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Dave Ramsey
Old 12-24-2011, 06:04 PM   #1
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Dave Ramsey

I used to have a lot of respect for Dave Ramsey - listen to his podcasts.

Podcast this week he says, "put your savings in growth mutual fund - it will grow 12% - inflation is 4% - you can withdraw 8% each year and have generational wealth".

Not exact quote but close.

Maybe for the "negative net worth" audience that probably listens above is OK as a first goal.
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Old 12-24-2011, 06:16 PM   #2
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I am puzzled by anybody who expects over 8% (much less 12%) from mutual funds these days. It can happen, but it isn't something upon which I'd depend.

Like most investment show hosts, Dave Ramsey is great about some things and not so great about others. When he is talking like this, I just take it with a grain of salt.
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Old 12-24-2011, 07:05 PM   #3
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I am puzzled by anybody who expects over 8% (much less 12%) from mutual funds these days. It can happen, but it isn't something upon which I'd depend.

Like most investment show hosts, Dave Ramsey is great about some things and not so great about others. When he is talking like this, I just take it with a grain of salt.
I agree. However there are a lot of people out there who don't know where to draw the line as far as following his advice.
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Old 12-24-2011, 07:21 PM   #4
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Wow! Talk about your misleading references!

According to Morningstar, the best performing growth mutual fund in 2011 was the GMO US Growth M fund, returning 12.92%
The next best was 9.06%, then 8.82%, etc.
The average fund return was -1.10%

The S&P 500 total return was 2.71%

I mean, there are cherry-picking analysts, but if this is what Ramsey said, he has really gone off the deep end.
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Old 12-24-2011, 08:24 PM   #5
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He has been preaching this for a long time. The other day he was talking about how easy it was to put your $$ in a growth fund that would return 12%. He said he looked at the 5 and 10 yr average to fine the ones he wanted to invest in.

Earlier this week I used Morningstar screening tool to try and identify any funds that met his criteria. There was only one at 10.59%. I do think he might need to adjust his expectations a little. No comment on the 8% SWR as I think he is off base there.

I have been listening to him for a while and I finally decided to read his Total Money Makeover Book. I read it in about 2 days this past week. About Chapter 7 was when a couple of things that stuck out to me although I can't remember what they were. So I guess not too memorable.

I do think his philosophy has made a huge difference in people's lives and I like him much better than Suzy Orman as at least his humor is a little better. People need a cheer leader when they are "sick and tired of being sick and tired." Not so sure that many people on this board are his target audience. For me it is good to know what he preaches when people mention it to me. As for the book I am going to send it to a cousin who has had a 40% income drop in the last 4 yrs and I suspect about to get laid off. Might help pull him thru the rough times that are about to hit him. Maybe he can get thru baby step 2.

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Old 12-25-2011, 06:34 AM   #6
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I think Gross and Buffett said going forward the market will be around 5% return for a while. I love Dave but he needs to become a Boglehead. Maybe a simple three index fund plan would do it for his listeners.
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Old 12-25-2011, 07:41 AM   #7
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I am puzzled by anybody who expects over 8% (much less 12%) from mutual funds these days. It can happen, but it isn't something upon which I'd depend.

Like most investment show hosts, Dave Ramsey is great about some things and not so great about others. When he is talking like this, I just take it with a grain of salt.
Would love to get 8 percent ever, don't have the stomach for it. Told by father when I was 16, save twenty percent of what you make, don't care where you put it. Been doing it for thirty years. Took the Ramsey course, pretty basic stuff.
My want- to-be financial advisor , keeps talking about " historically the market returned yada, yada, yada. " . Sick of listening to it. Historically, I had a full head of hair! Merry Xmas
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Old 12-25-2011, 08:49 AM   #8
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I suspect where he may be getting the 12% is that the historical stock return for 1926-2010 is 10% and he's adding on a couple points for growth vs value. That said, to use that as a realistic expectation from here is totally delusional.

I hope I am wrong and he is right. If so, I may be able to buy that Porsche play-toy after all.
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Old 12-25-2011, 08:54 AM   #9
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My want- to-be financial advisor , keeps talking about " historically the market returned yada, yada, yada. " . Sick of listening to it. Historically, I had a full head of hair! Merry Xmas

Hopefully the advisor remains a "want-to-be" and isn't promoted to become your advisor!
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Old 12-25-2011, 03:13 PM   #10
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We've referenced that Ramsey fallacy a fair number of times here. Yes, I think it's very reckless -- especially for someone as otherwise conservative about finances as Dave Ramsey -- to assume even 10% returns going forward, let alone 12% (which is well above long-term historical nominal returns).

Listen to Dave about getting out of debt and building up an emergency fund in order to get you prepared for the time when you have enough extra cash flow to invest. But tune out his 12% hype -- and I'd also recommend tuning out the implication that you put 100% of investable assets into stock mutual funds.
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Old 12-25-2011, 03:59 PM   #11
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I've never listened to Ramsey, but I'm wondering if his 12% somehow includes the accumulation phase or a portion thereof. For example, I've calculated my household net worth to have increased 25% per year for the past 30 years. Anyone who started with near $0 and has reached a million has experienced a similar annual net worth growth rate.
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Old 12-25-2011, 05:26 PM   #12
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Listen to Dave about getting out of debt and building up an emergency fund in order to get you prepared for the time when you have enough extra cash flow to invest. But tune out his 12% hype -- and I'd also recommend tuning out the implication that you put 100% of investable assets into stock mutual funds.
+1

My DW and I took Dave Ramsey's class at church a number of years ago and enjoyed it quite a bit. He is a great advocate of LBYM, and the best part of the course is instructing people how to get out of debt, start emergency funds, pay off their houses, and begin to accumulate wealth. On the other hand some of the things he says need to be taken with a grain of salt. He advocates eliminating all credit cards and doesn't concede that they can be a useful tool if paid off every month. He also does not recognize the benefit of asset allocation and the use of bonds to create a balanced portfolio. On those points I can agree to disagree.

Overall the course is aimed at people who are clueless in getting out of debt and are unable to accumulate assets. For these people Dave Ramsey's philosophy is priceless.

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Old 12-26-2011, 05:55 AM   #13
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I agree w/ Milkman, I have followed Dave Ramsey's advice for several years in order to get out of debt and get my act together. His advice is pretty straight forward and blunt...usu what someone in debt needs to hear. However, now that I feel I have my house in order, I don't think he's the best advisor for folks on this board. For ex, he only recommends rental properties if they are paid for in cash, no credit cards (remember, his target audience has gotten into trouble thru credit cards and other misuses of debt)...advice not necessarily useful for folks who are targeting early retirement lifestyle.
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Old 12-26-2011, 06:22 PM   #14
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For ex, he only recommends rental properties if they are paid for in cash
I'm not a Ramsey follower, but I enjoy listening to his show quite a bit. I've never heard him espouse the above. I have heard him say to callers that have mortgages on both and are at that point in his program to pay off their house first, which I would agree with. And he would also recommend paying off any mortgages on the rental properties also; not sure what I think there, but I don't ever plan on owning rental real estate myself.

Personally I use an assumption of 11% long term return on the market, and have used that number for at least the past 15 years. I believe it comes from an Ibbotson (sp?) number out of Chicago for the total market return since 1926. My policy for my assumptions is to use the longest term number that comes from a respectable source. In 2000, I was chided for being too conservative; nowadays I'm sure I'm considered too optimistic. That's OK with me; my model has a number of assumptions built into it and is only used for projecting a retirement date; if my 11% assumption turns out wrong and all the other assumptions are spot on I'll just work a few more years. However, like most here, the other assumptions I build in are pretty conservative and many of those I have been "beating" for the past several years, so overall things balance out and my projected retirement date has been pretty consistently around summer 2014.

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Old 12-26-2011, 08:10 PM   #15
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I'm not a Ramsey follower, but I enjoy listening to his show quite a bit. I've never heard him espouse the above. I have heard him say to callers that have mortgages on both and are at that point in his program to pay off their house first, which I would agree with. And he would also recommend paying off any mortgages on the rental properties also; not sure what I think there, but I don't ever plan on owning rental real estate myself

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He briefly mentions owning debt-free real estate on pg 208 of Total Money Makeover and then mentions it more in his responses to callers on his podcasts. I don't personally follow his advice on this as financed real estate allows you to shelter income legally. Granted, I only have 1 positive cash flowing property at this time, so I don't consider myself a master real estate investor...maybe one day! Just throwing some thoughts out there to generate conversation....
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Old 12-27-2011, 12:59 PM   #16
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I too really like DR for debt reduction / budgeting stategy but would not take his advice on investing. That is one reason I am on this board. I think the advice here is more applicable to my phase of life. Debt free except the house.
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Old 12-27-2011, 01:37 PM   #17
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I just gave his book, Total Money Makeover, to my son for Christmas. I don't know if it will do any good or not. If he uses it for debt reduction, budgeting and getting an emergency fund, I will be happy. I don't know if he will ever get around to investing. I hope that he reads and implements parts of it or that his SO does and gets him on board.
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Old 12-27-2011, 01:40 PM   #18
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For his audience, his message is spot on. He is selling debt solving, not investment advice. his audience should get rid of all credit cards. That's what got them in trouble. His audience should only buy investment property with cash, or they may end up back in unsubstantial debt.

For the folks here, following his advice on debt elimination is good sound money management. For his advice on the stock market, taxes, real estate investment, find that elsewhere.

I would never have considered an investment property that was not mortgaged to the max. But that is for tax reasons. Soon as I retire in a couple months, there will be a substantial effort to pay those down and convert equity build to income improvement. So for now I would push mortgage to the hilt, soon I will be more like Dave and be a cash only buyer.

As with all advice from everywhere, adjust to meet your needs.
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