Tuesday, September 30, 2008

Dave Ramsey is at it again, giving bad stock advice

FOXNEWS' Bill O'Reilly had Dave Ramsey on his show tonight to give investment advice to viewers.

That's dangerous, and Ramsey should be ashamed of himself for giving a one-size-fits-all direction on investing.

To show how far behind Ramsey is in his advice, he still recommends investment in growth mutual funds for five to 10 years. That's despite reporting earlier this year by the Wall Street Journal showing that mutual funds have not recouped their losses since 2001's great stock market fall.

After recommending mutual funds, Ramsey told people to invest in real estate. He said it is a great time to buy a house.

Sure it is. But first you have to be able to sell your own besides qualify for a loan. Home values will continue to tumble this year and next.

The economy will not rebound until late 2009 to 2010. Yet Ramsey says everything in the economy is going along as usual. If you buy a house now, you'll be investing in something that will continue to lose value for the next 18 months.

He admitted not knowing or investing in individual stocks, which is a needed hedge in a bear market. He also does not invest in municipal bonds, which can be insured and deliver tax-free income each month. Their annual return can be 4 to 5 percent. Teresa Heinz Kerry keeps her fortune in Munis. Always look at how rich people protect their money to learn how to protect yours.

Ramsey is really wrong in his advice. But don't believe me. Get a certified financial planner and avoid taking any of Ramsey's advice on investing.

7 comments:

V.T. said...

My only comment is this- how much money do YOU have and how much money does Dave Ramsey have? Not what are you worth, but how much liquid assets, money in the bank do you have? Dave Ramsey is a self made multi-millionaire, and helped thousands others become millionaires as well. His financial approach works, plain and simple. Sure, he is old fashioned, because he believes in paying for things in cash! You can disagree with his investment approach, but he gives sound and strong financial advice and I am one personal example and living proof of a system that works and have financial freedom thanks to his advice.

tim chavez said...

As I wrote almost two weeks ago, Ramsey is wrong to give one-size-fits-all investment advice. That's different when it comes to debt. No one should carry credit card debt.

If a person followed his investment advice given on NewsChannel 5, their holdings would be worth significantly less today.

The people on Wall Street also had a lot of money until accounting rules changed.

Just because Ramsey is popular does not make him right. People should make their investment decisions with a financial adviser who can be held accountable for his or her advice.

Ramsey and Suze Orman are not people to follow on investing. And Orman has all her money in Munis like Teresa Heinz Kerry.

There is no replacement for a certified financial planner.

Anonymous said...

Where do I even start with your post? You are so far off base it's ridiculous.

Dave Ramsey's principles are completely solid. Many people are going from broke to debt free millionaire using his strategies. In fact, as Dave often says, they aren't really his strategies. They are other people's ideas, what he does is simply say them in a way the average person can understand.

For instance, many of his ideas come straight from the groundbreaking research done in the acclaimed books "The Millionaire Next Door" and "The Millionaire Mind." Have you ever read those books? They are among the most detailed statistical analyzes you will find on America's wealthy, and the findings are that most millionaires get rich using methods very similar to what Dave is advocating.

My dad is a self made millionaire, and he did things Dave's way. My wife and I are 24 and rapidly on our way to becoming debt free, at which point we are going to massively invest in the market through mutual funds. My brother and sister in law are rapidly on their way to becoming debt free too, working their way through over 100,000 dollars of student loans on the miniscule salaries of a teacher and cop. This downturn? Hasn't phased them yet.

The fact is, Dave's principles work. The so called "sophisticated" investors who don't follow his principles, such as the Wall Street banks, are literally going down in flames in front of our eyes. 150+ year old institutions are disappearing in the midst of the carnage. People on Dave's plan are prospering and powering right through it.

You can say what you want, because even wrong people are entitled to an opinion, but anyone who tries to play single stocks on a short term basis will get owned at some point. If not by losses, then by the government's capital gains tax rate of 15% on EVERY trade out. Those of us in long term mutual funds will never be taxed until we've built an unbelievable retirement nest egg, and when we're millionaires in retirement, who cares!

One last point... you said there is no substitute for a certified financial manager. Putting aside the fact that Dave is one, your stand against mutual funds is ridiculous. Mutual funds have FUND MANAGERS in charge of them, managers who are experts and following, buying, and selling stocks. When you invest in a mutual fund, you have in fact hired an outstanding analyst to daily make wise decisions with your money. Unless you are a fund manager yourself, how do you have the arrogance to think you will somehow do better by picking your own single stocks? Does your job give you time to watch the market all day? I'll take my expertly managed mutual fund over your single stock picks any day, thank you very much!

tim chavez said...

Read your own comments.

"Debt free".

That's his expertise, not giving advice on investing.

Anonymous said...

I am a DR fan and graduate of his course. He makes great sense concerning debt, mortgages (prefer 15 year etc.) but I found a blanket recommendation of mutual funds and his quoted average return of 12% misleading. He believes in faithfully investing with patterns of returns from Wall Street.

To continue to advice followers to invest hard earned money in mutual funds is shortsighted, especially if you're not among the wealthy.

I know people who paid off their homes after extensive renovations and are now exhausting their savings, looking at stock losses and can't sell those beautiful homes. They followed the DR pattern but are "broke" essentially.

He needs to stick to his core debt advice. Who knows he could be a spokesman for the mutual fund industry. You can't follow his advice blindly. Afterall, he did tank in the 80's because he failed to consider that his bank might merge and they might not roll his huge short term loans over. He was in the foreclosure type real estate market he states in his video in class. Nobody's perfect.

Heg said...

Tim,

This the first I've seen of your blog and I am impressed with your cogent comments about Ramsey. The guy is only good at selling books. He clearly does not want to educate the lemmings that follow him. Just consider how he tells them to snowball by paying the smallest instead of the highest APR debt. He could at least explain to them the math behind why paying the highest APR debt is the path that saves the most money. But that would require him to have an IQ over 90. Keep up the good work!

B.K. said...

Nice blog.

Dave Ramsey should be ashamed of himself. All he is doing is selling common sense he’s just telling people things they already know. He is no different than all the people selling diet books. I have been successful loosing weight and becoming debt free and financially secure.

Here are my secrets to both:

To loose weight: Eat less and exercise more.

To become debt free: Work hard and don’t spend money you don’t have.

The trick is you need to want to loose weight more than you want to do the things that make you fat. To become debt free you need to want it more than your desire to spend money you don’t have. For years Dave Ramsey has been taking advantage of people who want to be debt free but aren’t willing to make the sacrifices necessary to make it happen. It’s no different than selling diet books to people who are looking for an easy way to loose weight.

Now I know V.T. is probably going to come back with a stinging response of “how much money do YOU have and how much money does Dave Ramsey have?” Well V.T. I’m doing pretty well, I just sold a software company my father and I started over 20 years ago. Now I’m sure Dave Ramsey has a lot more money than I do, but here is the difference. I had a real company that created and sold real products that provided a useful service to our customers. I didn’t become a millionaire by selling books telling people how to become a millionaire.