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.