I, with just about everyone who is familiar with Ramsey, admires his work on the debt side. He has helped thousands get out of and stay out of debt.
But his investment advice is misleading and potentially harmful. Finding a Fund that averages 12% over the long term is like trying to find the next triple crown winner. Good luck! And as he further recommends taking 8%/year out of your nest egg can lead to the outcome that is most feared by retirees - running out of money.
Actually, people don't tend to run out of money - they tend to run out of lifestyle. Draw down at too great a rate and one morning you wake up and realize you can't visit the kids as often, you can't eat out as often, and (drat it!) you have to ask your boss at Wal Mart if you can get more hours!
But the good thing about living in the internet age is that it is fairly easy in most instances to research claims or for that matter just about anything you are interested in. People do this in many areas but not so much in finance.
For example, Google "Large Company Stock Returns" and you'll come up with a link that shows the following table:
This table is reported by Kiplinger and the data comes from Morningstar. These Funds are the top performers out of tens of thousands of Funds.
Looking under the 10 year and 20 year columns you see no 12% s. As you do your research you'll find that Ramsey uses the non sensical arithmetic average whereas the appropriate average is a compound annual number.
But the idea here extends beyond Dave Ramsey and his investment advice. Suppose you want to know what Warren Buffet suggests as an investment approach for the average investor. Or, you have an annuity and, like most people including those who sell them, you can't make heads nor tails of it. Just go on a good search engine and look them up.
Doing the research ahead of meeting with professionals is especially useful because once the jargon starts flying the will weakens and when it comes to financial products people just give in. To hammer this home think of going in to meet with an attorney to discuss setting up a donor advised fund. If you are like most people you may be a bit intimidated in meeting with an attorney. Do a little research and this stress will be reduced and you'll be able to follow the pros and cons as presented and in the end be able to make a better decision. It is all a benefit of living in the information age.
