikes index funds. That's actually not true either. I've heard him mention index funds as a good option numerous times, including in a podcast I listened to this morning. And he has said that he invests in index funds himself.

I have used an ELF from Dave Ramsey. She was trying to help me with our health insurance by going to an employee in the state of Fl insurance agency. She gave me recommendation on the type of ins to buy for me but never the company or from someone she knew.

She has truly been trying to help since Oct. I do understand that there are times and situations where one of these people could try to solicit your business, but that hasn't been the case with me. There is also the other possibility that he got some blow back. Very nice article, thank you for sharing.

Aleta, somehow the ELP you have worked with has gotten paid. She isn't giving you advice for free. Either she is collecting commissions from products she recommends or referral fees from providers she is sending you to or some other arrangement, but somehow it is costing you money to get that advice. That isn't necessarily a bad thing but you should always ask about it when listening to her recommendations - What's in it for you? It is important for you to know how much of your money is actually going to pay your adviser before you make a decision.