Why Dave Ramsey Is Wrong About Investing And Debt
Finance radio show host Dave Ramsey is someone who I follow. I believe many of his strategies for eliminating consumer debt from people’s lives are sound. However, there are a few places he falters. It might be his age perspective or just him doing what he knows works. But his investing outlook and also debt hate are off target in my opinion.
There’s a big difference between asset earning debt and consumer debt. Dave Ramsey speaks with people live on his show who a majority of the time have A: consumer debt and B: student loan debt. You could argue whether or not student loan debt is asset earning debt. If you’re a liberal arts P.H.D., unfortunately, the career prospects aren’t as rosy as someone who is in a computer engineering major.
So in his conversations with people suffering from debt one of the major debt issues he speaks on is auto loans. Auto loans are consumer debt if you’re not a fleet owner or use your vehicle to earn money in some way. The people he talks to are generally those who wanted to treat themselves to a new luxury vehicle after they landed a new gig. Big mistake and those of us who are financially literate understand that.
Buying a new TV or another consumer item on credit is not smart at all. Thus the reason why Dave Ramsey’s very level headed and simple approach to reducing consumer debt is a bit common sense (some people just need to hear common sense though).
But there are many many assets that people with drive and ingenuity can acquire using debt. Again not all debt is bad. But Dave Ramsey has a bit of debt phobia.
On the investing side of things… Dave Ramsey’s investing philosophy is pretty good for retirement planning. Putting 15% of your earnings into a tax-advantaged is wise. However, he falls way short on a number of investing aspects that actually would increase one’s investment portfolio size drastically.
Why Dave Ramsey Is Wrong About Debt
As mentioned earlier, not all debt is bad. Using debt to acquire real estate is good debt (so long as you have positive cashflow). Credit is leverage to acquire more assets which is why it’s critical to eliminate consumer debt. But good debt is just that. Good.
Why Dave Ramsey Is Wrong About Investing
This is where I kind of have the ax to grind with Dave Ramsey.
Right from his website :
Dave exclusively recommends Mutual Funds. Now I understand why he would recommend them from a simplicity standpoint. They’re easy to manage, just invest, set it and forget it. However Mutual Funds have a limited upside and management fees that will eat up your profits.
Then Dave does not recommend ETFs. I’m going to tell you why that’s poor advice. I own a number of ETFs. Just as an example, I own a gold and silver ETF and a gold mining ETF. Very small ratio of my portfolio but they have incredible value.
During a recession or when the stock market has a red day, all three go up. This is because precious metals are a hedge against inflation and economic downturn. Read more about that here: How To Prepare For A Recession
I also have an ETF called ROBO in my portfolio. This is an ETF with A.I. robotics companies. Now if you see the writing on the wall in society it seems like a forgone conclusion that A.I. and robotics are where many jobs are headed. So rather than being blindsided, it seems better to be to prepare for the future.
Dave Ramsey does not recommend single stocks. Why not? I don’t recommend all your eggs in one basket. But buying select stocks is not a bad idea at all. You can actually copy invest mutual funds and not have to pay fees. You can allocate individual stocks the way you want to with M1 Finance. To get $10 from M1 Finance sign up here: Sign Up And Get $10 By the way, you can also open IRAs with M1 Finance so check that out as well.
Cash-value life insurance is another form of leverage. So depending on your goals this also can be very worthwhile and isn’t inherently bad or flawed.
So, in my opinion, the Dave Ramsey plan for investing leaves a lot to be desired. I have nothing against the man I just think some of his ideas are a bit antiquated. We’re living in a very new and rapidly changing world. Some of the personal finance ideas of yesteryear no longer apply. This is why Dave Ramsey is wrong about investing and debt.