The Truth About Dave Ramsey’s Financial Advice

Over a period of 30 years, that portfolio of mutual funds that outperform the S&P will outperform just being in one type of fund or just being in one fund.

I wonder why Dave Ramsey doesn't acknowledge the benefits of low-cost index funds or ETFs, that is exchange-traded funds. These types of investments have consistently outperformed actively managed mutual funds.

All of the investments that Dave recommends, they're what we call highly correlated. That means if the market crashes, and it will, those investments are going to follow the market down at a very high rate of speed.

Those advisors are likely paying Dave Ramsey to be part of his network. This seems a little bit like a conflict of interest to me.

Hey everyone, welcome to another edition of We're Talking Money. I'm Phil Clark here at OmniStar Financial Group. Today, we're diving into the world of stock market investing, and we're going to visit a little bit of the advice given by the renowned financial guru Dave Ramsey.

If you've been listening to this show for any time at all, you have heard my investment advice, which is roundly criticized by supposed experts out there. Although, I've made more millionaires in America than just about anyone with this horrible advice of mine.

Now, don't get me wrong. I've said many times that Dave Ramsey provides some really good advice, particularly as it relates to his debt reduction strategies. He's helped millions of people find financial freedom just by helping them get out of debt. But, when it comes to investing, I think some of his advice needs closer examination.

One of Ramsey's key recommendations is to avoid individual stocks.

Number of single stocks that I own, I don't invest in single stocks. The number of single stocks that I own is zero.

He says you should opt for mutual funds. He's partially right. Mutual funds do provide great diversification, but his dismissal of individual stocks overlooks their potential for higher returns. Look, you don't need hundreds of stocks to build a well-diversified portfolio.

But when you play a single stock, you're nothing better than a blindfolded monkey. That's the point. So, I just don't do it.

Individual stocks can be more volatile, but they offer significant upside potential, particularly when you stick to fundamentally sound companies in your portfolio.

Another problem with Dave Ramsey's recommendation of mutual funds is price. They can be very costly, and they often have management fees that are always along for the ride. The higher the fees, the more it affects performance. So, if you're in a high-cost mutual fund, you can bet that over the long term, the investor is going to feel that.

Honestly, most people don't even think about whether the mutual fund has a load or not. Meaning, do they pay the commission or not? And that's a mistake.

I wonder why Dave Ramsey doesn't acknowledge the benefits of low-cost index funds or ETFs, that is, exchange-traded funds. These types of investments have consistently outperformed actively managed mutual funds.

So, let's ask a question. Is it possible that Dave Ramsey wants you buying these expensive loaded mutual funds for another reason? Dave Ramsey has a stable or network of financial advisers who he says, quote, agree to do investing my way, end quote.

We've had our SmartVestor Pros look at it. We've gone through it all. You don't have to have a big bunch of detailed analysis on this.

Those advisers are likely paying Dave Ramsey to be part of his network. This seems a little bit like a conflict of interest to me. Drop your comments below and tell us how you feel about that. If you think it is a conflict of interest or if you think this makes sense.

Finally, I think it's worth noting that Dave recommends only investing in just four mutual funds. Growth, growth and income, aggressive growth, and international. Dave is suggesting that you put all of your investment eggs into one mutual fund basket.

What's missing? Well, gold or metals, commodities, real estate, business ownership. There are so many asset classes and here's the real problem. All of the investments that Dave recommends, they're what we call highly correlated. That means if the market crashes, and it will, those investments are going to follow the market down at a very high rate of speed.

Correlated assets are not your friend when it comes to investing. What you really want is non-correlated assets and that's why I say Ramsey's advice leaves a lot out of the equation. When it comes to investing, I think it's important that you give his advice a little more of a critical eye.

Well, that's all for this episode of We're Talking Money. Don't forget to subscribe to our channel and ring that bell so you never miss a great episode. And remember, knowledge is power, especially when it comes to making financial decisions that could affect the rest of your life. I'll see you next time on We're Talking Money.