Should You Follow Dave Ramsey’s Investing Advice?

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You probably wouldn’t know it from reading this blog.

I’m a huge fan of Dave Ramsey.  However, every time I write about him, it is to critique something he says (like his stance on credit scores).  I have, however, shared three things I really like about Dave Ramsey, and I’m sure there are more.

Still, I tend to critique him more than I praise him.  The reason is this: because he is so popular, so likeable, so magnetic, and right in so many ways, people just accept everything he has to say as if it were gospel truth.

Here’s an important thing to remember with Ramsey.  He does one thing really, really, really, well – help people get out of debt.  That is his mission in life. 

Dave Ramsey Investing

However, I believe that there is a time when we should graduate beyond his advice.  There will come a day when Ramsey’s advice just doesn’t cut it any more.  I think that day is the day you start investing.  I know when I started to closely evaluate my own investing, I thought his advice was missing something.  Once I started to subscribe to the Sound Mind Investing Newsletter, I learned a lot about investing.  

What’s Wrong With Dave Ramsey’s Investing Advice?

Perhaps nothing, but at least here are some reasons why I disagree with Ramsey’s investing advice. 

Investing Advice: Invest 15% Percent of Your Income in Retirement

When my wife and I first started saving for retirement, we took Ramsey’s advice and saved 15% starting with our very first paycheck as a married couple.  At the time, that was probably really good advice.  However, our financial situation has changed, our financial theology has changed, and our mindset regarding retirement has changed.  As a result, we no longer fit in the box where saving 15% is right for us.  We’d rather do other things with our money.

As Paul Williams says, “The save 10% for retirement rule is stupid.

I Say: The right amount to save for retirement must be personalized according to your needs.

Investing Advice: Your Tool is Mutual Funds

Mutual Funds are certainly an investing option.  They can even be a good investing option.  However, it is not the sole investing option, and there are some other very good investments that investors should consider.  For example, you can build A Low-Cost, Diversified Investment Portfolio with Only Three Funds.

I remember the olden days when I did invest in mutual funds (and still do).  But, I remember the dreaded feeling when it was time to add a fund or consider removing a fund.  I’d get a list of 4-5 suggestions from my financial advisor and I’d have to look at information I knew little about and make a decision.  Then, as a reward for making this stressful decision, I’d pay the mutual fund company 5% up front in fees on my investment.

After 5-6 years, I decided that was crazy.  So I fired my financial advisor and started investing in no-load mutual funds.  I replaced Dave Ramsey as my investing resource with the sound investing teachings of Sound Mind Investing. 

Recently, I’ve started buying some index fund ETFs.  ETFs come with very low fees, and there are even a lot of places you can buy them without any transaction fees.    Every investor should consider the value of index fund investing as compared to mutual fund investing.

I Say: There are many other good investing options so you should consider the value of each option according to your investing strategy.

Investing Advice: Spread Retirement Funds Even Across Four Types of Funds

Your asset allocation (the types of funds you invest in) is the most important decision any investor will make.  It has the greatest impact on your returns. 

Dave suggests:

  1. 25% Growth and Income
  2. 25% Growth
  3. 25% Mid Cap
  4. 25% International Funds

Is that bad advice?  It totally depends on your age, risk tolerance, and financial goals.  The older you get, the more bonds you should be adding to the mix, but bonds are absent.  The younger you are, the more risk you can take. 

Basically, Ramsey gives us a cardboard box and tells us to fit inside.  I’d rather have a customized asset allocation.

Moreover, it is possible that shifts in the economy impact how and where you should be investing.

I Say: Your age, risk tolerance, and financial goals will determine the best asset allocation.

Investing Advice: You Can Retire When You Can Live Off 8% of Your Nest Egg

In the Total Money Makeover he writes, “You are secure and will leave a nice inheritance when you can live off 8 percent of your nest egg per year.”

Ramsey says this is true because he thinks you can expect to get a 12% rate of return from the market with 4% being used up by the cost of living increase.  Interestingly, he never comes out and puts into print HOW you can expect to get a 12% rate of return, but he says it all the time on the radio.

Here’s what I find most interesting.  For a guy who is so optimistic about our expected rate of return from the market, I don’t know why Ramsey doesn’t push index funds more.  If he thinks the average will be 12%, then using an index fund would be a great way to be sure you don’t do something dumb by picking the wrong mutual fund.

In the end, I guess I’m just more conservative than Ramsey.  Or perhaps I’m more skeptical.  Will the market perform better if I say, “I think I can, I think I can, I think I can?” 

By the time you retire, you probably won’t have your investments in a risky portfolio, so getting 12% through retirement sounds pretty unreasonable to me.

Well, there you have it.  A full post criticizing a man whose accomplishments I respect.  A man whose advice I usually agree with.  But, a man who has a different idea about investing than I do. 

Photo by epicharmus.

What do you think about Dave Ramsey’s investing advice?


    • says

      Financial Blogger,
      The willingness to ‘adjust’ is a good part of any investing plan. As we change our plans should also change. Good point.

  1. Marie says

    I have read a lot about Dave Ramsey but haven’t read any of his books yet. I think part of that is because what I have heard of his advice has not fit for me (ex. the snowball method; I have chosen to pay off my highest interest debt first, as opposed to my smallest debt. That saves me a lot of money, which for me is a huge incentive).

    So I am kind of like you because I think it’s great that he is getting people to take charge of their finances and start making smart choices, but his advice isn’t necessarily one-size-fits-all, which is how he presents it.

    • says

      I do think that Ramsey has excellent advice for people trying to get out of debt. He capitalizes on the emotional factors.
      You are right. The one-size-fits-all definitely means someone is going to get bad advice.

  2. says

    Very good observations, Craig. I’m sure it’s hard for Ramsey to give perfect advice for everyone with such a varied audience. People want easy, bite-size pieces of advice and that’s what he gives. They just don’t realize how wrong that advice can be for them in their specific situation.

    And thanks for linking to my article!

  3. Jesse Young says

    Your blog is a real blessing!

    I think you have to keep in mind that Ramsey is giving bite-sized advice to confused people who have limited financial literacy. If you are so financially challenged that you have built up ten of thousands of dollars in consumer debt, you need basic and consistent rules to follow.

    With that said, I agree with your article entirely. When you get to the point of investing, you need to make decisions based on your own circumstances and prevailing market conditions.

    • says

      Thanks for your kind words.
      You’re exactly right. Ramsey gives what people in debt need. That is why I love his debt advice. He offers simple steps and motivates people.
      Since Ramsey might have done such a good job helping us out of debt we might think he’ll also lead us well through the investing phase. But, I’m just not so sure.
      Thanks for the comment.

  4. Kdub says

    I have to admit this is the first posting that I have read and am very impressed with your insights. I am a financial advisor and have had the same “issues” with Dave’s advice. I can see his point, that over a long period of time (literally 70-80 years) the mix of investments that he recommends HAS returned a long term return in the area of 12%, BUT what about the last 10 years? Or the last 3? I shudder to think what his portfolio looks like after 2008. He did however mention the other day on his program that the market has returned and so has the value of that mix of investments, but the effect of a Waterfall Decline in the early retirement years while taking even a 5% withdrawal can be devestating, let alone a whopping 8%! The general concensus is 4% will offer a 95%+ certainty that the investments will last 30 or more years.

    One area that I will challenge you on is the risk of Index Funds. Index Funds are generally unmanaged baskets of companies and, while they tend to be ok when things are going well, they typically do not have the security of active management that you will find with most of the major Mutual Fund companies. Active management will ultimately cost you, but can also save you if you have hired the right managers to look after your money.

    Overall I think that your insights are spot on and I look forward to reading on in the future. Keep up the good work!

    • says

      Thanks for joining us!
      I appreciate your well thought out comment. I think it added a lot of value to the post. I guess we could say that the more conservative you are with your estimated returns the more likely you are to reach your goal.
      As for index funds, I could (and perhaps should) do an entire post on the subject. In this post I wanted people to know there was another breed of legitimate investment options that many people in the financial field suggest. The index funds mentions was not to promote them (thought I certainly don’t have problems with them), but to encourage people to at least do their own homework and research the benefits of index funds as compared to mutual funds.

  5. says

    Hello Craig-
    I am new to your blog. Thanks for writing this post; the same question has been on my mind.

    We have been following Dave’s advice and 8 months away from paying off $90,000 worth of debt (we have already paid off $60,000). I completely agree with you that Dave ROCKS at helping people get out of debt. However, I am looking to what is next as far as our goals. I was struggling with the 15% into retirement and how in the world you get a 12% return on your investments. I also wish that he would tell us how that happens.

    I just don’t know how to find out how much of our income we should invest into retirement. Does the % include matching or just our contributions? Time to do some homework!

    • says

      Thanks for stopping by!
      Your right. The whole point of this article is that we need to do our homework instead of just swallowing whatever we hear from any source (yes, even this blog). Your situation is specific to you so you do need to do the necessary homework (without reinventing the wheel) to find out how much is appropriate.

  6. says

    Hi Craig,

    Thanks for your post and critque of Dave. Like you, I’m a big fan of Dave’s advice. I guess the rub for most people regarding Dave is one question … “Can I really make 12%?” There are a few people who question his wisdom on the Debt Snowball or his belief in not using Credit Cards, but the success of thousands of people who use his methods for debt elimination are pretty convincing.

    My personal research seems to verify a single truth about investing stategies … Everyone thinks their system is the best (Dave included). Most people when looking at various strategies don’t deny the ability of the other to make money; its more of an arguement over risk and reward. For example, no one denies you can make money with good mutual fund investing; they simply argue the amount you’ll make or the risk your taking. People have made money through various investment strategies for a very long time.

    Since most reasonable people will agree you can make money investing in mutual funds, the real question regarding Dave is “can you invest in such a way as to get the type of returns Dave talks about?”. Well, facts don’t lie … there are funds which have had this type of return. A quick search on can verify plenty of funds with 12% or greater annualized returns.

    I probably dig into Dave’s investing philosophy deeper than most. Sometimes I’m surprised by how quickly people dismiss his advice after having so much success with everything prior to the investing portion. It’s funny, I was speaking with a friend (Who works for Edward Jones) who doesn’t like Dave’s investing advice. Sure he likes the whole debt free thing; but he believes Dave is “stupid” about investing. I’m use to hearing comments like these so I take them in stride and patiently listened to his “better” investment strategy. After he finished, I told him my personal portfolio of mutual funds had an average annualized return of greater than 12% over the past two years (this is when I started using Dave’s advice) and last year my funds average annulized returns were 19%. Did I get a great job or wow I guess Dave’s advice can work … nope. I got “Well I got one customer a return of 27% last year, you missed out … you could have done better.” I simply smiled, thanked him for his advise and congratulated him on his success.

    You see for a lot of people it doesn’t make a difference if Dave’s advice can or will work. Its more of a battle over who’s plan is better. Craig like you I believe everyone will have to look at what will work best for them. For my family Dave’s advise has worked; both on the debt free lifestyle and the investing portion. When I decided to follow Dave’s strategy I also committed to follow something else he teaches:
    “Do Not! Do Not! Do Not! Invest in something because Dave say’s so! Or something you don’t understand!” ~ Dave Ramsey
    “If you do not understand an investment well enough to teach
    someone else how it works, DON’T BUY IT!” ~Dave Ramsey

    No matter what someone chooses as “The Best Investment Strategy” they should become personally knowledgable and educated. In short, I find most of the discussion comes down percentages or opinions. Personally, I’m no different. I have an opinion on what will work best for my family. Each Man and family needs to evaluate their personal situation. If Dave’s technique works for you … then do it! If it doesn’t, then become the best at your chosen strategy.

    Thank you again for you article and website,

    Chuck Detwiler III

    • says

      I think you are right that there is some value and merit to his investing plan. In fact, I don’t think I would go so far as to say that it is BAD. But, the key, as you mention is – do you understand the investing strategy?
      Great comment!

  7. Mitchell says


    Too often, and Ramsey is the King of this, we are told “the average rate of return”. Unfortunately, the average means nothing. It is only the actual that one should be concerned about. My financial guy has very wisely put together a series of short videos on this topic and many others about why traditional financial planning does not work. Delete this if you want, doesn’t matter to me but I used to be a HUGE Ramsey follower until I learned a few things. I’d so highly recommend you watch this video and others that these two guys put together:

    All the blessings,

    • says

      Yes, he seems to be one of the few who are still saying the average rate of return is 12%.
      HOWEVER, I am still a fan of Ramsey. I’m just not sure he’s the right go to guy for investment information. Even he would probably say that himself.

  8. Petunia 100 says

    Well, I will go so far as to state his investment advice is bad. He suggests a withdrawal rate of 10% and staying 100% in stocks throughout retirement. Multiple studies show this strategy has a 70% failure rate. (The most famous of these is The Trinity Study. Don’t take my word for anything, Google it for yourself.) If DR were to state “Follow this strategy and you have only a 70% chance of being completely broke in your old age!” then I would have no problem with it. But it is presented as a safe thing to do, when it is in fact an extremely risky thing to do. You would have significantly better odds taking your nest egg to a roulette wheel, choosing a color, and letting it all ride. Only 51% of people would fail with that strategy, as opposed to 70% who follow Ramsey’s strategy.

    Also, neither “growth” nor “growth & income” are asset classes. Stocks are an asset class. Growth stocks are merely stocks with a high P/E ratio. As soon as you read that far, you should realize you are taking investment advice from someone who never got through even the first week of a Finance 101 class.

    DR is a great motivator, which is all fine and good. He should stick to that. I feel bad for 70% of the people who unwittingly follow his investment advice.

    • says

      Hi Petunia,

      In an effort to be accurate you should at least reflect the recommendations of the person your critizing correctly.

      Dave does not suggest a 10% withdraw through retirement. He suggest a 8% withdraw. (I realize this is at least 4% higher than recommended through the trinity study. However the trinity study is based upon an entirely different investment allocation.)

      The Trinity Study was not a study based upon Dave’s recommended investing philosophy and does not give a specific failure rate for Dave’s strategy. Thus the 70% failure rate reference is unsubstainted through this study.

      For those who have studied Dave’s investing strategy they are aware of how Dave defines Growth and Growth/Income Funds … In Dave’s book The Total Money Makeover he describes Growth Funds as Mid Cap, Equity Funds, or suggests a S&P Index Fund as a qualified fund for this part of his allocation. He further describes Growth/Income funds as Large Cap or Blue Chip funds.

      Finally, your insult on Dave’s education is both inaccurate and childish. Dave was a 1982 graduate of the College of Business Administration at University of Tennessee, Knoxville. He was a licensed insurance agent in the State of Tennessee from 6/18/1984 until his license expired in 10/07/1996. His producers license number was 0652539.

      Petunia I wish you success in whatever investment philosophy you choose. Dave’s investing strategy is not for everyone, but I have been successful with it personally.

      • says


        I think the value of Petunia’s comment is that it does help us all to realize when we’re considering any investment advice we need to know the risks involved. Dave is very confident in the markets and in the economy. For those who don’t share his enthusiasm they should select a more cautious approach.

        I think the danger is that he is so influential. People who use his program to get out of debt are very likely to use his investing advice as well. For young people the advice is great (IMO). However, the older one gets the more seriously they need to consider the wisdom of the 100% stock advice.

        I love DR and think he makes a very valuable contribution to the personal finance community. His strength is debt advice.

    • says


      Since I’m relatively young (mid 30’s) I am currently 100% in stock. However, I do have to agree that when I’m getting close to retirement I have no intention of being 100% in stock because that is too much risk for my tastes.

      I think the end of your comment underscores the point of this post. He is an extremely talented person, but his investment advice can be dangerous IF people don’t properly understand the implications of his advice (like any advice!).

  9. Petunia 100 says

    Chuck, you are absolutely correct about Dave Ramsey’s recommended withdrawal rate. I remembered it incorrectly. It is indeed 8%, not 10%.

    An 8% withdrawal rate with an allocation of 100% stocks has a failure rate of 40% for a man, 50% for a woman. (Failure being defined as the nest egg not lasting the person’s lifetime.) Do you believe this is an acceptable failure rate? Personally, I do not. I want to have more than a 50% shot (I’m female) of having my nest egg last my lifetime. A 50% chance of being broke when I am too old to do anything to help myself is not acceptable to me.

    Now, if Dave Ramsey (DR) were to say “follow my advice and you have only a 40% (male) or 50% (female) chance of failure”, I would have no complaint with that. If people were aware of how risky it is but choose to follow it anyway, that is their decision to make. It seems foolhardy to me to follow such a risky strategy, but certainly everyone has the right to make that decision for him/herself. Is the advice presented as very risky? No, it is presented as a sure way to make your money last. In my opinion, it is grossly irresponsible advice at best, precisely because the failure rate is not disclosed. If you want to know the failure rate of DR’s advice, you will have to look for it elsewhere because he is not going to tell you.

    You say that DR defines what he means by “growth” etc. in his books. That may be true. However, “asset class” is a real term with real meaning. “Growth”, “growth & income” are also real terms. But they are not asset classes, they are mutual fund categories, and they are defined differently by different fund companies and by different investment rating services. I don’t see what purpose is served by re-defining real terms. Why not just use the actual terms?

    Asset classes are such things as domestic stocks, foreign stocks (developed economies), emerging market stocks, bonds, TIPs, cash, commodoties, and real estate. Some insist value stocks, particularly small value stocks, are a separate asset class. Others insist they are not. The purpose of diversifying amongst asset classes is to reduce portfolio volatility. Volatility is especially dangerous to those who are already withdrawing from their portfolios.

    And yes, I am well aware that the Trinity Study was not based on Dave Ramsey’s investment philosophy. Quite honestly, I am a bit perplexed at your statement. The Trinity Study is a real academic study. It is not based on anyone’s philosophy. It is based on hard data and mathematical projections.

    By your statement that you have personally been successful with DR’s strategy, do you mean to say that you are already retired and withdrawing from your nest egg? Or do you mean that you are investing following his strategy?

    You may find my criticism of DR’s advice both childish and insulting, that is OK with me. I urge you to do your own due diligence. Please do not blindly follow a risky strategy merely because it is put forth by a very charismatic speaker.

    Google “safe withdrawal rates” and “asset allocation” for yourself, and read what sources other than DR have to say on these crucial topics. Then judge for yourself if DR’s advice is sound or not.

    Please allow me to suggest:

    1. Guidelines for Withdrawal Rates and Portfolio Safety During Retirement by John J. Spitzer, Ph.D.; Jeffrey C. Strieter, Ph.D.; and Sandeep Singh, Ph.D., CFA

    2. Wade Phau, Ph.D

    3. All About Asset Allocation by Rick Ferri

    4. Investopedia, definition of “asset class”

    5. Black-Litterman model

    6. criteria for specifying asset classes, Maginn, Tuttle, McLeavey and Pinto (2007)

    7. impact of volatility on portfolio returns

    I do sincerely hope that if you choose to follow DR’s strategy, you are one of the lucky 60% and not one of the unlucky 40%. If you are married, I hope your wife is in the lucky half who can afford food and electricity and not in the unlucky half who can’t. (And it is just luck. It will depend upon the exact market returns during your retirement years, which cannot be controlled.)

    Myself, I do not intend to rely on luck. I will use the tools available to me: asset allocation and a sensible withdrawal rate. By following them, I am faced with a 5% failure rate, and I will take that over 50% any day of the week.

  10. Petunia 100 says

    I also want to point out, the distinction about asset class is important not because DR is using the term incorrectly, but because diversifying amongst asset classes is how volatility is reduced. If you want your nest egg to last your lifetime, it is crucial to minimize your portfolio’s volatility.

    There are only 2 asset classes in DR’s suggested portfolio. Buying a growth fund, a growth & income fund, and a mid-cap fund will not reduce volatility. They are all the same asset class. Only the international fund offers any reduction in volatility.

    DR’s suggested portfolio is a two-legged stool.

    • says

      Hello again,

      Petunia I’m curious if you have ever read DR’s book, taken his course, or studied Dave’s suggested allocations … I only responded to the two terms (growth and growth/income) you mentioned in your first post. Dave actually recommends more. But once again, you’ve been inaccurate in reflecting Dave’s suggested breakdown for investing in Mutual Funds. There are four types of funds DR suggests. (Note: Craig incorrectly identified one of these in his original post “Mid Cap” … This should have read “Aggressive Growth”). I’m assuming this is why you referred to Mid Cap. Both within his book and classes he breaks down the various types of funds within the four categories. He also describes all of the various assest classes you’ve previously listed and does recommend diversification through mutual funds into some of those assest classes. (Please note it was Craig who used the term assest allocation when describing DR’s strategy … it wasn’t DR. But it should also be noted Craig attempted to clarify the manner in which he was using it.)

      My reference to one of your comments being childish was addressing only the personal nature of your statement calling into question his educational background. If it had simply continued to be a discussion on his advice or stategy I would not have considered that childish. But your comment was written as an insult, not as a critique.

      My statement that I am currently successful by using Dave’s plan does not mean I am currently retired. No … I’m simply seeing returns in line with what he suggests. However, I’m not sure why that would minimize my opinion or success to date. If you would like to present a study with percentages which accurately reflect a long term or short term case study of DR’s investment strategy then I’d be happy to review it. However, you’ve yet to accurately describe it and yet still assign failure percentages.

      Your statements keep suggesting Dave’s advice is equitable with all who simply invest in Stocks, such as evaluated by the Trinity Study, then you assign the success or failure rates of those studies against a specific investment strategy which you have mischaracterized twice now. I have no problem with the Trinity Study … I believe it to be accurate. What I disagree with is the straight comparison to DR’s recommendations. It’s not an accurate comparison.

      Finally, I do take the time to review studies or writings from other sources (please note I did so with your first post) … But may I also suggest you give that same consideration to the person you are critiquing.

      • Petunia 100 says


        I have skimmed through a few of DR’s books, and I have read through the information currently posted on his website. If you say that DR recommends an “aggressive growth” fund, I will accept your word as accurate.. Aggressive growth is also not an asset class. “Aggressive growth” is a mutual fund category, as are “growth”, and “growth & income”. Asset allocation is not achieved by buying 1 domestic stock fund, or 2, or 152. At the end of the day, you still have ONLY ONE asset class. Asset allocation is achieved by buying different asset classes. This is the basis of Modern Portfolio Theory.

        I apologize if I sounded childish to you, but it does not change the truth of my statement. The term “asset class” means what it means. To call “aggressive growth”, “growth”, or “growth & income” by the term “asset class” is to advertise that you don’t have an understanding of the most basic concept taught in Finance 101.
        And if you don’t have that basic understanding, you should refrain from giving advice.

        I don’t believe I have mischaracterized DR’s advice at all. His advice is 75% domestic stocks, 25% foreign stocks. That is 100% stocks. Calling one fund “midcap” instead of “aggressive growth” is immaterial and has no impact.

        I have not assigned any percentages to failure rates. The failure rate numbers are those of Wade Pfau Ph.D. I did not provide a link (I am not certain if a link will get through the spam filter) but I did provide his name. Wade Pfau is published in many academic finance journals, and is currently teaching Economics at a graduate school in Tokyo. He is item #2 on my suggestions of things you might Google. I will link to his blog in a separate post, to prevent this post being filtered.

        After you view his data, will you please answer my question? Is a 40% failure rate (male) acceptable to you? If you are married, are you happy with a 50% failure rate for your wife? Do you feel that people who follow this advice and fail in such large numbers are being well served ?

        I also suggest you read a 2008 article published in the Wall Street Journal about the effects of adding additional asset classes to a portfolio. It begins with a single asset class (large and small cap U.S. stock) and shows the expected volatility (standard deviation 18.0). It then adds a second asset class, foreign stock and shows the expected volatility (standard deviation 17.2). Note that the volatility decreases slightly. (And if you are following DR’s advice, this is as far down the list as you go.). The article goes on to add additional asset classes and the effect of the addition of each on a portfolio, until finally a portfolio equally weighted in 6 asset classes (US stock, foreign stock, US intermediate bonds, cash, real estate and commodities) has the lowest volatility of each portfolio examined (standard deviation 8.7) The article is called “Reducing Your Portfolio’s Volatiltity”. I will also post that link separately.

  11. Petunia 100 says

    Here is one of Wade Pfau’s recent articles. Poke around his blog, you will find a lot of interesting research.

    [url] [/url]

  12. Chuck says

    Petunia … “To call “aggressive growth”, “growth”, or “growth & income” by the term “asset class” is to advertise that you don’t have an understanding of the most basic concept taught in Finance 101.”

    Please provide the link to where DR himself or I used this term to describe various mutual fund categories. However, I don’t think there is any disagreement that some asset classes may be purchased through the use of mutual funds. The only reference I can find using the term in the manner you suggest is Craig’s statement in the original article refering to “assest allocations”. Is your critism directed at Craig or Dave? You also suggested I refrain from giving advice if I don’t understand the term … so please give an example of where I used the term “asset class” to describe Dave’s mutual fund categories. I’ve yet to find one occurance of this.

    Craig and Petunia,
    I’m very aware of how good a speaker Dave is. I’m also aware of the risks of purchasing stocks through mutual funds. However, if someone is going to assign failure percentage rates to his recommendations then they should be accurate in comparison.

    I reviewed Pfua data … Please indicate if you believe the parameters of the analysis are equal to DR’s recommendations. Here is a quote from Pfau and the link you provided …. “Below is a figure showing the probabilities of running out of assets prior to death for different withdrawal rates and asset allocations (large-cap stocks and long-term government bonds in this case — I know, I know, the assets I use are constantly changing but in this case I’m working within the confines of another paper I’ve been studying).”
    IF this is the chart where you derive the 40% and 50% figure then I believe you are making a faulty comparison.

    To give a fishing anology … I’m sure I could find a study showing people who go fishing only have a 40-50% chance of failure. Why is it then some fisherman consistently catch fish? Is it only “luck”? Or could it be becuase of equipment, location, weather, experience, etc… So would it then be accurate to say a fisherman who studies, uses good equipment, checks the weather, knows the waters he’s fishing in, or has a guide only has a 50% chance of catching something? The answer is no. It’s not an accurate comparison. All fishermen are not equal. Nor are all investors.

    I have no problem conceeding there are other methods of investing which can help a person retire successfully. However, I’m not the one throwing stones. The WSJ chart given is based upon a very broad spectrum and averages, which are not specifically representative of DR’s recommendations. It’s simply giving broad based based analysis of data. I have no doubt its factual … I just don’t believe it to be a specific enough comparison.

    Petunia … “Do you feel that people who follow this advice and fail in such large numbers are being well served ?” … Please provide a survey or data of the large numbers of people who have followed his recommendations and then failed. This is an assumption on your part. Not a statement of fact as presented. (Note: I have no data to suggest large numbers succeed following his investing recommendations. … I can only find large numbers of personal testimonials to this effect … but no specific percentages.)

    By your own admission you have only skimmed through DR’s recommendations. I on the other hand have studied and used them successfully to date. I suppose in 30-40 years we can look again and determine if I’m still successful. And I am NOT suggesting you won’t be successful as well. As an informed investor I have every confidence you will be.

    As I’ve stated before … DR’s investing strategy is not for everyone. I hope you find success in your chosen investment.

  13. Petunia 100 says


    How do you arrive at the conclusion that Wade Pfau’s numbers don’t apply to Ramsey’s advice? They are both using historical stock market returns.

    You say you “have no problem” with the Trinity Study. According to the Trinity Study, a 100% stock portfolio with an 8% withdrawal rate will be successful 70% of the time during a time frame of 15 years or less. If the time period is 20 years, the success rate falls to 53%. If the time frame is 25 years, the success rate falls to 46%. If the time frame is 30 years, the success rate is 41%.

    The Trinity Study numbers are not so very different from Wade Pfau’s. Wade Pfau incorporated mortality tables into his numbers, the Trinity Study leaves it to you to determine how long you might be retired and needing income.

    May I suggest you try some Monte Carlo simulators? Unfortunately, the best ones are not free. However, there are a few decent ones available for free. This one, from Vanguard, returned a probability of success of 37% when I input 100% stock portfolio, 8% withdrawal rate.

    Just Google “monte carlo simulator tools” if you want to try some others.

  14. Will says

    Great article! I’m not as big of a fan of Dave Ramsey as you are. A lot of his get-out-of-debt advice is very poor. He does motivate people to get out of debt, and that’s fabulous! But you hit the nail on the head. When it comes to investing, run from Dave Ramsey!

    Some guy posted a YouTube video above:
    Cool video!

  15. Chuck says


    Hopefully I’m not fustrating you to much or causing any stress … it’s not my intention. To be perfectly honest I enjoy the conversation back and forth. I’ll try to be as clear as possible as to why I feel the both Wade Pfau and the Trinity Study don’t make for an accurate comparison.

    Wade Pfau figures were derived from looking at large-cap stocks and long-term government bonds as assests. (Please see the quote Wade Pfau which I provided above) DR recommends four categories of mutual funds and only one of these are invested in Large Cap. DR does not suggest the purchase of long term government bonds, yet this is a part of Pfau’s calculations. Mutual Funds invested in Large Cap stocks ARE recommended by DR as 25% portion. However, DR also recommends mutual funds meet multiple criteria prior to purchase. Wade makes no suggestion that he has selectively chosen investors who had any particular investment criteria or who were investing in the stock market through a particular vehicle such as mutual funds.

    Thus to compare Pfau’s analysis of Large Cap Stock and Long Term government bond investments and apply his conclusions to DR’s investment recommendations doesn’t portray an accurate comparison. Pfau is not providing an evalution of DR’s recommendations. His analysis is far broader in nature and not specific to any particular investment strategy through the mutual fund markets.

    Likewise the trinity study is a very BROAD base analysis of the stock market in combination with other assest classes. Utilizing it as a comparison is not specific to any of the criteria DR suggests prior to purchase of mutual funds.

    If you would like further information on the full scope of Dave’s recommendations I would be happy to discuss it further.

    BTW … would are you aware DR also recommends investing in Real Estate? I know its not specific to our discussion, but you seem to be under the impression that he only believes in the stock market as an invest tool. I might be wrong about your perception of his full recommendations and if I am I apoligize.

  16. Petunia 100 says


    Wade Pfau looked at portfolios with different stock/bond ratios . If you look along the x-axis, you will see each distinct portfolio represented. We are talking specifically about the 100% stock portfolio. There are no bonds in the 100% stock portfolio.

    You are expecting a 100% stock portfolio to split into funds categorized as “Aggressive Growth”, “Growth”, and “Growth & Income” to behave differently than a 100% stock portfolio invested in US Large Cap (70% of the US stock market). Do you have any basis for this expectation?

    Again, the only diversifier I see is the international fund.

  17. Chuck says


    Thank you for pointing out the far right portion of the x-axis … my browser was covering it up with Pfau’s facebook widget. However, I don’t believe this changes the fact Pfau’s analysis is not representative of DR’s recommendations, it only confirms it. You’ve acknowledged Pfua doesn’t include 3 of the 4 recommended categories of mutual fund investments in his analysis … Mid, Small, and International.

    You also asked if there is any reason to expect different returns through adding various domestic mutual fund categories through Mid Cap or Small Cap funds. Yes … Below I’ve provided some links to broad analysis, showing the various historic annual returns of those categories. I’ve provide multiple sources … morningstar, fidelity, and others.

    However, I’m not representing the links I provided are a specific reflection of DR’s recommendations. After all … I don’t invest in the entire S&P 500 or Russell Mid Cap index. I was simply trying to answer your question if there was anything to suggest you could expect different results with a combination of categories.

    Please understand I’m not suggesting any of the links I’ve given were providing an evaluation of DR’s recommendations … None of the studies included any portfolio analysis which included international funds in the mix. Nor does any of the data include only mutual funds which have meet general criteria or guidelines.

    Again, I am not aware of any short term or long term study evaluating DR’s system or any case studies of investors who followed his recommendations. I only have my personal experience and testimony of others.

    Petunia I’m not sure we will ever necessarily agree on DR. But I do believe there has been value in our conversation. If nothing else it demonstrates to other people they should do their homework and know what they’re investing in.

  18. Petunia 100 says


    I do understand that no academic studies are based on anyone’s portfolio advice, including that of Dave Ramsey. I do realize you are not attempting to claim otherwise.

    You say you do not have confidence that studies done with 100% large cap are comparable to Dave Ramsey’s recommended portfolio. I do agree that there is indeed some benefit to holding mid and small cap stocks. (I hold them myself). However, I don’t agree that the difference is large enough to dramatically improve the success/failure rates of 8% withdrawals from a 100% stock portfolio.

    William Bengen, a CFP, published 3 separate studies, all having to do with withdrawal rates, in The Journal of Financial Planning in 1994, 1996, and 1997. In his 1997 study, he examined, among other things, the addition of small cap stocks to a portfolio. He looked at what ratio of large/small was optimal (he found 30-40% small was optimal) and then incorporated that into different stock/bond portfolios and then looked at different withdrawal rates. Here is the link:

    He begins his discussion of adding small caps towards the very end of page 3.

    In his first study, using only large caps for stocks, Bengen concluded that 4% is a safe withdrawal rate. (Also found by the more famous Trinity Study). In this third study, (chart 5, page 4), his data indicate that the addition of small caps improves the safe withdrawal rate to 4.3% for a 50/50 large/small stock allocation, but a 45/55 stock/bond allocation. That was the peak. The lowest bond allocation included was 90/10 stock/bond. At that level, he found that the addition of small caps increased the safe withdrawal rate to 4.1%.

    Continuing on to chart 6, page 5, he examined success of different withdrawal rates on a 63/37 stock/bond portfolio, with the stocks consisting of 70/30 large/small. The portolio also reduced its stock allocation by 1% per year. The highest withdrawal rate examined is 6.75%. He found it had a 49% chance of lasting 18 years.

    So far, this is the study closest to Dave Ramsey’s recommendations I have found. So that is another gripe I have. Recommending a portfolio to millions of trusting fans based on…what? As far as I can tell, the only basis for his recommendation is…well, stocks have a long-term average of 12%, subtract 4% for inflation, and there you go, you can spend 8%. If stocks were not volatile but instead provided a consistent 12% each and every year, this method would work fine. But the reality is that stocks are very volatile. So sequence of returns will determine who succeeds and who fails with this strategy.

    Chuck, I expect you are correct that we will not see eye to eye on Dave Ramsey. I do agree with you that everyone should do their own due diligence. After all, each of us will live with the consequences of our own investment decisions.

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