Huge Dave fan here - Found his plan 10 years ago, and followed it to the letter. We completed BS1-3 in about 18 months, and followed his investment advice, investing 15% for retirement with Edward Jones for the last 8 years in front loaded high fee American Funds. With a lot of focus and being intentional, we were fortunate enough to cash flow another college degree, and reach BS7, paying off our mortgage in February 2020. So, Dave’s plan works, and we are very grateful. HOWEVER, once I did the research, the data is just not refutable at this point - index investing is the way to go. It’s not that Dave’s philosophy won’t work - It will. Here is the problem - It just won’t work nearly as well, and if you are investing for the long game in high fee actively managed funds like he suggests, you are going to leave potentially hundreds of thousands of dollars on the table. Ask yourself if your manager is worth that much to you. I liked my EJ advisor a lot, and he was good at what he did, but ultimately we severed the relationship and moved everything to low cost, broad based index funds at Vanguard, and now all our 401ks are also invested in similar. I struggled with this decision for a long time, but now my biggest regret is “wasting” a decade being in these active funds. If there are others out there like me, go read and educate yourself - “The Simple Path To Wealth” by JL Collins, “The Little Book Of Common Sense Investing” by John Bogle, and “A Random Walk Down Wall Street” by Malkiel. Even as a massive Dave fanboy, the evidence is right there, and now I am happy I made the jump.
Ranger1589 Be very careful, specific, and intentional with your questions. For example, when EJ gives you a report that shows what you are paying in fees it only includes what THEY get, not what the active fund also takes. So, say you are in a fund with 5.75% front loads and an expense ratio of 1%. Out of that 1% ER, the broker might only keep 0.25%, and that is what they report. I implore you, check out some of those resources I mentioned. Fees don’t just matter, they matter a LOT. I didn’t understand either, like OK I invested all this money in a place I trust, they do a great job, 1% ER plus a small % of whatever I put in SEEMS fair. That is until you dig deeper and understand all the fees and more importantly, how the compounding of those over time is KILLING YOU. The book I mentioned by Bogle points this out with absolutely staggering numbers
Dave Ramsey does a great job at motivating people who are in a lot of debt/aren’t doing good things financially! But once you are in the mindset of being wise with your finances, it’s probably best to look somewhere else for more nuanced views. (Ramsey is why I stopped spending and started heavily paying down debt/learned about finances. The Money Guys gave me what I needed to create a nuanced plan of where/when to put money in different places.)
@ So I wonder how much Dave gives promoting these people. There's a reason for everything.
3 года назад
@@tamwilfred I actually visited one of the recommended local providers to talk about investments. The way she talked , it sounded like she didn't have to pay Dave anything to become an endorsed local provider. She just had to generally follow Dave's style of personal finance- I think she was sincere and didn't have to pay anything to become an endorsed local provider. She had taken Financial Peace classes, but she already had a bachelors degree in finance, and was pretty sharp. . I don't think Dave gets paid anything to endorse local providers. I've also noticed that Dave does recommends mutual funds, but does not endorse any particular fund, or family of funds.
@ Just is careful and do your research. If they are calling themselves financial advisors make sure they are fiduciary. If they are commission-based they might not have your best interest in mind. In the end, they could just end up being salespeople.
Dave and the Ramsey team acknowledged the biggest contributer for folks and lack of retirement readiness is failing to contribute to retirement. I personally index based on Bogles book on common sense investing. Great job summarizing the topic!
Started indexing in 2008 after reading a Jack Bogle book right after getting out of college. Didn't realize just how big the movement has gotten. I've just always been there.
DR has a money motive to recommend; his endorsed advisers pay him a fee. These advisers have to take low balance clients. Advisers do not make any money on those with the normal fee structure, hence DR suggests loaded funds.
That is a very intelligent point. The 13% of who beat the index is likely a different active manager each year, not the same group of 13%. A nice additional data point would be how many beat the index over a 5-, 10- and 20-year span?
Yes! Dave is wrong about all of his investing advice. Great personal finance advice overall. Also everyone regardless of debt should be getting employer match on 401K.
I forget the context but I remember him recommending what he described as an "S&P 500 mutual fund" at some point. Basically recommending an index fund but afraid to use the words.
I have coordinated five of the Ramsey FPU courses and plan to do another in January. But I gave up on actively managed funds, especially front loaded funds, years ago. I have a few individual stocks for fun but the vast majority of our portfolio is in indexed equities.
Which is completely dishonest on his part. I'm not against him making money, but he's taking advantage of people. A lot of people that follow him are just trying to get their basic finances in order, and have little to no knowledge of the investing world.
I have been index investing with Vanguard for over ten years now and can attest that these funds very rarely beat the market averages in any one year. But, averaged over 10 years, taking into account the low expenses, the performance for the indexes is far superior.
By definition, they can't beat the market. You are buying the market. And some fees are shaved off the top. Nevertheless, you're getting what the market gets, while active investors rarely do.
Dave is one of the best at getting people out of debt, not good at recommending investing strategies. Index funds will outperform all mutual funds over a long period of time.
You have to remember Ramsey is a real estate guy. That's where most of his portfolio is and he makes tons of money doing it, he doesn't care if his stock funds go to zero and from his perspective it makes sense to be incredibly aggressive, otherwise why not just buy more real estate? It's also why he doesn't bother to recommend bonds, what does he need bonds for? Also, he has a network of investment advisers and gets paid a lot more if they sell active funds, so there's that.
Not to mention the bet Buffest had, and won, that an actively managed fund couldn't beat an index fund over 10 years. He ended up winning 1 million dollars.
Dave doesn’t hold the licenses to receive kick backs from mutual fund managers or advisors. Now, he can sell his endorsement. I’m sure advisors would pay either way.
Dave says that fees don’t matter when it comes to retirement planning but if you apply the same exact math he uses you can see that high fees can very easily siphon off several hundred thousand dollars of compound earnings over the long run.
Love the show guys. I'm all in on index fund investing. Is there anyway you guys can make a show about the benefits of investing in international funds. I know it's to diversify but it's unperformed for the last decade. Thank again for the great content.
There's really not a lot of benefit for American investors to "diversify" into foreign markets. The largest American companies are almost all international in scope. The only diversity you're really getting by choosing an international fund is exposing yourself to more currency exchange risk. That's great when the dollar is falling, but since the dollar is the world's most widely held currency, it usually holds up better than other fiats.
Dave Ramsey’s target audience is those who have failed at finances & helps them get out of debt. It’s like if you’re a student failing at arithmetic so your math teacher helps you out and you get a C+. Now if you want to get into algebra or calculus, your math teacher scolds you and says all you need is arithmetic to get by in life. That may work for some, but if you want to become an engineer you need that higher level math mastery.
Gotta keep the target audience in mind. Average American folks. 60% can't come up with $1k on the fly. At least $2k in CC debt. I'm sure Ramsey has different personal ideas but being consistent with his audience is tops for sure.
No harm in at least rolling over the old employers trad 401k money to your trad IRA; and rolling over the old roth 401k funds to your roth IRA. And NO, moving funds like that does not count toward the contribution limits for the year. I don't know enough about conversions to comment on that part. Hope this helps! 🍻
I am not sure what happened to my previous comment, but here is my attempt at it again. 1.) Dave does NOT hate index investing (meme was taken out of context.) He uses it quite often as a savings vehicle. He recommends people use it as well in TAXABLE accounts for short-mid term goals like purchasing a home in 5 years or more. 2.) Dave's recommendations are solely for RETIREMENT ACCOUNTS, not TAXABLE accounts. So when you say there is a tax efficiency problem this does not apply. 3.) Annualized average returns INCLUDE expense ratio's, so when you are are tracking performance you can clearly separate the MFs that outperformed the S&P 500 in websites such as Morning Star. FYI, I am an AVID user of Index Funds and that's all I purchase in my TAXABLE accounts. Please correct me if anything I am saying is wrong.
The biggest problem is that chasing winners leads investors to buy into active funds that are actually overperforming and then return to the mean. which means that for the period held, they underperform the market. Carefully select. Buy, and have the courage and confidence to hold. Compare something like VIIIX and something like PRJIX over the long haul (like >20 years) and you'll see. That said, I own both.
Dave does in fact recommend index funds when it comes to after-tax brokerage accounts, just not for retirement accounts for which turnover rates don’t matter.
Dave got me started on the path to financial freedom, and I’ve still got a soft spot for his advice. A fact that convinced me to avoid actively managed mutual funds hasn’t been mentioned on The Money Guy Show to my knowledge. I often hear The Money Guy show state that ~80-85% of actively managed equity mutual funds underperform their benchmark index, but with services like Fidelity and Morningstar, it’s very easy to identify the top performing actively managed mutual funds at the time so I had doubts about index investing. What I didn’t realize until I watched a Ben Felix video on the topic was the lack of persistence of actively managed mutual funds to stay in the top quartile of actively managed equity mutual funds. The S&P Dow Jones Persistence index/scorecard in March of 2019 shows only 11.36% of all domestic equity funds stayed in the top quartile over a 3 year period. This means the chances of you identifying a persistently top performing mutual fund are very low. I’m not sure if you still read the comments, but you may want to consider including this persuasive fact in a future video.
They say something like this near the end of this video. They mentioned that even if you find the top active fund this year, it's not usually the same year after year.
Vanguard index fund performance also comes from their heartbeat patent. This helps them never distribute capital gains. This is not the case for other companies index mutual funds. If you want to avoid it, own Vanguard index funds or any company index etf
Dave does a lot of good getting people out of debt and motivating them. Yet when it comes to investing he is a financial entertainer and not a professional. You guys are doing a disservice not be more firm about this. His investing strategies are antiquated at best. I can't count the number of Financial professionals those people with the initials after their names who have provided solid proof that his financial strategies and advice are flawed. When I talk about financial strategies and advice I'm directly talking about investments. Not to getting out of debt part. Dave is the king of people getting on a great financial path. He is basically like an associates degree or maybe even a bachelors degree. Your program is more like a Masters degree and you need to hold people to a higher standard with factual data which you often do. Saying that Dave is wrong about investment strategies isn't bashing him because of the great work he does it's just being truthful.
I’ve wondered for a while now why Dave still promotes mutual funds when the facts are against him. Is he paid by mutual fund managers? Or is he just closed off to change?
Just look at Dave's response to a Tesla from his daughter in recent episode. He's lost credibility with me with his ignorance when the facts are there.
Probably got kickback from promoting mutual funds. I laughed so hard awhile back when he was giving advice to people how to invest and how his actively mutual funds outperformed s&p 500. He's good at giving people motivation to get out of debt. I listen to Jack Bogle or Warren Buffett for investment advice.
I think Dave is good man who is out of touch sometimes. He also wants to keep the money flowing into his business. Overall, he is a HUGE benefit to the world and following his advice will help you, even if there are a couple things that he is wrong about IMO. He sets hard and fast rules for people who are financially illiterate.
They allude to a price war among mutual funds. I quite agree. But you can pay no load at all, and with Vanguard, Fidelity, and maybe T. Rowe Price, American Century, or Schwab you can still get low fees.
In a Roth and Traditional IRA account, Do you think it would be worth sacrificing some capital gains/dividends to get out of a mediocre performing funds (Primerica; Multiple funds including some bonds), to switch to a self managed Vanguard account (investing in index funds)?
Capital gains and dividends are irrelevant in an IRA. When a stock distributes a dividend it usually drops in price. If you want to 'generate capital gains' just sell something.
@@mscolli3 Not looking to generate capital gains. May have poorly articulated my question. I want to rollover a Traditional and Roth IRA account, currently with Primerica, to a self managed Vanguard account. To do that now, I would lose some of the capital gains/dividends that had accrued in the account over the years. I'm not sure if it's better to do a rollover now, take a "hit" but be in a better account... or let it ride in that account and just focus on investing in vanguard going forward. I feel like the current account would make more in the long run in the vanguard account, as it is invested in an index fund instead of multiple primerica funds.
Shaun: While I'm certainly no financial adviser, and there's much I don't know about the intricacies of IRAs, I would think you could roll your Primerica account over into a low-fee/cost provider (I highly recommend Vanguard) without losing anything. My understanding is that there are no penalties for "rollovers" (but there certainly can be for distributions). Also, I would imagine that you are re-investing dividends and capital gains, so, again, not going to lose anything in a rollover. I would recommend contacting Vanguard (or Fidelity, or Schwab) directly and getting advice from them. Good luck.
QUESTION So I was thinking about the 88x. What if we required people put $1000 in an account at birth? At 65 years of 12% a year return every child would retire a millionaire. I think this should be a thing. If you got a return of more like 18% in technology it would be more like $47 million.
Guys, thank you for this video. Why would you pay a higher expense ratio to trail the market? I have always had a hard time with Dave recommending these types of funds.
Dave Ramsey doesn't like index investing because he can't make any money selling those funds. In the end, Dave is a middle man that takes a cut for driving sales to investment products.
Agreed. He does so much good for the average folk with his basic common sense approach to finance, but he clearly has a conflict of interest when it comes to the 'endorsed local provider' commissions and investment advice. If he were to change his tune and support the passive index approach he knows he'd lose a cut from the ELPs, so unfortunately, it's not gonna happen.
I do index funds. I have been very happy. They outperform most active funds, are diverse, and easy to manage. So I don't follow Dave Ramsey's advice on going with active funds.
I invested in index funds with An IRA all Vanguard, SP 500 , Midcap, Small cap, International, Bond fund since 2015 we have doubled our money. Dave heart is good his ability to grasp past his ELP is his short coming. Listen to Warren Buffet how to invest for the average Joe yep index funds the list goes on and on. I have jumped into ETF managed very limited fact only Cathie Woods.
i don't think dave hates index fund investing. he just sates there are actively managed mutual funds that outperform index funds. This is true but it costs more money to have these funds.
Why are you guys not touching on the fact that there are different types of Index funds? There are growth index funds, for example (VIGAX) and s&p index funds ( VTSAX for example). Big difference in returns.....over 1% difference over any time interval
Can someone tell me, how do those big companies like Fidelity, Vanguard, or Scwabb make money on an index fund that is almost free? Nobody works for free. So how they make the money?
i’ve never understood why so many people get overworked on beating the S&P 500. Just put money away in a good investment, like an index fund, and try to get a good, decent return. Geez, is that so hard?
Dave hates index investing but baby beginners like Warren Buffet(for his heirs) and Jack Bogle recommend them.mmmm I pay .04 in fees and one can go with Fidelity and pay 0
Dave doesn't really strike me as someone who tries to stay up to date with investing or researching and learning about "newer" methods to invest like index but more of a "this worked for me and I know it works so I'll stick to what I know" kinda guy. And there's nothing really wrong with this other than it compromises the quality of his advice as he isn't up to date with how things are now but how it was when he became successful. This would be like getting advice from your grandparents on how to go to college, find a gf , buy a house from back when they were young ... things have changed from when you could pay for college with a summer job. Not trying to bash as when it comes to motivating people to save and clear debt he is good at it just for some stuff he probably hasn't tried he is quick to be opinionated without being properly informed it seems to me at least. Having an opinion is fine , can be a problem if you don't update that opinion with facts over time though. Example : when he had a discussion with his daughter about driving in a tesla while not having been in one himself or knowing anything about the specs of the car or that teslas update and get better but simply just compared it to every other ICE car. Wasn't really a discussion as much as it was him going grumpy old man hating on fancy electric computer cars.
Fidelity's Zero Index Funds need more attention--any thoughts? Any downside to these? (Besides the fact they can only be purchased direct through fidelity).
I’m sold on investing in index funds, but still feel like I’m not knowledgeable enough to do it on my own. How do I work with a professional without them taking a percentage out of my investments?
You don’t need someone to help you buy them. That’s just lack of knowledge leading you to believe you need help. Go to any major brokerage firm (Vanguard, Fidelity, etc) to buy index funds or just open a Betterment account to use ETFs to index. Just take a little time to look at platforms.
Just one caveat: if index funds are the latest fad, and everyone is putting every dollar they can save into index funds, then you are essentially investing with the crowd. Normally, the best way to make money is to bet against the crowd. Back in the 90s, when everybody was chasing dot-com stocks, index-fund in vesting was great - because nobody was doing it. But now, things are quite different. IMO, it's the Nifty Fifty all over again, and it will eventually end badly. The tax efficiency and low fees won't matter if the five huge stocks who make up 25% of the S&P start to get re-valued.
That's simply faulty logic. First you're trying to take what happen in one industry sector (Dot com) and apply it to index funds which holds a broad range of different sectors from banking, technology, retail etc. The very nature of the diversification in an index fund goe against what you claim. For index funds to "bust" similar to the dot com bust as you claim that would mean the US economy went bust. Now there are index funds that focus only on a certain sector and those can cetainly go bust but that's not due to the type of fund it's due to the concentration of that fund in one sector. Example. If you owned an index fund heavily concentrated in the airline andhospitality industry that fund likely went bust this year.
Respectfully, that’s not one caveat, index investing isn’t a new fad, and there’s a great deal of incorrect information in your post. If you’re interested in evidence based information regarding index investing that cites the current academic literature, I’d strongly encourage you subscribe to Ben Felix. He addresses most of the common concerns regarding index investing, and the extremely difficult nature of attempting to time the market/go against the crowd.
Im 20 yrs and counting in that "fad". Feel free to stay on the sideline while my net worth grows and grows. If you do plan to get in, do your due diligence in finding the fund that you'll invest in then ignore the noise!
I don't invest in the S&P 500. I invest in total market index funds. Different because they invest in entire markets. Also, yes there are flaws due to cap weighting, but, IMO, the benefits outweigh the drawbacks.
I'd argue that a majority of those 87% large cap funds that don't beat the market are also 'not necessarily trying to.' They also have clients who would prefer they manage risk other than just taking more risk in order to increase reward. I have yet to find any financial advisor who has told me "our portfolios are available for you to get the highest return possible and leave the market in the dust."
Advisors can’t say that their portfolios are designed to “leave the market in the dust” because that’s too close to being a guarantee, which they’re not allowed to make.
Don't be afraid to say Dave is wrong. If disagreeing with him hurts his feelings, his ego is not anyone else's problem. He pushes expensive funds makes me think he might be getting a kickback for recommending them.
time and time and time again, index funds tend to out perform active funds. how are you as an individual investor going to outsmart the market and choose the few funds that beat the market? if there is a manager that can consistently beat the market, there is no reason for them to do business with you as an individual investor. a chicken usually beats wall street money managers
time and time and time again, index funds tend to out perform active funds. time and time and time again, active funds tend to out perform index funds .
@@DavidEVogel the first sentence is correct. If you look at nearly any list of mutual funds compared to a market index, the funds under-perform the market. Do you have a list of actively managed funds that outperform the market consistently (1, 5, 10 and life of fund)? Don't forget to deduct loads and management fees. If you do, please share.
Hey guys love the show 👍🏼 I work for a company that offers 401k and they use Fidelity, so should I change my contributions instead of it going to mutual funds change it to index funds?
Index funds are mutual funds or ETFs. They are simply passive investments whose managers largely buy and hold versus those with managers who actively / constantly buy and sell stocks within their funds.
Couple thoughts. 1) If the assets are in a tax-deferred account the tax efficiency of indexing is muted. 2) Of course index funds are cheaper but as you mentioned you judge an investment based off of net returns. 3) In certain asset classes active management is more advantageous than others. Sure, index in large blend. However, alpha potential can be identified through skill and experience in less efficient asset classes (emerging markets, core bond, etc.)
If mutual funds can’t beat index funds year after year consistently, yet the fees definitely are there year after year...what’s the point? Even if a mutual fund beats a similar index fund say by a percent or two, it is washed out by the excessive fees. Again, then what’s the point of a mutual fund?
Investing is better than not investing, regardless of fees, however this really bugs me about his show. I'm sorry, it's dishonest and kind of sleazy to push his loaded mutual funds on people that have little to no knowledge on investing. There are countless studies out there that show indexes outperform actively managed funds, and the longer that time frame goes, index funds come out on top virtually 100% of the time. To completely ignore hard facts like this is kind of mind boggling. I want to like him, and a lot of his stuff is good for people, but the way he tells people to invest really bugs me.
Year 2003, I left my job and had $8,286.94 (to be exact) in my 401k in that company. I have a little knowledge about investing at that time. I've heard about Roth IRA but didn't get the exact concept. I also learned that an Index Mutual Fund that mirrors the S&P500 is the way to go for investing for retirement. So, I opened up a Vanguard IRA and rolled over my 401k to Vanguard 500 Index Fund. So I left my money there, didn't touch it, didn't add anything to it. Went back to school and graduated 5 years later. I worked during semestral breaks and maintained a rice and beans lifestyle (if you know what I mean). I cash flowed my schooling and worked during semestral breaks. Anyway, that money i invested in Vanguard's 500 Index Fund in 2003 is up 499.3% as of today (8/25/20). I recently rolled over my 403b to Vanguard's Index Fund VTSAX and will just let it grow.... I believe in John Bogle in investing in Index Funds.
Dave Ramsey’s advice is recklessly bad. He’s successful because he preys on desperate and uninformed people, but much of his advice is demonstrably wrong, and seemingly none of it is based on widely academically accepted financial theory.
Following up with my comment, the stuff that these guys say isn’t particularity insightful. They emphasize points to make things sound profound (listen to their tone inflections), but none of it isn’t obvious, and it all lacks nuance. However, at least they’re directionally right, unlike Dave.
FBGRX and FOTCX are both incredible actively managed funds. They have overperformed the indexes since inception in the 1980s. Both are Fidelity Fund Picks and 5 star rated without any type of loading fees.
Index funds have been very good to me. They have expense ratios of only a few tenths of a percent. When I buy mutual funds, I go with NO LOAD funds with low fees. DR is not as smart as some people think IMHO. He has done good for people. But he is not perfect.
I agree with The Money Guys. I think Dave Ramsey is for people who are bad with money and have bad habits. The Money Guys are for people who want to learn and grow wealth.
I’d amend that statement a bit and say that Dave is for people with bad money habits or who simply don’t want to do the extra research. Investing has been over complicated for so long and there’s still plenty of bad advice, which can make it very intimidating to some people even though the “correct” advice is so simple.
Dave Ramsey is 100% correct in 90% of what he says. His view on active management vs. passage management: DEAD WRONG. Go to John C. Bogle or Ben Stein for investment advice.
Take Dave with a grain of salt just like any other person. Finance is personal and there are many ways to reach personal goals. Anyone who is will not be flexible is someone who will get left behind. For someone who has no management skills with money, I think Dave does an admirable job. But investing is not his strength and I do not believe he has the track record to consider what he says. Guys like Buffet and Bogle are much better options and they both are Index fund advocates.
He wants to pay cash for rentals and buys mutuals. Hes a joke when it comes to investing and should not be used as a resource outside of getting out of debt
