Six Areas Where I Disagree with Dave Ramsey’s Investing and Retirement Withdrawal Advice

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“A good financial planner is going to do more than pick your funds.”
–Dave Ramsey

Very recently, personal finance guru Dave Ramsey engaged in a heated discussion on Twitter with several financial planners regarding the appropriateness of his investment and retirement withdrawal advice. The questions were (and are) very legitimate ones, namely:

Why does Dave Ramsey keep telling people to invest 100% in equities and that they can expect 12% returns?


Why does Dave Ramsey keep telling people that they can safely withdraw 8% of their net worth each year in retirement?

Dave Ramsey’s responses?

Here’s what he has to say about people who question him.

Instead of actually addressing the questions with a cogent, thoughtful, defensible response, he resorted to ad hominem attacks against financial planners who hold a fiduciary duty to their clients, Carolyn McClanahan and James Osborne.

I’m a fan of Dave Ramsey’s debt advice. I regularly tell people to go to the local library and check out The Total Money Makeover if they’re deeply in debt because there’s no point in paying me to get the same advice that they can get for free by checking that book out of the library.

But, I have serious and deep concerns about the investment and retirement asset management advice that he gives to his listeners.

Six Areas Where I Disagree With Dave Ramsey’s Advice

There are six areas of disagreement I have with the investment and retirement advice that he provides to his listeners and to his readers.

Investment advice disagreement #1: You can expect a 12% average return

Even if the average returns of the market were 12%, which they’re not, he’s making a very simple, basic mathematical mistake. He is confusing average returns and compound returns. In average returns, the sequence of returns doesn’t matter. In compound returns, the sequence of returns does matter.

Let’s look at an example.

Say you invested $1,000 in Widgets, Inc. The first year, Widgets Inc. loses 10%. At the end of the year, you have $900 of Widgets, Inc. stock. The second year, Widgets Inc. gains 20%. At the end of year 2, you have $1,080 of Widgets, Inc. stock.

The average return during that two year period was 5%. But, applying an average 5% return over a two year period would mean that you should have $1,102.50 in Widgets, Inc. stock. You don’t. You only have $1,080 of Widgets, Inc. stock.

Your compound average growth rate (CAGR), or compounded annual return, was 3.92%.

If you report the average annual return, you get to say that you averaged 5% per year.

If you return the annual return that you see in your personal holdings, then you averaged 3.92% per year.

Compounded over time, that’s a big difference.

I don’t believe that Dave Ramsey is trying to mislead anyone here. I think he really thinks that the average annual return is the correct number to report when it’s not.

He does argue two counterpoints to this issue. The first is that saving 15% per year during your working lifetime for retirement is more important than the returns that you’ll get. He’s right, but not by the wide margin that he tells his audience. Furthermore, his newsletters encourage working backwards from a 12% return rather than saving 15%. That advice is contradictory.

If an average family, earning $52,762 (the national average family income), saves 15% of their income every year for 40 years and receives the compounded average growth rate of the market, adjusted for inflation, which is 6.69%, that family will end up with $1,556,686.83. Using a 4% withdrawal rate (which contradicts his advice, a point we’ll address below), that provides the family with $62,267.47 per year. The family will be in good shape, but not in the shape that a 12% return assumption would lead them to believe – $6,799,510.70 versus $1,556,686,83 – a 77% difference.

The second counterpoint is that he uses 12% as an educational example and that he can point to mutual funds which have made 12% over a long period of time. We’ll deconstruct his picks further down, but using 12% as an “educational example” brushes over an important aspect of the differentiator between a “guru” (which he undoubtedly is and deserves the title) and an actual, fiduciarily bound advisor. He’s not bound by a fiduciary duty. It’s not investment advice. That’s why he won’t tell people which mutual funds to invest in. I can’t either, unless you’re a client, but I can certainly tell you which ones to avoid, such as mutual funds that have exorbitant loads. Again, more on this later.

If you think that you’re going to get a 12% average return, then you’ll simply plug 12% into your numbers each and every year, and that’s wrong. The market has ups and downs. To simply say 12% per year every year is naïve and can lead you to significantly overestimate the value that your nest egg will hold when it comes time to retire. It is possible to become anchored (to read how the anchoring bias affects your retirement decisions, read “The Difficulty of Predicting Your Retirement Number”) to the 12% return and not follow the 15% savings rule, and that will lead to serious repercussions when you reach retirement age if you save less because you think that you can get a higher return than you probably will.

Which leads me into the second area of disagreement.

Investment advice disagreement #2: Continuing to be invested completely in stocks in retirement

Once you retire, you’re basically trading sources of income from wages to money produced by the assets you’ve saved up and invested in. While some of you may plan on working part-time in retirement, it’s quite possible to expect that you may not be able to work once you’re in retirement. Furthermore, as you age, the probability that you can get back to work declines, both because of mental and physical frailties and because the absence from the workforce will make it increasingly difficult to get a job.

Thus, unless you’re the rare person who will work until age 103 and die at the desk, you’re going to have to rely on your nest egg and Social Security to support you. In most cases, Social Security will not be sufficient to allow you to maintain the lifestyle you had during your working years (and hopefully, many of you will be able to retire before Social Security starts), so you’re going to need an additional source of income.

That income will come from your assets.

Now, it’s possible that you may never need to purchase bonds in retirement, but you will need some source of income. Relying solely on the dividends and capital gains provided by stocks is an extremely risky way of doing so unless your asset base and the dividends it produces far exceed your income needs.

It’s not wise to go completely in the other direction, either, and dump everything you have into CDs. If you choose that route, while you won’t lose money, you will lose purchasing power. Ultra-safe, income-generating investments like CDs and money markets do not beat inflation. This means that, over time, what you can buy for your money will decrease. Given that the biggest increase in expenses and the biggest inflationary cost in retirement is healthcare, this failure to match or beat inflation will mean that when you need more money to cover declining health or long term care, you won’t have the financial wherewithal to afford the care that you need.

That’s why I generally suggest that people aim to have 110 – age as a percentage of the portfolio to keep in equities and the remainder in income generating assets. If you are retired and have all of your investments in equities and the market tanks, then you’re going to be faced with a double whammy of a shrunken nest egg and having to withdraw from it when it’s been hit. Since bonds and equities usually are countercyclical, the impact of a down market year won’t be as bad.

While Dave Ramsey says that you can withdraw 8% per year from your portfolio in retirement based on a 12% rate of return and 4% inflation, the reasoning behind how he gets to that conclusion is where the advice causes me to disagree. First off, as I have pointed out, he uses incorrect calculations in determining 12%, but that’s not really the issue. The issue is that you won’t get 12% (or 15% or 3% or whatever rate of return you want to depend on) every single year. If that was the case, and your returns were steady every single year and at or above the rate of inflation, then you could withdraw the gains and not have to worry about depleting your nest egg.

The problem is that returns aren’t always going to be above the rate of inflation. The way that Dave Ramsey reaches the 8% withdrawal rate is outlined below. His newsletter outlines the example of a hypothetical couple who has saved $1.2 million for retirement.

Now, envision what retirement will look like for you by estimating the income your nest egg will bring. Using the example above, our couple’s $1.2 million will remain invested and growing at the long-term historical average. Estimating inflation at 4% means they can plan to live on an 8% income, or $96,000 a year ($1.2 million x 8% = $96,000).

This plan allows you to live off the growth of your savings rather than depleting it. With careful monitoring and some modest adjustments in years with low returns, you can be confident that your savings will last throughout your retirement.

This hypothetical couple lived off of $50,000 per year. Suddenly, they’re going to jump on the hedonic treadmill and start living on whatever above inflation their investments return.

Unfortunately, they still have minimum living expenses. They lived on $50,000 per year beforehand, and they were saving 15% per year, so their true living expenses were $42,500 per year. Therefore, in down years, they have to still eat and live, meaning that they need to eat into the nest egg to pay for food, shelter, clothing, and transportation.

Although I’m no fan of aftcasting, it is instructional to use historical stock market returns to give you an idea of how often this plan succeeds.

I set forth a couple of rules.

  • If the returns exceed the inflation adjusted annual expenses, then spend the returns. Do not deplete the nest egg.
  • If the returns do not exceed the inflation adjusted annual expenses, then spend the inflation adjusted annual expenses. Deplete the nest egg only to the extent necessary to meet minimum spending needs.

Using 3% as annual inflation (which would benefit the Ramsey approach, as that requires less money be spent in lean times), if I run the hypothetical retirees through 30 years of retirement for every year since 1926 using actual stock market returns, the retirees run out of money 49.1% of the time.

I don’t want to use a plan which has a slightly better than 50% chance of succeeding.

The reason that academics and practitioners promote 4% (or even less) as a safe withdrawal rate in retirement is that you need to reinvest excess gains in years with strong returns to give yourself enough buffer so that you don’t deplete your assets in years when returns are below the rate of inflation.

An improved solution in this situation is to set up a maximum cap of spending. If we set up an inflation-adjusted cap of $100,000 per year, then the plan has a 93% chance of succeeding.

There’s one problem with creating a solution that has such a broad range of spending. These retirees are going to experience some serious shocks and whiplash in their lifestyles. One year, they’re spending $106,090 and living fast and free, and the next year, they have to slam on the brakes and live on $46,440.90. The constant hedonic adaptation that one must undergo to constantly vacillate between salad and lean years is going to take an enormous psychic cost and will be a very difficult to live within.

The better approach is to work backwards from a retirement spending goal and a much smaller range and adjust it for annual inflation. Then apply a withdrawal rate such that the chances of running out of money before running out of heartbeats is minimal.

Investment advice disagreement #4: Recommending front-loaded mutual funds

On June 4, 2013, Dave Ramsey invited a Motley Fool staff writer onto his show to discuss an article that was published at the Motley Fool website discrediting Ramsey’s assumed rate of returns. I’ll discuss more about that hour of the episode later, but for this disagreement, I want to pull out a particular piece of the discussion.

The crux of the hour-long dialogue was that Ramsey often quotes 12% as an average annual return, which is close to the S&P 500 average return (discussed in disagreement #1). Ramsey’s retort was that he has found funds which return more than the S&P 500 and have a history of doing so.

He cited two funds: Investment Company of America (AIVSX) and Growth Fund of America (AGTHX). He also encourages people to utilize loaded mutual funds on his website.

Both of the funds he cited have a 5.75% front load.

I’ve previously explained why loads on mutual funds destroy your nest egg. Let’s demonstrate how the 5.75% front load affects the returns for the hypothetical couple that we discussed above. As the example pointed out, this was a couple that made $50,000 per year and invested 15% of their earnings. How would they do with each of these mutual funds after paying a load?


Since the historical data from Yahoo Finance goes back to May 31, 1996, I’ll assume that this family invests 25% of their $7,500 per year, or $1,875 on May 31 of each year (or the first available trading date after May 31). They pay a front load varying from 5.75% down to 4.5% based on the breakpoints for loads in the fund (for which their salesman thanks them), and between $1,767.19 and $1,790.63 goes into the actual mutual fund. They will reinvest dividends and capital gains.

As of June 4, 2013, their investment would be worth $57,079.74. 17 years of contributions totaling $31,875 has gained them $25,204.74 in profit, for a 79.1% return. This is an average return of 4.65%, or an annualized return (CAGR) of 3.49%. They paid $1,818.75 in loads for this privilege.


Since the historical data from Yahoo Finance goes back to February 11, 1993, I’ll assume this family invests 25% of their $7,500 per year, or $1,875 on February 11 of each year (or the first available trading date after May 31). They pay a front load varying from 5.75% down to 4.5% based on the breakpoints for loads in the fund (causing glee in the salesman’s heart), and between $1,767.19 and $1,790.63 goes into the actual mutual fund. They will reinvest dividends and capital gains.

As of June 4, 2013, their portfolio would be worth $100,789.89. 20 years of contributions totaling $37,500 has gained them $63,298.89 in profit, for a 168.8% return. This is an average return of 8.44%, or an annualized return (CAGR) of 5.39%. They paid $2,001.56 in loads for this privilege.

Now, let’s compare how these two investments would perform versus their Vanguard Index counterparts.


The Investment Company of America’s fund invests in blue chip stocks, comparable to the S&P 500. Thus, an appropriate index fund comparison is the Vanguard 500 Index Fund (VFINX).

If the same family had purchased VFINX compared to AIVSX, they would have $57,696.02 as of June 4, 2013. That is $616.28, or 1.08% more.

To break even and erase the effects of the loads on performance, the family would have to contribute $1,999.94 per year, or $21.36 more to that fund.


The Growth Fund of America is a growth fund that invests in smaller capitalization stocks with the intent of gaining appreciation over time as these stocks grow. Thus, an appropriate index fund comparison is the Vanguard Small Cap Index Fund (NAESX).

If the same family had purchased NAESX compared to AGTHX, they would have $113,357.18 as of June 4, 2013. That is $12,558.29, or 12.5% more. To break even and erase the effect of loads and underperformance, the family would have to contribute $2,223.08 per year, or $244.50 more.

In the first case, the loads outweigh the outperformance of the fund. In the second case, even if you took away the load, the fund still underperforms its index counterpart.

Ramsey’s argument for loaded mutual funds is that purchasing a loaded mutual fund keeps you in the market when the market goes down and it prevents you from panic selling. This is an argument we’ve discussed before, but the simple counterargument is the best one.

If you’re taught to properly invest and understand the risks involved in jumping ship when the market declines, you’ll act correctly. It costs a whole lot less to get that training (and a full, comprehensive financial plan while you’re at it) than to rack up thousands of dollars in mutual fund loads.

Investment advice disagreement #5: Disregarding fees in investments

In his book Financial Peace Revisited (#aff), Dave Ramsey states the following:

The biggest mistake people make is putting too much emphasis on expenses as a criterion.

As I demonstrated in the above example, for disagreement #4, fees killed the returns in the VFINX versus AFINX horserace. Without fees, AFINX would have been a superior investment, but fees made the Vanguard counterpart a superior investment.

Investment advice disagreement #6: Promoting actively managed mutual funds

I have previously discussed how, in a time when information becomes more and more widespread, luck plays an increasing role in explaining extremes in performance. Since the highest skilled investors are, relatively speaking, only marginally better than the least skilled investors, the remaining differences in performance are generated by luck.

But, let’s say that you poo-poo the notion that you have to be lucky to get outsized returns in the market. Let’s assume that the mathematics are wrong and it doesn’t take up to 64 years to determine if you’re skillful. You can look at the past 20 years of returns, as Ramsey suggests, to determine whether or not you have a winner on your hands.

There are still risks involved in choosing an actively managed fund:

  • The manager’s retirement risk. Few people like to continue to work at picking stocks like Warren Buffett does. Even Benjamin Graham retired after a few years. What happens when a fund manager decides to hang up his boots and ride off into the sunset? You now get to start all over with a new fund manager and have to wait another 20 years before determining if that manager knows what he or she is doing.
  • Tax risk. Actively managed mutual funds, as is implied by the name, trade more often than index funds. Because of the increased trading, the investor must pay short-term and long-term capital gains taxes. If the funds are in a tax-deferred or tax-free retirement account, this is a moot point, but for investments in normal brokerage accounts outside of a tax shelter, this is important and reduces the after-tax returns of these investments.
  • Concentration risk. I don’t mean that the manager is going to daydream, but, rather, that you’ll be more concentrated in an actively managed fund when you will be in an index fund. The active manager should, by definition, be picking fewer stocks for the fund than the index counterpart, since he’s supposedly picking the best of the litter. This is great when his bets are right and disastrous when his bets are wrong.

The statistics simply are not on the side of actively managed mutual funds. First off, for the past five years, of all of the different mutual fund categories, active management underperforms the index counterparts in all but one: large-cap value funds, where 50.22% of actively managed funds outperformed their index counterparts. For the other 16 categories, index funds outperformed actively managed funds.

Secondly, even if you pick a high performing fund, there is little assurance that said high-performing fund will continue to do well. If you picked an actively managed mutual fund that was in the top 20% of performance over the previous five years, there was only a 0.18% chance that it would remain in the top 20% of performance over the next five years. If you were a little more lax in the standards and only picked a fund that was in the top half of performance (which would not guarantee that it outperformed its index counterpart) in the previous five years, there was a 4.46% chance that the fund would remain in the top half in the next five years.

The statistics simply are not in your favor if you choose actively managed funds and are investing for the long term; it is more likely than not that you will choose funds which underperform their index counterparts.

In the previously discussed June 4, 2013 show, Dave Ramsey categorized people who questioned his advice as one of two types of people:

  • Bitter people who say that they can’t win and they can’t be millionaires. I daresay that any casual reading of my body of work will disprove both of those notions.
  • Financial nerds who analyze and analyze (his emphasis, not mine) everything to the nth degree and don’t learn about what Dave Ramsey teaches. I’ve gone through the Financial Peace University course, read The Total Money Makeover, and listened to hundreds of his podcasts. I understand his advice, quoted his website (which he, in the show, admitted he doesn’t read everything which gets published there), and have applied analytical rigor to what he teaches. He also says that those financial nerds don’t have a business and are bored. I have a business, serve my readers, and am far from bored (oh, and I already built and sold another business). I just want people to get proper guidance, regardless of the source.

Dave Ramsey’s biggest argument during the discussion was “If they [his listeners and readers] follow all of my advice, they are not being harmed.” That is true. They should not be harmed, although his advice for withdrawing funds during retirement could be harmful for retirees; however, just because someone isn’t harmed doesn’t mean that the person can’t do better.

The lesson of all of this is to apply a critical eye to everything you hear or read. Just because information comes from a “guru” or from a website you like doesn’t mean it’s always going to be right. Don’t take things at face value. Think. Question. Ask yourself how something could go wrong. Determine what would happen to you if the assumptions you make about future outcomes don’t work the way you planned. Have a backup plan and a backup plan after that. Don’t just take it on blind faith that because someone told you that something would work a certain way that it well when it comes to planning for your retirement. Make sure that you understand what information and assumptions are being used to make your plan and how those affect the outcome.

Then, you might have financial peace.

Published by

Jason Hull was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business. He held a CFP certification from 2015 - 2021. You can read more about him in the About Page. If you live in Johnson County, Texas or the surrounding areas, he and his wife are cash buyers of Johnson County, Texas houses.

42 thoughts on “Six Areas Where I Disagree with Dave Ramsey’s Investing and Retirement Withdrawal Advice

  1. Ramsey’s debt advice is great and really has helped many people get their lives back on track. His investment advice is ridiculous and dangerous. Your examples here are incredibly thorough. I think this is an important reminder that no one is an expert in everything. Even the best of us have areas of failing, so as a consumer it’s important to diversify your sources of knowledge. Relying on a single source is bound to get you in trouble somehow.

    1. Thanks, Matt, and thanks for sharing on Twitter. If Ramsey’s investing advice was as sound as his debt advice, there’d be much less of a need for financial planners in the United States!

  2. I have done a few studies on ‘average’ results. You look at time frames and there are several points in history at which the market losses were so severe, it took 20 years to regain the lost amount….Not to mention the several ‘solid’ companies (GM etc) which never regained value…So again, blithely guaranteeing someone a 12% return is idiotic and self serving.

    1. Hi Bob–

      PK from Don’t Quit Your Day Job has an excellent calculator of market returns that supports what you’ve said about your findings.

      I wouldn’t call his advice idiotic. I would call it misguided and contradictory. I think it’s contradictory in that he tells people to save 15% of their income, but concurrently tells them to work backwards from a 12% average annual return to determine how much to save. I also suspect that there’s a conflict of interest in the advice that he gives regarding front-loaded mutual funds given that he does not incorporate loads into the returns when stating that they beat the market. It’s certainly an area that I’d love to discuss with him were I to appear as a guest on his show.

  3. Jason,
    this post reads very similarly to the 17-page ‘blue paper’ I wrote on the in’s and out’s of Dave Ramsey’s advice back in 2009 with two exceptions: 1) you’re a better writer than I, and 2) it’s much more succinct (though I tackle his 7 baby steps and insurance advice, too). 🙂
    Nicely done. I am also one of those financial nerds who has almost all of his books, etc., and am still mystified that someone with so much experience can continue to confuse compound vs annual avg rates of return. By the way, for a fun exercise, go to Dave’s investment calculator, where he magically turns a 12% return into a 12.68% return (if you put in 12% annual return, the calculator uses 1% on a monthly compounding basis for a total annual return of 12.68%, making his already very optimistic projections look even better). You can find the calculator here:
    And, if you’re bored, my paper can be found by googling “dave ramsey blue paper”, or going here:

    1. Hi Tom–

      Thanks for commenting, sharing, and the kind words. I have to admit, I’d never seen nor heard of your blue paper before I wrote my article (“I would have written a shorter letter, but I did not have the time.” – Blaise Pascal), but appreciate you sharing it. I don’t agree with everything in there, but trust that people can read lots of different information and come to their own conclusions.

      I’m not sure why he continues to tout 12% (or better) as an expectation, even if for “educational purposes only.” There’s a serious anchoring bias which happens with his listeners the moment that they hear 12%. I’m sure you’ve dealt with, as have I, the “but Dave said…” retort to certain items we recommend. The conspiracy theorist in me wants to think that he’s built his organization on the back of investment ELPs who offer front loaded mutual funds, but I just can’t assign that sort of malice to the man. I just don’t know if he’s ever sat down and gone through the numbers with a fine-toothed comb. I imagine he pays very little (if any) load based on the amount of money he’s pushing through and approximates his experience to the experience that his listeners will have. Good luck trying to get your 5.9% front load fee waived if you’re investing $5,500 per year.

      1. Thanks, Jason. As my paper states, I am always open to feedback and critique, so feel free to pass it along to my email address if you care to do so. If not, that’s ok, too. 🙂

  4. I’ve heard of Dave Ramsey and listened to the good advice he gi es for free to people who haven’t a clue on how to get their financial house in order.

    What have you done?

    1. Pro bono work for veterans. Served my country with honor.

      Tom, I’m not sure where another ad hominem attack on me serves any purpose. If you wish to discuss the merits or lack of merit of what I have written, I’d be happy to engage you in a vibrant discussion and see where we land. If anything I’ve written on here is mathematically or behaviorally incorrect, please point it out and I’d be happy to change my position. I believe if you’d take the time to read the other articles I’ve written, you’d understand that my position is quite clear regarding a) the high regard I have for him, and b) the areas where I wholeheartedly support his advice.

      I wish you a good day, sir.

  5. Jason,

    Nice piece and I agree with your thoughts RE: Dave’s disconnect on debt vs. investing.

    One question for clarification: when analyzing the returns on the American funds each year via annual investments, did you reduce the front end load as the hypothetical value crossed the various breakpoints for purchases, or keep it at the max 5.75% throughout?

    Thanks again,


    1. “Given enough eyeballs, all bugs are shallow.” – Eric Raymond

      Patrick– You bring up an excellent point. I’ve updated the calculations to include the breakpoints. I also included how much the family would have to earn and invest to break even on AIVSX. Is there a website I can link to so that I may give you proper credit for pointing this out?

      1. Jason,

        No, no website. As suspected it didn’t really change the result, but wanted to make sure I understood how it was calculated.


  6. I went back to listen to the interview that he had with Brian from Motley Fool and it was kind of sad. I think Dave has done a great service for people that need help, but using basic incorrect math that could end up putting you with much less money than you would have wished, can lead to many problems down the road. I think your analysis was very thorough and it really broke it down. Nice work.

    1. I get why Ramsey was upset. Someone had come along out of the blue, ascribed some pretty pejorative terms to him and his advice, and, furthermore, didn’t know much more about what Ramsey talks about beyond the snippets he’d pulled out of some research. It didn’t help that Stoffer wasn’t exactly the most articulate guy on the planet and didn’t have much life experience to create any sense of gravitas during the interview. If there’s going to be a real, fruitful discussion, it needs to be with someone who a) understands the math, b) understands the psychology, and c) can complete sentences without 3 or 4 “ums” or “uhs.”

      With that caveat, Ramsey chose to ignore the crux of the argument: he uses numbers which are incorrect and anchor his audience. He shot the messenger and called him “son” a bunch, but it doesn’t change the facts behind the message. “It’s my show, so I can use 12%” isn’t an analytically rigorous or defensible position. If he either changes his position or can come up with better statistics which disprove what I’ve written, I’m happy to change my story.

      1. Jason – Excellent point about Brian. I thought he didn’t do a very good job defending his position, but I’m sure it’s better than the job I would have done! And I really lost a lot of respect for Dave after hearing him bully Brian and basically act like a whiny 6-year-old that can’t handle being corrected.

        I wish Dave would have you on his show. You seem to really understand what the issues are, and you are very familiar with Dave’s work (although I don’t agree with Dave that someone has to be an expert on everything he’s written before bringing mistakes to his attention. Like you said, even Dave doesn’t read everything that goes on his website).

        1. Gordon–

          Thanks for the kind comments. If his producers reach out to me, I will drop everything to appear, not because I want to get into some sort of tête-à-tête, but, rather, because I’d like to understand how he comes to the conclusions he does when it appears that the history and the math do not support them. Maybe his ELPs and investment advisers know some information that the Wade Pfaus, Michael Finkes, and Bill Bengens of the world don’t. Alternatively, he (or anyone, for that matter) could point out the errors in the math and the psychology in what I’ve written, and I’d change what I have to say. I’d be quite happy to be proven wrong, as it’s personally disappointing to see what I view as incorrect information coming from someone whom I admire and respect.

          Still, to quote Louis Barajas, “you shouldn’t lead if you are allergic to feedback.” I feel like his “discussion” with Brian (if you could call it that) centered around three things:

          1. The CAGR point was valid.
          2. I’m not going to change the numbers despite a valid counterargument because it’s my show, and because…
          3. You used pejorative terms in your title; therefore, all of your points are invalid because you didn’t have any manners.

          All I, and I imagine the rest of the financial planning community, want (as I’m not the only financial planner to question the numbers, as Philip Taylor pointed out) is for him to cite proper numbers so that his listeners have appropriate expectations. It costs clients more money when their planners have to unhinge them from unrealistic expectations because they’ve become anchored (“educational” or not) to numbers which are unsustainable.

          1. According to a prominent poster on the Total Money Makeover forums, Carl Richards (Behavior Gap) was the intended guest to have on the show for the discussion, but he was out of the country at the time and wasn’t available. I have just learned about him today, but feel that he might have provided a more robust debate.

            See for the post.

  7. Minor typo in your average rate discussion. -10 and +20 average to +5 .

    The period Dave cites as having a 12% average actually returned 10% CAGR. Talking rule of 72, it’s 7.2 years to double instead of 6. This really adds up over time. I’d rather tell people to count on an 8% return and as time goes on, if the market does better, they can slow their deposits, or plan to retire early, vs counting on 12 and at 50 realize they are so far behind, retirement isn’t happening anytime soon.

    1. Hi, Joe–

      Thanks for pointing out the math error. I’ve gone back and corrected it. The 6.69% is inflation adjusted, and an inflation adjusted return was what Ramsey was claiming as well, so I wanted to create a similar comparison. You are correct in that if there is no inflation adjustment, then the CAGR is 8.72%.

      You make a good point about setting reasonable expectations regarding actual returns, and it brings up another unintended contradiction in Ramsey’s advice. On one hand, Ramsey (correctly) wants people to save 15% of their income. Whether or not 15% is the right number isn’t really at issue, but, rather, that he wants to anchor them to a high number for what they save. This is a notion with which I agree. If you wind up having saved too much, retire early! However, if you want to use other supporting numbers to convince people they need to save more, then you’d want to assume a lower market return on investments. Getting people to prepare for a 6% or 8% rate of return will lead them to the conclusion that they need to save more, which would probably approximate the 15% rule of thumb for income that Ramsey uses. Giving people the hope that they could get 12% (or better) will lead them to believe that they can spend more and spend less now, and, at some point, there will be a day of woeful reckoning when they realize that they’re going to need to save a lot more in the final stretch or that they’re going to have dial down their retirement lifestyle expectations. That’s quite a gut punch to have to handle when you’re coming into the homestretch of your working career.

  8. Hi Jason….

    I confess, I’m not terribly familiar with Dave Ramsey having read only one of his books some years ago. That said, this is an article I can appreciate anyway.

    Even if not sourced from Ramsey, each of the points you discuss are worth exploring.

    I especially liked your analysis of index v. active funds. And I remain a bit amazed that the shortcomings of load funds even need discussion. But then they are still out there in numbers, so there you go!

    Nice work. Good read.

    1. Alas, there’s far too much ignorance out there for the loaded mutual fund industry to wither up and die any time soon. Those salespeople create no value except for themselves, but they still, unfortunately, thrive.

      Thanks for the comments and kind words!

  9. You wrote “If you report the average annual return, you get to say that you averaged 10% per year.”

    Am I missing something? If the returns in years 1 and 2 are -10% and +20%, then isn’t the average (-10+20)/2 = (+10)/2 = 5% per year, as you wrote in the 2nd preceding paragraph?

    The difference between 10 (sic) and 3.92 is very dramatic. The difference between 5 and 3.92 is a little less dramatic, though still important.

  10. If you listen to Dave, Ormon and other so called gurus, you’d be inviting your demise in your financial life. They’ll confuse the public more than they already are.

  11. I really appreciate this article. Right now we are going through the 7 baby steps from the Total Money Makeover. I’ve always liked his debt plan, but never really fully bought into the investment ideas as being ideal. As soon as we reach the point of investing, I’m going to seek professional advice on allocating them along with my retirement funds. I appreciate your thoughtful, yet respectful criticisms. It’s refreshing in a world of polar opinions. Thanks for a great read!

    1. Hi Dennis–

      Thanks for your kind words! The screaming matches from polar opinions turned me off of the news (and cable by extension). I think there’s a growing groundswell of uncertainty regarding his investing and retirement advice. If he adjusted his advice to match modern day realities (though, honestly, I’m not sure that the 12%/8% numbers have ever been seen in a consistent, sustainable fashion in history), he’d put a lot of financial planners out of work, and that wouldn’t necessarily be a bad thing! 🙂

      May your trip through the Baby Steps be rapid! To quote Forrest Griffin, “the juice is worth the squeeze.”

  12. Yeah correct!
    Even nobody is going to make 12% over 40 years of investing, but be saving for something right now

    1. The crux of what he’s trying to teach is correct: save more now and invest wisely. However, he sets up expectations with people (alas, our friend the anchoring effect) that could lead to behaviors opposite of what he teaches. If you truly think that you can get 12% each year for 40 years (which you won’t), then you’ll save less. Furthermore, if you think that you can withdraw 8% per year in retirement (which you can’t), then you’ll save even less, because your target number goes way down. Both are assumptions that could leave retirees far short of the amount they need to maintain the standard of living they became used to.

  13. Good article thanks for the read.
    His estimates aren’t realistic for most people, but everyone should understand Dave only teaches from his experience. Most of his listners dont have millions comming in from book deals, speaking engagements, & courses. Just thought I’d point out what all fee only advisors fail to. The effect on a portfolio of a several thousand dollar financial plan every year. That one seems to be below the radar.

    1. Well, to his credit, he was dirt poor and broke at one point, and he pulled himself up by the bootstraps. However, he did not get rich through investing in mutual funds, I am almost certain.

      You’re right about what advisors who charge you a percentage of your assets cost you. It’s why I only do hourly planning. Ideally, someone who works with me is one and done and they don’t need to come back, barring some major life-changing event like discovering that they’re actually Bill Gates’s long-lost child who will inherit the entire Microsoft empire.

      Thanks for commmenting, Steve!

      1. Thanks for the reply. Still think any costs associated with planning need to be included in an analysis of returns. Whether its a % of assets, hourly, annual or any other method. Planning fees detract money from the initial investment much like a fund load. The fees are necessary for people that need a plan & not a bad thing at all, just wholeheartedly believe -$5,000 at or prior to initial investment is still -$5,000 (I have no knowledge of your fee structure, just made up 5k to have a number). Maybe just me.
        But again great article. I really like it when an advisor encourages his/her clients to think about how they will get where they want to be realistically.
        By the way I just stumbled onto this article & hadn’t looked at your site until you replied. Thank you for your service to our country.

        1. I wholeheartedly agree that fees in the financial planning industry are way overblown. I once had another financial planner who told me that it was necessary to charge 1% of assets under management every year because of software. This person was providing said justification to someone who had co-founded, grown, and sold a software company. Thus, I politely (or impolitely) disagree.

          I’m pretty transparent about what it should cost to get a full-blown financial plan, but also that most people don’t need a full-blown financial plan.

          The question to answer is whether or not having something in place changes your behaviors such that you wind up better off in the long run as a result of having gone through the exercise. The second part of the question is whether or not you’d be willing to trade money for time. Aside from the accumulated experience I have in entrepreneurship and seeing client situations, there’s nothing that I know that someone can’t eventually find out through sufficient Google-fu. The CFP(R) stuff just shows that I have accumulated most of the important things to memorize in one place (at least long enough to pass the exam).

          I do have something coming out next Monday that may bridge that cost/value gap for a lot of people (or, so I hope…I wouldn’t have spent 6 months developing it). Watch this space!

          Also, thanks for your kind words about my service. It was an honor to serve.

  14. Hi Jason,
    Great post and thank you for your service to our great country. I couldn’t agree more on your thoughts about Ramsey. I just added your blog to my reading list. Happy Planning!

  15. Hello,

    Just wanted to tell you I enjoyed this article. Ramsey’s work has benefited my family a lot but I also fully recognize there is a growing volume of opposing, or even just slightly ‘countered’ position, as it relates to investing and long term retirement planning.

    My family of four has made the decision to be a one income family (at least while our kids are at home) so I deeply feel the weight and responsibilities of these investment decisions. Your article was extremely helpful – especially contrasting two of his example funds with their Vanguard Index counterparts.

    I’m relatively new at this so I really appreciate your article – helpful, clear, and thought provoking.

    Thanks again.



    1. Hi Paul–

      Congratulations on the decision to move to being a one-income family! That’s a leap a lot of families struggle with and wind up never making. I’m glad that I could help you think through what you need to do to secure your family’s future and to understand the road turns once you’re debt free. I hope to continue to serve you well.

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