Anyone use Dave Ramsey

[Wino]

The investing information on his website is absolutely horrifying though.

I know you're talking about his website, which I have not read, but are you saying that "After elminating all debt except your mortgage and setting aside an emergency fund, take 15% of your income and put it into mutual funds at 25% each in (DR's 4 categories)" is "horrifying" advice?

Let's contrast that with a pre-DR portfolio:
25% Visa
25% Mastercard
25% HELOC
25% Car note

[MonkeyMama]

I know you're talking about his website, which I have not read, but are you saying that "After elminating all debt except your mortgage and setting aside an emergency fund, take 15% of your income and put it into mutual funds at 25% each in (DR's 4 categories)" is "horrifying" advice?

Let's contrast that with a pre-DR portfolio:
25% Visa
25% Mastercard
25% HELOC
25% Car note

Did you read what I said? It's the load mutual funds, paid advisor, assume 12% returns. He suggests putting 100% of your money in the stock market, and does not discuss stock market risk at all. Several of us find this advice rather horrifying. If it was just "so-so" advice, then I don't know if we'd care enough to be so vocal about it. Many of us find it to be really bad.

Obviously no one here has any problem with the "invest 15% of your income in mutual funds" part of the advice. (Well, at least the most of us).

[Wino]

Did you read what I said? It's the load mutual funds, paid advisor, assume 12% returns. He suggests putting 100% of your money in the stock market, and does not discuss stock market risk at all. Several of us find this advice rather horrifying. If it was just "so-so" advice, then I don't know if we'd care enough to be so vocal about it. Many of us find it to be really bad.

Obviously no one here has any problem with the "invest 15% of your income in mutual funds" part of the advice. (Well, at least the most of us).

I already answered the questions about financial advisors, load vs no-load funds, and his slightly (very slightly) exaggerated 12% returns. One hundred percent of your money in the stock market via dollar cost averaging has historically worked over any given 30 year period. Personally, I like real estate, and I know that I've heard Ramsey tout real estate time and again, even if it isn't on his website short formula.

So perhaps his generic advice is to folks who don't know anywhere else to put their money or anywhere else to invest. Would you prefer 100% stock market or 100% CD's or "financial advisor" annuities, whole life, and other such vehicles? That's the opposition he's fighting against. It's simplistic, but for the average Joe who has never had anything but maybe a company 401K and a ton of debt, he's at least stopping them from visiting the sharks in the "financial advisor" pond now that they have some money to invest.

I still see nothing but a bunch of unsupported hatred thrown Dave Ramsey's way, and I see no real reason for it. His advice is generic and not "horrifying." Will you maximize your retirement his way? Probably not. Will you have more than if you give all your money to the insurance company guy and his whole life policy, annuity, and over-churned mutual fund? You betcha.

[MonkeyMama]

I still see nothing but a bunch of unsupported hatred thrown Dave Ramsey's way, and I see no real reason for it. His advice is generic and not "horrifying." Will you maximize your retirement his way? Probably not. Will you have more than if you give all your money to the insurance company guy and his whole life policy, annuity, and over-churned mutual fund? You betcha.

I guess this is where we disagree. He is telling people to pay all sorts of unnecessary fees, hand their money to someone else, and to go 100% into the stock market. I think you could likely do better in a whole life policy.

I personally don't have any hatred for Dave Ramsey. ??? Disagreement or difference in opinion is not hatred.

I think a lot of us here do have a much more thorough investing knowledge, is all. Diversification, and limiting fees/expenses, are two the most basic tenets of investing. Dave speaks against these basic tenets, which does not make *any* sense to me.

[MonkeyMama]

So perhaps his generic advice is to folks who don't know anywhere else to put their money or anywhere else to invest. Would you prefer 100% stock market or 100% CD's or "financial advisor" annuities, whole life, and other such vehicles? That's the opposition he's fighting against. It's simplistic, but for the average Joe who has never had anything but maybe a company 401K and a ton of debt, he's at least stopping them from visiting the sharks in the "financial advisor" pond now that they have some money to invest.

Let me try to put this another way. I don't think anyone here said "Don't Listen to Dave Ramsey." I certainly did not say that. We are saying, "Be careful, because you will get better investment advice elsewhere." That is the long and the short of it.

I don't know how arguing that "Dave's investment advice is better than being totally completely broke," means much. I would hope anyone and everyone would want to set the bar a little higher than that. It comes across that you are defending him for being mediocre. All of us want better than mediocre.

[Wino]

Yeah. Paying someone who reads all the financial news to give you investment advice is as stupid as paying someone to do your taxes for you just because she keeps up with the latest in tax laws and such.

[MonkeyMama]

Yeah. Paying someone who reads all the financial news to give you investment advice is as stupid as paying someone to do your taxes for you just because she keeps up with the latest in tax laws and such.

???

I don't think the average person on this forum probably needs professional tax advice any more than professional investment advice. If you want me to argue that everyone needs a CPA, I am not going to.

[Wino]

I don't know how arguing that "Dave's investment advice is better than being totally completely broke," means much. I would hope anyone and everyone would want to set the bar a little higher than that. It comes across that you are defending him for being mediocre. All of us want better than mediocre.

If we're going to go in to mischaracterizing the opposition, what I've heard from you is "Do everything yourself and don't listen to any advisors. Whatever you do, though, is stay out of the stock market."

Or should we instead make our own points and leave the interpretation up to the readers?

[MonkeyMama]

If we're going to go in to mischaracterizing the opposition, what I've heard from you is "Do everything yourself and don't listen to any advisors. Whatever you do, though, is stay out of the stock market."

Or should we instead make our own points and leave the interpretation up to the readers?

Look, I am signing out. We are clearly at "agree to disagree" point, which I am totally fine with. I think we have both said our piece. (& man, I got other stuff to do...)

[Petunia 100]

How conveniently you both ignored the premise, and just jumped to the conclusion:
With that assumption, he never touches the principle. If you look at the S&P500 over any significant cycle, it has averaged 11%+, so the 12% might be optimistic but not unreasonably so. Also, during the cycle, you can be certain that inflation was higher than 4% on average. So, his assumptions are not reasonable, but his conclusion based on those assumptions is correct. That's pure math.

Except his "pure math" uses simple average instead of CAGR (Compounded Annual Growth Rate) and completely ignores volatility. The long-term CAGR of the S & P 500 is a bit under 10%.

Here is an illustration on the difference between simple average and CAGR:

You invest 10k. In Year 1, you enjoy a return of 100% and now have 20k. In year 2, you have a return of -50% and are back where you started at 10k.

What is the simple average? 25%.

What is the CAGR? 0%.

Which number is a better description of the growth of your 10k?

Volatility refers to the fact that returns vary greatly from year to year. This is also called "sequence of returns risk". If a person is retired and relying on portfolio withdrawals for income, then withdrawals will happen even in years the portfolio is down.

Let's look at our little illustration again, and this time take withdrawals:

You invest 10k. In year 1, you enjoy a return of 100%. You withdraw $800 (8%). You now have 19.2k. In year 2, you have a return of -50%. You withdraw $800. You now have 8.8k.

And now let's switch the order of our returns:

You invest 10k. In year 1, you have a return of -50%. You withdraw $800. You now have 4.2k. In year 2, you enjoy a return of 100%. You withdraw $800. You now have 7.6k.

Notice that in both cases the simple average is 25% and the CAGR is 0%, yet the size of the nest egg is very different. So the order in which we received our returns has impacted our portfolio greatly.

The Trinity Study does not ignore either CAGR or volatility. Again, the Trinity Study says a portfolio of 100% stocks at an 8% withdrawal rate will fail about half the time over a 20 year withdrawal period. "Fail" means the portfolio does not last the full 20 years.

Also, a good paid advisor can do a lot to increase your earnings on your portfolio. An astute advisor will keep abreast of the markets and laws and news and give good advice for market timing. I can give you at least a handful of good advisors in the Houston area who routinely out-do the S&P index. Would you pay a fixed 1.5% for a possible 8% increase? Now we're down to choices and risks, and everyone knows that risk and possible return are proportional. The higher the risk of losing, the higher the potential for gain. Still nothing but math involved in that statement.

80% of all actively managed funds underperform their respective benchmark over time. There is no valid body of research supporting your statement. There are myriad concluding that active investment underperforms passive investing.

And I agree that there is indeed a relationship between risk and reward. However, I disagree that you are applying the concept correctly. Risk refers to volatility, not to costs. If the cost were 100%, would that result in a greater potential reward? No.

Obviously, a lot of people on this board think that there's no reason for paid financial advisors. I'll be the first to admit that a lot of folks who claim to be financial advisors are actually salesmen selling a product. But a true financial advisor who is not a salesman is a good investment, from my experience. Just stay away from those selling insurance as an investment, or other such "financial advisor" products.

But just because a fund is no-load, it does not mean that fund is better than a loaded fund. I'd gladly pay a 0.5% in and a 0.5% out for more returns in the middle. Is it guaranteed? No. That's where the risk comes in.

I agree that the load itself does not make the fund worse. Nor does the higher on-going costs make it worse. But the fund must then outperform the index significantly in order for the investor to just break even. And the odds are strongly against that happening.

But back to the subject: I see so much DR hatred that I can only attribute it to jealousy. You have to realize he is peddling "one size fits all" to all of his audience. If you want to counter his advice, then you need to come up with suggestions of your own that can be followed by EVERYONE listening and have a greater likelihood of success. And you can't change it from month to month (a la Bogle). You have to have a set, non-changing, easy-to-follow plan. DR meets those criteria, and your plan must do likewise.

How about:

1. Put all of your retirement money in a Vanguard Target Retirement Fund. Choose the one closest to the year you will turn 65.

2. If you want a more customized plan, you need to see a good fee only CFP. You can search for one in your area on napfa.org.

Then we can all sit back and shoot holes in your plan, just like everyone does with DR's plan.

Disclaimer: I didn't follow DR to get out of debt. I don't follow his investing advice, either. I just see wisdom where others see nits.

You see wisdom? I think a better description is you like DR, and therefore refuse to entertain the possibility that his advice is anything but completely sound. That is the real danger, IMO.

[ActYourWage]

DR's advice has helped me be completely debt-free. If there is something I disagree with what DR says, I investigate and move on.

[disneysteve]

Sorry for not jumping back in sooner but I've been traveling. I'm home now and want to weigh in.

I used to bash DR a fair amount but I totally admit that I did so without a solid basis of understanding of his philosophy and system. So I started listening to his podcast every day. Once I did that, I came to realize that his advice wasn't nearly as bad as I used to think it was. Virtually everything he teaches/preaches works and in most cases represents a vast improvement over what people were doing on their own. In fact, I've incorporated a lot of his teachings into the advice that I give here and elsewhere. The regulars have seen me recommend DR's books numerous times to posters who really needed a new plan.

All of that said, I absolutely do not agree with 100% of what he says or recommends. Guess what? I have never found a financial "guru" with whom I agree 100% of the time - not Dave Ramsey, not Suze Orman, not David Bach, not Clark Howard, not anyone. Elizabeth Warren comes pretty close but I haven't studied her writings enough to know if there are aspects with which I'd disagree.

Also, numerous times I have heard DR give incorrect advice on his show - not something with which I disagree but something that is blatantly, factually incorrect. I realize that he does his show live so there isn't time for fact-checking but I think listeners need to keep that in mind and not take everything that is said as being the gospel truth. To be fair, I have also heard Suze Orman give factually incorrect information and her show is prerecorded and edited and it still slipped in there.

A lot of people, myself included, focus on the 12% stock market return and the 8% withdrawal rate. DR is quick to point out that there are numerous mutual funds that do, in fact, have long term average annual returns of 12%. He has named several of them on the show at one time or another. Heck, I own some myself (VGHCX, for example, one of my largest holdings, avg. annual return of 16.69% since 1984, 12.21% for 5 years). Realistically, most people are not going to see a 12% return for their portfolios however. Why? At least half of the population will be investing for retirement in their company 401k plan and the funds offered may not come anywhere near those returns. Most of us prefer to use a more reasonable number like 7% for our projections.

So does that mean DR's advice is bad? No. A big part of his advice is to motivate people to save by showing them what is possible. It is possible to get a 12% return or close to it. Vanguard has 11 funds with a 10-year return of greater than 10% (though only a couple over 12%). But that's not the point. The point is motivation. Teach people that there is a better option than keeping money in their checking account paying 0.01% or a CD paying 0.5%. Plus, if we're talking about a 401k with a company match, factor that in and a total return of 12% is actually pretty reasonable. If I put in $100 and my company puts in $50 and the fund itself returns 7%, what's my total return? Way more than 12%. This is not how Dave Ramsey explains it or teaches it but when you look at it that way, 12% isn't so far fetched.

As for the 8% withdrawal rate, I don't know enough about his logic there to debate that one. Every study has said a much lower number. I'm sure he has some way of explaining it but I don't know what that is.

Regarding a 100% stock allocation, let me make a few comments on that piece. First, that isn't what he says. He says 25% each to growth, aggressive growth, international growth, and growth and income. A growth and income fund is not 100% stock. Depending on the fund, it might be 80/20, 70/30, 60/40, 50/50, or even 40/60 or 30/70 etc. Let's say it's 50/50. That would make the overall portfolio actually be 87.5/12.5, not 100/0.

The problem I do have with his portfolio is he recommends the exact same allocation regardless of your age or situation. I have heard him recommend it to a 25 year old and a 55 year old. I've never heard him suggest to anyone that their portfolio should get more conservative as they get older or even after they retire.

I'm going to stop there for the moment as I have some other things to take care of but I'll post more as I think of it.

[LivingAlmostLarge]

DR is excellent for getting people to live within their means. And to pay off debt. But after that he's a little off. Probably because that's not his main focus. But by the time you pay off debt and live within your means, you probably don't need his advice.

[Wino]

You're right, Petunia: Dave Ramsey should leave his listeners to their own devices and let them invest their first-time cash with the local 'CFP-insurance salesman' so they can have all the whole life, annuity, and churn funds they need for retirement. Because that's the actual alternative to offering them his plan, however much you hate it and him.

Dave Ramsey also gives the horrid advice of "ask someone who follows this financial stuff for advice." And he has the audacity to even give them names of folks who have paid him to be named, after he's vetted them. Dave Ramsey follows up after he gives the names out. Basically, he asks, "Did the person help you like I said they would?" Now, remember, the person receiving the advice is someone who's thinking of going to the local insurance agent for whole life when they meet with Dave's ELP. Which scenario is better for the investor?

Dave Ramsey's listeners are people who have in the past run up 50% of their annual income on 25% credit cards, gotten payday loans every month for 9 months, and have credit scores of 450. While you're pointing out that the CAGR is actually 9% not 12%, DR's getting them to the point where they have some money to invest, and he gives them guidelines that are lightyears ahead of where they would otherwise be.

Instead of seeing the good side of his plan, you'd prefer to pick nits. And thus we come back to my original statement that I've seen a lot of unjustified Ramsey bashing. The alternative to his marginally-flawed advice (yes, "marginally") is so much worse that it defies logic to fault DR for offering it.

[kork13]

You're right, Petunia: Dave Ramsey should leave his listeners to their own devices and let them invest their first-time cash with the local 'CFP-insurance salesman' so they can have all the whole life, annuity, and churn funds they need for retirement. Because that's the actual alternative to offering them his plan, however much you hate it and him.

Actually, the alternative to Dave Ramsey's plan would be any of the other financial advice purveyors, like the list DS just gave above (Suze Orman, David Bach, Clark Howard, Elizabeth Warren, and others). I can see that you're quite passionate in your support for Dave Ramsey and his philosophy, but the truth is that he's only one source of many good, valid options for getting quality financial planning advice. And likewise, the "unjustified Ramsey bashing" and "nit-picking" are simply objective critiques of his method, precisely BECAUSE there are other options. Dave Ramsey doesn't have all the right answers--nobody does. We're all pointing out both positives and negatives to his teachings as we see it, based on our own perspective or in some cases, verifiable fact. None of that is to say that Dave Ramsey is a terrible person, or that his philosophy is absurd and wrong; we're simply pointing out where we disagree with his advice. No need to get angry, frustrated, or upset about what is truly just a simple conversation about financial strategy.



Side note -- I'm a little confused at why there has been so much emotion on our boards lately about altogether meaningless (in the long run) topics. Something about the summer must be making everyone exceptionally argumentative and oversensitive.... There's truly no reason for people to get worked up about all of this.