Dave Ramsey has helped millions of Americans with debt, which is no easy feat. Over five million have participated in Financial Peace University, and four million high school students have participated in Dave’s personal finance program for high schoolers. Dave Ramsey has been able to help so many people get out of debt because he was formerly deep in debt himself, and he has a great understanding of the psychological impacts of debt, how it impacts our behavior, and how to overcome them.
I enjoy all of these articles! Thank you for confirming my thoughts about DR’s investment advice. I like listening to him (although of course not as much as the Money Guys) but I’ve always thought his investment advice was not very well thought out. I love low fee index fund investing and not worrying about trying to pick winners or beat the market. I personally diversify in my 401K and IRAs using a combination of S&P 500, mid cap, small cap, and international index funds. This has served me well over the past 20 years. I know I’ll need to cut back on equities in the future but it’s psychologically hard to do that due to FOMO on maximum gains.
Morningstar has done research and it is statistically proven that the cost of a fund is related to its predicted performance. The higher the cost (expense ratio) to lower the return if the market is indeed efficient. Also numerous academic papers (lack of obvious bias) decisively prove that actively managed funds trail index funds when looking across 10 and 20 year periods. They have to make up those 1 to 2 percentage points on top of the market to just cover their expense ratios. And you also have survivorship bias when analyzing active funds as they either die or get combined into other funds. Dave is awesome for debt management and holding yourself accountable but for investing he is compensated by pushing actively managed funds so it is in his best interest to say they are better but the scientific and academic community disagree with him and provide empirical data to support their positions. Just look up the Plain Bagel and Ben Felix YouTube channels or research Fama French papers.
DR can take a more aggressive approach to investing due to his real estate holdings. The income from the real estate acts to some extent as a bond fund paying income so he would not need to touch the equities during a downturn. Those of us without real estate would be better off with a 60/40 or 70/30 approach, using index funds. Thank you Daniel for the insight.
Daniel, not sure who put together the comparison chart of the S&P 500 vs 60/40 stock-bond split; but somebody hasn't done addition and subtraction correctly. The S&P 500 column should lead to a return of over +570%.
Is it stands, the error makes your reasoning questionable.
I enjoy all of these articles! Thank you for confirming my thoughts about DR’s investment advice. I like listening to him (although of course not as much as the Money Guys) but I’ve always thought his investment advice was not very well thought out. I love low fee index fund investing and not worrying about trying to pick winners or beat the market. I personally diversify in my 401K and IRAs using a combination of S&P 500, mid cap, small cap, and international index funds. This has served me well over the past 20 years. I know I’ll need to cut back on equities in the future but it’s psychologically hard to do that due to FOMO on maximum gains.
Well said! I'll have to think about that 60/40 portfolio some more. Right now I'm 100% stocks (I'm many years from retirement).
I'm curious how an 80/20 portfolio would do compared to the S&P 500 and the 60/40 portfolio.
Morningstar has done research and it is statistically proven that the cost of a fund is related to its predicted performance. The higher the cost (expense ratio) to lower the return if the market is indeed efficient. Also numerous academic papers (lack of obvious bias) decisively prove that actively managed funds trail index funds when looking across 10 and 20 year periods. They have to make up those 1 to 2 percentage points on top of the market to just cover their expense ratios. And you also have survivorship bias when analyzing active funds as they either die or get combined into other funds. Dave is awesome for debt management and holding yourself accountable but for investing he is compensated by pushing actively managed funds so it is in his best interest to say they are better but the scientific and academic community disagree with him and provide empirical data to support their positions. Just look up the Plain Bagel and Ben Felix YouTube channels or research Fama French papers.
DR can take a more aggressive approach to investing due to his real estate holdings. The income from the real estate acts to some extent as a bond fund paying income so he would not need to touch the equities during a downturn. Those of us without real estate would be better off with a 60/40 or 70/30 approach, using index funds. Thank you Daniel for the insight.
So as a young investor with not much invested yet, is the conclusion basically "invest everything in a low cost S&P 500 index fund"?
Daniel, not sure who put together the comparison chart of the S&P 500 vs 60/40 stock-bond split; but somebody hasn't done addition and subtraction correctly. The S&P 500 column should lead to a return of over +570%.
Is it stands, the error makes your reasoning questionable.