Most mutual fund portfolios, such as those recommended by Dave Ramsey, either lost money or had no gains during the first decade of this century. Why is this and what can be done about it?
I've had so many friends, family and new clients come to me in the past few years complaining that the value of their retirement accounts are about the same now as they were ten years ago. Until I helped correct it, they all had a problem known as the bad Dave Ramsey mutual fund allocation.
How and Why Dave Ramsey is Wrong on Mutual Funds and How to Fix Your Portfolio
In a nutshell, the problem with Dave's mutual fund philosophy is that he suggests his readers and talk show listeners invest in four mutual funds, each allocated at 25%, into categories he calls Growth, Growth & Income, Aggressive Growth and International Growth. The fundamental error here is that the vast majority of investors, both beginners and advanced, should not allocate 100% of their retirement funds into stocks. Even the aggressive investors have an allocation to bond funds and cash or stable value funds.
Also, Dave recommends A shares, which are funds that charge a front load (sometimes more than 5% of the initial investment amount). Most investors, especially the do-it-yourself crowd, are better off building a portfolio of mutual funds with no-load funds.
If any of this sounds familiar to you, check my extensive article on Why Dave Ramsey is Wrong on Mutual Funds. You may want to be sure you're not making the fundamental mistake his audience is making.
Full disclosure: I have been a fan of Dave Ramsey for nearly 20 years and I still believe his simple, easy-to-understand approach is valuable.
Hi Kent,
I don’t see in your bio where it states that you are a millionaire. I’m interested to know how much money you have made by following your own expert anti-stock philosophy. I only take advice from people who have already succeeded under that strategy.
Thanks!
Thanks for the comment, Lydia. I have never communicated an “anti-stock philosophy” in anything I’ve ever written. The point of this particular article is that 100% stocks is not often an appropriate asset allocation for the vast majority of investors.
Furthermore, I will say that my definition of “rich” or “successful” has very little to do with money. If you made it to the bottom of my bio you would have read this statement:
“Spending an unnecessary amount of energy on investing may paradoxically reduce the quality of life that the investor’s money is intended to create or enhance. Life is not a tool for money—money is a tool for life.”
The reason I use, recommend, and write about mutual funds is because they are simple and effective at allowing an individual to grow their financial wealth while focusing on aspects of life that are more important than money.
My goal, as you imply in your comment, is not to be a “millionaire.” I am already “rich” and already “retired” at age 43 because I enjoy what I do as an investment advisor, adjunct professor and freelance writer.
By the way, mutual funds did help me get to where I am today–a successful business owner but, more importantly, a father who is able to be at home to watch his children grow up.
One of the greatest tragedies of our time is that people believe money is how one demonstrates their worth, their identity. At the core, this is the cause of the recent financial crisis that continues to haunt people around the world today.
If you are reading this and truly want to see more of what my “philosophy” about money and life is, please check out this post from my blog:
http://www.thefinancialphilosopher.com/2010/06/the-nonfinancial-cost-of-retirement.html
Thanks for reading about Mutual Funds…
excellent post I’m a massive Chelsea fan from Holland