Dave Ramsey - 12%?!?!?!!

[njonge01]

I was reading some threads suggesting that Dave Ramsey speaks about 12% return on investment over time. Now, there have been years when my returns have been far better than 12%, even over 100%. But, those were not without significant levels of risk. I am hesitant to track my financial model through Early and Full retirement at anything more than 4% over inflation. Too conservative

I like DR's idea of living within your means.... but unlike Dave I don't believe all debt is a no-no.

I have actually signed up for one of his classes, Financial Peace. My interest in this class is further thoughts on budgeting for Early Retirement... and to help my spousal equivalent who is not where she needs to be with her money matters.

Any other Dave Ramsey thoughts out there?

 

[ziggy29]

Yes, that's a constant source of teeth-gnashing here. Even the folks who follow Dave when it comes to dealing with debt and most other financial matters usually think the 12% claim is reckless.

 

[njonge01]

Seems like Dave was a topic of an earlier thread that is now so old that I cannot reply to it. I will start going to my "Financial Peace" class on Tuesday nights, August 9. Part of my interest is to get exposure to the types of people taking these classes. Frankly, I have it so much better than most. It will be a good experience to see how people are working to get through financial woes that are far more significant than anything I might experience even if it all crashed down tomorrow.

 

[ronin]

Flipping thru the AM radio channels looking for a traffic report the other day, heard Super Dave musing on just this topic. Says he's aware of all the critics, stands by the 12% number and all who disagree are morons or idiots, forget exactly which term he used, but was basically abusively dismissive.

 

[REWahoo]

Part of my interest is to get exposure to the types of people taking these classes. Frankly, I have it so much better than most. It will be a good experience to see how people are working to get through financial woes that are far more significant than anything I might experience even if it all crashed down tomorrow.

Just curious as to what motivates you to do this. Is your [-]spouse[/-] SE one of these 'types of people'?

 

[TN_INVEST]

As with most anybody out there (even some of my favorite gurus), you can't believe everything they say.

I don't like to make it a practice to attack folks and say they are idiots just because there are one or two things they say that I don't completely buy in to. With D.Ramsey, it is his investment advice.

Some folks make a living knit-picking every last thing a person says and using it to discredit them. I prefer to critically listen and see if there isn't some value in some of the things they say (Peter Lynch used to say you could make 7% withdrawals).

 

[njonge01]

My spousal equivalent makes GREAT money. When we began our co-habitation 4 years ago, her household expenses dropped dramatically, and then about 1 year later, her income actually increased. Despite this opportunity (and many promises), she is still in the same financial boat she was in when we first moved in together (back then, it was all consumer debt and home equity debt... now its consumer debt and back taxes).

She doesn't realize how good she has got it and she's not in tune with how quickly things could go badly. I want to be able to speak to the experiences of other people I've met to help her see the light.

A little more history (since I'm on a roll now...), we continue to keep our financial matters separate with the exception being a $3500 / month household expense, social expense, and financal reserves expense which we contribute to evenly each month. I manage that account like a hawk.

Just curious as to what motivates you to do this. Is your [-]spouse[/-] SE one of these 'types of people'?

 

[REWahoo]

Got it - thanks.

 

[njonge01]

A little more history (since I'm on a roll now...), we continue to keep our financial matters separate with the exception being a $3500 / month household expense, social expense, and financal reserves expense which we contribute to evenly each month. I manage that account like a hawk.

Also, the house is in my name only but it goes to her in the event of my death, and so does adequate money to pay off the mortgage. I've considered directing it to my sister, with instructions to pay off the mortgage and allowing Tara to continue to live there, and it only goes to Tara when she gets her act together.

 

[MasterBlaster]

There is some basis for the 12% number.

If you track stock returns over some periods of time you'll come up with the 12% rate of return. The rate is not indexed for inflation but does include dividends.

Note the probability from the chart below for returns over 30-year cycles.

 

[haha]

Also, the house is in my name only but it goes to her in the event of my death, and so does adequate money to pay off the mortgage. I've considered directing it to my sister, with instructions to pay off the mortgage and allowing Tara to continue to live there, and it only goes to Tara when she gets her act together.

Lovely trick to put on your sister- will assure that neither SE or sister will be lighting any votive candles for you after you've gone.

Perhaps think this one through carefully?

 

[njonge01]

Lovely trick to put on your sister- will assure that neither SE or sister will be lighting any votive candles for you after you've gone.

Perhaps think this one through carefully?

Hahahaha!! Good Point!! Best to continue with current plan and let It play out as it will!!!

 

[WM]

My mother-in-law went throught the Financial Peace program after my FIL died, and it was a good way for her to feel more comfortable about money stuff. FIL had always handled everything, and I think going through this course was a confidence-booster because she could see that basic money management isn't complicated. It also made her feel good that she was relatively ok compared to some others in the group who had large debts. I think she might have even gone through the class again about a year later just for a refresher and to see if there was any more she could get out of it.

 

[njonge01]

My mother-in-law went throught the Financial Peace program after my FIL died, and it was a good way for her to feel more comfortable about money stuff. FIL had always handled everything, and I think going through this course was a confidence-booster because she could see that basic money management isn't complicated. It also made her feel good that she was relatively ok compared to some others in the group who had large debts. I think she might have even gone through the class again about a year later just for a refresher and to see if there was any more she could get out of it.

Thank you! Yes, I think I will be in a different boat than others in the group. I don't have any horrible debt to get rid of. I want to gain insight for living within my means, budgeting and planning how I spend my money.

 

[bssc]

My two concerns about Dave Ramsey is:
1) He does not discuss horizon, risk and prices fluctuation when discussing the 12% number. This leads to people panicing and selling at the bottom of the market. I haven't listened to anything recently so maybe he has amended this.

2) He suggests you pay off your lowest balance debts first, rather than your highest interest rate debts. While I understand why he does this, I would think that people, with an explanation of the savings, would understand (or go along blindly) why interest rates matter.

 

[Alan]

Before joining this site I'd never heard of Dave Ramsey (or Suze Ormond) so I subscribed to his radio show podcast and listened to many of his shows over a number of weeks driving to/from work.

I think he does a great job with his target audience and I understand why he recommends paying off the smallest balances first, regardless of interest rates. It is a psychological thing which, in his experience, works best for most folks in debt. However, I would think it would work in reverse for those same folks expecting 12% returns on their investments. The volatility required to get those returns requires a strong will, and I would expect most to quit after some bad years.

 

[W2R]

"I'M DEBT FREE!!!!!"

In that regard, I like Dave Ramsey's advice. I love listening to him because the happiness his callers show is just so contagious (at least for me). Like them, I am debt free and very happy to be in that category.

Still, I think that expecting a 12% return on investments is just wacky. He should stick to personal finance and leave investment advice to others, IMO

 

[JakeBrake]

I agree with most of Dave's teachings about debt and morals. I do part company with him in three areas.

1. He makes no allowance for the time value of money. To paraphrase Willie Nelson when asked about selling one of his songs that later became famous for $50. Willie said he needed that $50 real bad.

2. Contrary to Dave's teachings, when savings rates went to zilch, I began running most of my expenditures through credit cards and earn a quick 1 to 5%.

3. I'm certainly not basing my retirement planning on my retirement portfolio averaging 12% earnings per year.

 

[TN_INVEST]

I'm waiting for the day that somebody calls in and says they took all his advice and got out of debt, only to be broke 20 years later because they took his investment advice for retirement income. Something tells me that caller will never make it on air.

Stick with the debt advice, Dave. Actually, he's pretty decent with more than just debt advice. It's the investment advice (mainly retirement income advice) that I'd stay clear of.

 

[fisherman]

The one that gets me from his audience is the I'm debt free and then they casually mention except for the house. Thats like saying I'm not fat except for the spare tire around my middle! His over all message on get out of debt, LBYM, and save are all good however.

 

[skyvue]

This article from his site discusses the 12% claim.

The 12% Reality - daveramsey.com

 

[Mulligan]

This article from his site discusses the 12% claim.

The 12% Reality - daveramsey.com

I read the article, I was expecting it say, "By getting you out of 18% credit card debt and getting you into investments that lose 6%, you are making a 12% return on your money Seriously though, I have read a few of his books, even though I may already know must of it, it serves to reinforce my motivation to LBYM, which I need reminded of every now and then.

 

[Sarah in SC]

I think you will get something you don't expect out of the class, and that is a closer understanding of you and your "spouse equivalent" ways of looking at money. To me, that is where Dave Ramsey's real value is. Learning to work together for shared goals is a key tenet of his courses.
I'm one of those that called his show when we paid off the house, too! But no, I've never taken his investment advice, either.

 

[mickeyd]

I catch Dave on that radio from time to time when driving around town. I have heard him espouse "a good growth mutual fund," but do not recall him getting 12% on that fund. Of course 12% is pure nonsense in the current stock market.

I recently caught the Ray Lucia Show when actively surfing the high numbers assigned to my TW cable setup. He is on the aln channel. (Is there anything else there?) He seems to whip Dave and Suze as far as common sense advice goes. If he got a bit more public exposure, I can see him getting more tv time.

 

[Berkshire_Bull]

I catch Dave on that radio from time to time when driving around town. I have heard him espouse "a good growth mutual fund," but do not recall him getting 12% on that fund. Of course 12% is pure nonsense in the current stock market.

I recently caught the Ray Lucia Show when actively surfing the high numbers assigned to my TW cable setup. He is on the aln channel. (Is there anything else there?) He seems to whip Dave and Suze as far as common sense advice goes. If he got a bit more exposure I can see him getting more exposure.

They're completely different philosophies and are great at what they do. Ramesy/Orman is great if you've got a debt problem or are a spendaholic. Lucia is great to follow for a distribution strategy. Bogle is great if you like being a DIY and don't have the time to follow investments, or don't have the discipline to follow a strategy. Lynch is great if you have time to follow your underlying investments, and have the discipline to stick to your strategy.

Different strokes...