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December 10, 2013

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Great post! I agree with all you said. Only thing I am scared of is when we start retirement I won't know what to do or what is good.

Yes, as an average, general course of action for most people out there, Dave Ramsey does a great job of laying out a program that will allow people to get control of their finances. There are a few things that he recommends that I take issue with, but overall he's doing a good job.

As a loyal "Dave" listener, there are a couple of things I'd like to comment on.

One, to be technical, he doesn't recommend you invest in "stocks" but mutual funds. Dave in fact recommends that you do not invest in individual stocks. His philosophy is that mutual funds are managed by groups that understand value/investing much better than a person or broker can.

Two, he doesn't always push you toward "loaded" funds. What he says is that a noload isn't always automatically better than a loaded fund. You have to compare maintenance fees and average returns on a noload vs the load/average returns of a load fund. I can't say whether his Endorsed Local Providers push towards loaded funds, I handle my own investing via noload mutual funds via various mutual fund companies. He also will tell you never to invest in something you don't completely understand and he requires his ELPs to function with clients in this manner.

What I've found with a lot of critics like CNN is they tend to cherry-pick "sound bites" and they don't understand the overall philosophy Dave teaches.

I don't agree 100% with everything he says, but I can tell you that following his teaching has worked very well for my family over the years.

In my humble opinion his strengths are ...
1.) Motivating people.
Especially through his FPU class. For people who aren't investing at all, they need more motivation to start than investing advice. That comes once they have money to invest.

2.) Making it simple.
Finances can be confusing for beginners. His baby steps are just about what most people can handle when starting to get there finances in order.

Agreed. I like Dave's advice on everything except investing. He doesn't take into account an individual's intestinal fortitude for stocks. Many people, especially the elderly are very suspicious of the stock market because they lived during the depression when the market crashed. They gravitate only towards CDs or bank savings accounts and Dave doesn't account for their experiences. My only other observation is that sometimes I think he's a little TOO kind.

You say:

"He has partnerships with financial planners that he recommends and they push expensive mutual funds with high loads."

This obscures and ignores the fact that Ramsey is getting kickbacks for this cozy little relationship which is poorly disclosed

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

Stuart --

To be EXACTLY correct, he says to invest in "high growth stock mutual funds." ;)

Correct :-)

To borrow a line from WW, "tread lightly" around ole Dave.

I like Ramsey, but I'm more of an index fund guy. I used to trade stocks and options and did OK. I definitely didn't get rich off of it or lose my shirt. But as a part-time investor I spent way too much time doing research.

I don't like the idea of paying a load because if something crazy happens and I need or want to take the money out in less than 10 or 15 years, that 5% is a big deal. Plus index funds are below .25% for the most part - at least the ones I'm in.

And I gain so much time. There are weeks where I "forget" to check on my funds just because I know it's going to ride the market and am not worried about whether Apple inked a deal with China Mobile or if Facebook added a "dislike" button or whatever...

I like the way Dave lights a fire under people to slay their debt. I really love it when people call in just to yell, "We're debt free!" That always fires me up. Dave is also really good at telling people to "grow up" and accept responsibility for their bad financial decisions. Many people benefit greatly from his straight talk.

That said, I prefer low-cost, index mutual funds. I especially like Vanguard's Target Retirement funds and LifeStrategy funds. I like these funds because they are "idiot proof" since they take away asset allocation and re-balancing decisions. When Dave says a "high growth stock mutual fund," the Vanguard LifeStrategy Growth Fund pops into my mind.

Dave Ramsey listeners would be well served to learn about the following mutual fund options:

1.)Vanguard Target Retirement funds: https://investor.vanguard.com/mutual-funds/target-retirement/#/

LifeStrategy funds: https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Admiral Share of Vanguard Index funds: https://investor.vanguard.com/mutual-funds/admiral-shares

2.) Schwab Index mutual funds: http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/index_funds

3.)Fidelity Index Mutual Funds
https://www.fidelity.com/mutual-funds/index-funds/overview

Finally, I advise all investors to avoid mutual funds with high fees and sales loads. Go for no-load, low-cost funds (under .30%).


Dave could very easily tell people to invest in Vanguard's Target Date funds if he really wanted to. Those aren't my absolute favorite, but they're decent funds and they're very easy to invest in for those with no financial experience. He doesn't do that because he gets a kickback from those financial advisers he recommends. Not ethical, IMO.

Otherwise, I agree with your other points.

As a former and very successful financial planner, I have only 2 real problems with Dave's advice: the 12% returna nd 8% withdrawl rate, UGH, stocks returns are NOT linear, thus a withdrawl rate of even 4% (As the last decade proved) could leave a young retiree woefully short for old age. 12% is unrealistic after costs/'oads as well. LOads? No pronblem, people pay mechanics to service their car, (example) and a 5 3/4% load over the long term isn't a deal breaker but, compensation for advice. I'd like to see "generic" advice Dave uses more geared toward target date funds but, all in all, he helps far more people than he hurts. And, he's an ENTERTAINER FIRST, remember that, not an advisor!

I'd agree. His investing advice isn't good.
Telling people they can expect 12% returns in stocks is unrealistic. Pushing people to his own 'endorsed' providers and getting kickbacks from that arrangement is serving his own financial interests. I don't have a problem with people like Dave or Suze selling books and stuff but pushing people towards poor financial products while getting a commission to do so is not OK.

I guess Dave Ramsey is a good guy to follow if you like the idea of paying a 5.75% front end load fee just to purchase his recommendations, in addition to an annual expense fee of another 1.3% or therabouts. Obviously he must receive a nice kickback for steering you into these kind of funds.

The way I have invested after I retired in 1992 was to first pick a trustworthy investment company that offers a complete range of products, not just their own. I chose Fidelity but in the past have also dealt with Vanguard and several other major companies. I then subscribed to a service that provides a charting & analysis system and a database with a huge number of funds and indexes (20,000+) with the prices updated every market day. Their prices are also adjusted for all dividends and distributions which is essential for bond funds. The funds in the database are also grouped into many families which enables one to compare past performances of all the funds of a particular type over a specified period. When I have found a fund that I like I can then go to Fidelity's website and check out the fees and other information before making my decision.

Since my portfolio is now quite large I am also in a "private client" group at Fidelity which gives me excellent response from well qualified personnel to any questions I might have at any time.

His opposition to bankruptcy is, frankly, childish. So is the notion that anyone can just choose to opt out of a recession. And the financial advisor arrangement is pure exploitation.

On the other hand, he gets unfairly criticized for the debt snowball idea when it actually shows a pretty good grasp of psychology.

(I also question the "MILLIONS" number, though I know he does have a broad audience. I think it either has to be calculated so broadly as not to be meaningful, or not to be true.)

One of my questions about Dave is his "debt snowball" advice. Most readers of this blog know that it isn't the way to go if your trying to pay the least interest. That's fine with me, but my beef is this: people's emotions ("it feels good to have this and spend on this") are often what cause them to go into debt, so why use emotions ("it feels good to see the first debt gone") to bring them out? Teach them to be rational and realistic about money from the beginning, and I would think you would have less instances of relapse back into debt.

jt --

I used to feel 100% the way you do. Even early in the life of this blog I felt that way.

Then, as I counseled more people, I found out one simple truth: by and large, the debt snowball works and logic/the way to save the most money does not work. It's just that simple.

Yes, people are emotional, but you can use that emotion for good. It seems that's what Dave is doing. :)

I agree with FMF on the debt snowball issue. The thing is....most rational people don't need Dave Ramsey...they are probably already good at handling money.

Dave Ramsey is for people who are bad at handling money, which would be most people. Most people are NOT rational creatures. It's better to recognize that and work WITH their emotions instead of trying to work against those emotions, 'cause the emotions win almost every time.

Some people need to be browbeaten and yelled at by an authoritarian father figure to get things done. Dave Ramsey provides that to people whose finances are a mess. For the psychology needed to deal with "stop digging a hole" problems, Dave Ramsey is just what the doctor ordered.

All the other problems people mention in their critiques of them are related to the way that Ramsey makes money off of people who continue to use his simplistic methods when they have actually demonstrated the personal discipline to execute a debt snowball or two, and actually would be better served to take a more sophisticated approach.

Ramsey continues to provide the security blanket of doing the thinking for them so that they don't have to check the math. And sure enough, there are local financial advisers ready to be part of a referral system and sell high-load/high-fee products.

I know why the debt snowball feels good, and I want to do it with a small loan I have now. But I don't- because my smallest loan has my lowest interest rate, and it is fixed, and I have Net Worth-based goals, so I'll pay it off over many years.

Learning to ride a bike requires training wheels, and Dave Ramsey is very good at providing them. Unfortunately, really traveling on your own requires that you take the training wheels off and balance on your own.

I haven't seen the rift with CNN, but I would imagine they wouldn't suggest giving a tithe to church/charity like Dave Ramsey does. Secular, immoral stations like CNN will never understand God's economy.

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