Deep Dive on Dave Ramsey's Investment Advice! (Financial Advisors React)
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Thanks to Dave Ramsey I finished paying off my student loans last friday!!
You did that yourself friend! Congrats
He changed my life as well. Forever grateful. Just finished baby step 3! I’m taking these guys’ advice on baby step 4 tho. It just makes mathematical sense. All the best y’all’s. 🍻✌️
He’s great for debt advice & strategy. Not so good for investment advice. His advice is outdated
Now...no more debt! Emergency funding your retirement! You'll need it!
@@johnappleseed203 1²121¹1¹
This is one of the few things I haven’t done that dave says, I’ve always done index funds
Smart! Investing is the only bit that's off about his approach otherwise he's great.
Dave should just stay in his lane with helping people out of debt. Or he's just trying to cash in on his audience by sending them referrals to advisors which he gets a commission. I could be wrong about the commission but he's getting paid some how. I think I might have heard they have to pay Ramsey to be cerifitied or screen to be promoted on his "trusted pros" section.
Agree with Brian, Bo & all of the comments below. Massive respect to Dave Ramsey. He has helped millions develop the right mindset. But it is not fully optimized advice.
Ramsey got me out of debt, and set me on the right track. I’m not into all his religious stuff, but I appreciated his advice. For me, it worked and worked great
Same here.
Ramsey is like the trainer at the gym, some people just dont have any discipline without someone saying good job, your doing great. Dave is a salesman he doesnt provide any real solid investment advice. Dave got you out of debt..lol..sure by telling you what every 14 yr old should already know.
@@benhayden5685 trust me, he was instrumental in getting me out. lmao hate all you want. I’m loving life now
You've graduated. Now stop listening to Dave. He doesn't have anything to offer past the "get out of debt" phase.
@@travis1240 I actually agree with you.
I’m surprised that you guys don’t have more subscribers by now because your content is such high quality! I have been a big fan for a while. I will promote you, but make sure to promote yourselves! Haha
43 min videos are too long
I disagree
My guess is their subscriber base would be larger if they offered cheap (i.e., free but not tailored), off-the-cuff advice in a call-in segment. That's what Dave Ramsey does, then he siphons people off to commission based brokers from whom he collects fees. His business model also includes merchandising and advertising revenue. But The Money Guy Show business model is different. They have fiduciary obligations to act in the best interests of their clients, and that service can't be offered in a five-minute phone call. Their ethical standards prevent them from being the Dear Abby of investing, and that will probably always result in a smaller subscriber base. Respect to them for their professional integrity.
Well I just got recommended. So probably an explosion in subs soon.
Christopher Paul I disagree. I like how thorough they are. But I do think some shorter Financial Facts, a review of the week’s markets on Friday at 4 or 4:30pm. Some types of shorter vids would be cool, too!
I found this video very helpful. A lot of the concepts I had learned from previous videos, but wasn't exactly sure how to implement them or what everything meant. This video helped those ideas become more concrete. Thank you for putting it together.
Excellent presentation and video. Risk/reward perspectives change considerably when you are living the dream instead of preparing for it. It would be awesome if you guys would address the other side of the wealth building equation and address planning for drawing the wealth down during retirement.
Thanks Money Guy Show! Enjoy the videos, help to keep me focus and motivated.
This video is perfect on risk and return, definitely good to supplement with Dave's advice to get a contrasting perspective.
Great video and great information. You've given me some things to think about. Keep up the great work!
I've been a big Dave fan for years. I recently started watching you guys and am finding that I'm hoping I can be one of the 20% of people you guys talk about! Thanks for the valuable information.
I follow Dave’s Plan have been for a few years now. paid off $30,000 of debt. Have 12k in saving. And my wife and I are investing 15% in 401k and we are killing it.
If you got into 401k in the last 3 months, youre doing great. Mine is up nearly 20%.
Dont get used to these return on a regular basis, though.
Nicely done! Now that you’ve done that it’s time to start following Jack Bogle to maximize your investment returns.
@@brianbudd6101 Pick up JL Collins " The Simple Path to Wealth". Great read. Jack Bogle is Yoda and JL Collins is Obi Wan Kenobi.
Regardless of what you believe in, GOD SPEED😉
@@brianbudd6101 - I was introduced to Dave Ramsey and Jack Bogle at nearly the same time. I've found they're very complimentary approaches as long as you index instead of not taking Ramsey's specific advice but do basically everything else
Fantastic content, gentlemen! I particularly appreciate the analysis of the index vs. managed funds and your proper focus on fees, the fallacy of beating the market and index investing.
Like always I agree with what you had to say. Keep the good stuff coming.
This is a great video and is spot on with everything. Like most of you, I’m a big Dave Ramsey fan, the amount of people he has helped can’t be over looked. But his investing advice is just so hard to get on board with, this video brilliantly explains why.
Actively managed funds vs index funds is a settled debate. Dave's completely off in that regard.
Dave is also a dude, smug, condescending asshole.
As an investing enthusiast, I often wonder how top level investors are able to become millionaires off investing. I do have about $700k amount of capital to start up but I have no idea what strategies and direction I need to approach to help me make decent returns
Invest if you actually want to be wealthy. However, you should get guidance from a financial advisor if you want to create a successful long-term plan….
Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time
How can I reach this adviser of yours? because I'm seeking for a more effective investment approach on my savings
My advisor's name is *Sharon Louise Count* and she has years of experience in the financial market. You can simply search her name on the web
She appears to be well-educated and well-read. I ran an online search on her name and came across her website; thank you for sharing.
A lot of this is over my head, to be honest. I’ve listened to Dave for the past year or so. My husband and I are now 100% debt free, we have a 6m emergency fund, we’ve increased our retirement contributions, and we set aside even more money for a down payment on a home for when we’re ready to buy. I’d like to optimize our financial situation, but I think we’re still part of that 80% who just need the basics. I still like your show because I hope to graduate to the next level at some point. You two are great!
Great information guys! Although this is Dave's quick note advice, he does generally say to get with a financial advisor to help in depth. As you both said, giving credit to Dave, his largest credit is getting the average person in a better financial spot than they were before they started the program. Based off a prior show of yours(ages/401k), it proves that most people are no where near where they need to be. I would imagine, despite the possible lower returns/higher risk, if people only listened to Dave they would still be in better financial shape than they would be continuing the path they were on prior.
My issue with that is that Dave could just teach some basic Index Fund basics and such and tell folks they're probably good to go until they get within 10-15 years of retirement while following his Baby Steps (although the FOO is more optimized). This is assuming the tax-advantaged accounts priorities are followed, which is the same as what everyone teaches days. But that wouldn't generate revenue for Dave - he gets revenue from his SmartVestorPro and ELP endorsements which pay him for referrals.
@@jroysdon and everyone who listens to Dave for a little while will start to realize why he doesn’t say this. One fake word…smartvestor!
I haven’t watched the full video, but want to say I appreciate you starting the conversation out with listing his accomplishments/accolades. That’s an honorable way to start a deep dive
Dave is great for getting people to change their behaviors and out of debt. Once they've got the debt cleared, emergency fund saved, time to listen to someone else. Still, any investing is better than leaving things in a savings account earning no interest.
Largely thanks to Daves show, I’ve have zero debt, a paid off house and over 1 million in retirement. Looking back, what I would indeed change is the investment part of the equation. After I amassed around 100k, I should have gotten a financial advisor!!!!. I made some WHOOPING mistakes! You really need someone to save you from YOURSELF at a certain point! I would have made SO much more money had I not made some SERIOUS damaging mistakes along the way. Mistakes that could’ve easily been avoided under the guidance of a personal financial advisor.
No need for an advisor. Go to bogleheads and reach everything.
As a long time Dave listener, you guys knew I’d be all over this one. GREAT advice! Couldn’t agree more. I love how you guys take it beyond.....common sense for your dollars and cents. 🙌🏼 Does anyone else notice how Brian always turns to Bo right after the intro? Lol He always delivers the teaser but then immediately turns to Bo after as if to receive affirmation. Haha. Love you Brian! Just a modest observation on my part. 😊😊😊😊
I am definitely a people pleaser 👍
Multiple sites say anything over .5% is expensive. The reason - things change. Dave has never changed in 30 years. Including the 1k Emergency Fund which is really biting people right now. 1k in 1990 is a lot different then 1k in 2020.
He has been amazing for us during baby step 2, but I'm glad I learned more when investing.
This is one of the most outstanding shows I have seen. Great clarity of thought, and completely objective. Thanks so much guys for your great content.
I am in complete agreement with you on your views. While Dave’s advice is great for getting the basics right, his investment advice is simply suboptimal.
I agree with your general views here. I do think that it is hard to compare a “Dave Ramsey portfolio” to anything when we don’t know exactly which funds he selects within those 4 categories - the ones you chose may be wildly different than the ones he would have chosen. But I think the point that index investing is likely better than actively managed funds is a great one, especially when you take into account fees.
As always, great content
Agree with you guys. It would be cool if you guys also have a section where you take calls/emails from viewers and provide your opinions to real life situations.
Love the content. Is it recommended that this be the source for those that don’t hit your company’s threshold? I called in your office to see about setting up a meeting and didn’t quite hit your minimum requirements. Thanks for putting out useful content!
Very excited to watch this one.
Great breakdown. I’d like more specific advice on your allocation tenant. I’ll go searching on your channel today 🌞
Dave keeps his messaging simple so people will actually start investing. He does recommend constantly to work with a financial advisor, approved by him. I interviewed 6 of his endorsed advisors and they all made recommendations based off my risk profile. What I'm saying is that even endorsed advisors by Dave don't follow his portfolio recommendation to the T.
whats more simple then just buying the SP500 to start with?
@@yomynameismit yup usually funds that take 5% fee for every purchase and have high expense ratios. But “return 12%”
@@yomynameismit Nothing try VOO a Vanguard SP 500 index fund low fees and the full growth of the SP 500
I love Dave Ramsey! That said, Jack Bogle and Burt Malkiel have taught me well.
So glad you guys covered the Target Date Funds -- it helped me to better understand my retirement portfolio about 5 years from retirement. Regarding outside help for understanding investing -- use a fee-for-service investment pro. Better to pay someone $600-$1000 a year to go over your portfolio then pay (overpay) someone monthly from your investment gains. If it weren't for Dave Ramsey's strategy, I'd still be using credit cards to pay for groceries! So, like you Money Guys, I'm grateful for DR's words of wisdom.
Thanks to Dave, limited our spending to our needs with about 50% margin to deal with a few wants, those "oops" and investing. This enabled us to save up our 6 mos FFEF in 8 months and then start maxing our work retirement and Roth IRAs last year. Never did buy his allocation strategy with actively managed funds and went 100% index funds. Almost at a point where we need to grow beyond that, start dealing with non-tax advantaged investing, and are glad to have found the MoneyGuy show.
Great timing on content guys! I literally just finished converting my Roth IRA holdings today out of mutual funds into two indexed ETF's. More specifically Vanguard S&P 500 --VOO --.o3 exp ratio & Schwab Lg Cap --SCHX----.o3 exp ratio. I have ZERO desire to actively trade and love the flexibility ETF's offer. Thank you for educating the masses! Also thanks to Warren Buffet, Jack Bogle and JL Collins (author of The Simple Path to Wealth) and Dave Ramsey. He got me fired up to get debt free in the first place!
I just rolled over my 401k from my previous employers to IRAs. I only had $500 in Roth, but $23k in traditional.
I couldn’t invest in mutual funds with my Roth bc the $3k minimums but found etfs with better 1, 5, and 10 year numbers than most funds, and 0.03% fee. It was MGK fwiw. I went ahead and got the ETFs in my Roth account but I’m not sure what to do with the traditional account.
With the traditional, I can do mutual funds bc I have enough for the minimums but the etfs seem better bc they seem to perform as well, but with less fees. I feel like there has to be a catch but I’m not sure what it is. Was hoping they’d address them on this show
You could invest into an active ETF such as Berkshire Hathaway. These get better returns with lower volatility, and are just as flexible, and the fund managers do all the work so you don't have to do anything.
Good info, I make this point all the time .Part 1 ,I would say use Dave Ramsey to get out of debt ,Part 2 ,when ready to invest use index funds based on your age and risk tolerance what index funds to use .
Nice deep dive. I just subscribed!!
Needed this advice guys! I kept seeing 25% international and looking at international RoR and thinking it seems risky and low reward thanks for the confirmation.
When you are investing in an a large cap index like the S&P 500 you are doing business internationally as the large companies have a big footprint outside the U.S. already. I got this idea from JL Collins. Excellent book called The Simple Path to Wealth. Well written and the title says it all!
I love that you guys acknowledge that even if Dave's strategy isn't optimized, it is still a successful strategy to set up the average person for financial success!
I'm part of the 20%, but a lot of my family members are that 80% so I've seen how each strategy works better for certain people. Thank you guys!
Love this
This is a great video. I thought the section of how one size doesn’t fit all was particularly useful. I did notice is the risk/return section you only used 10 and 5 year periods. Do you think a longer time period should be used - perhaps 1928-2020 since there tends to be decades where performance various and we just happen to be in a 10 year period where large caps (S&P 500) has?
ive actually been waiting all week for this
Hey guys, off topic question from a fellow CPA to be. Has the CFP been a useful certification to utilize? Keep it up with the info and charts - fun stuff!
Would you say that active management will swing back into popularity once the market shifts more towards a passive market. Looking at the efficient market hypothesis, that is, the active managers could have an advantage if the markets become overtly passive?
i definitely have to thank Dave and Chris for getting my mind right and debt paid off as fast as possible and monitor my spending. as far as investing i lean more toward John Bogles philosophy of low cost Index and I personally stay away from anything International. much love to Dave Ramsey though.
AntDel
I agree. DR has done well with the debt free thing. Getting out of debt can be one-size-fits all, but not investing.
People may not realize DRs wealth is primarily from real estate, both commerical and residential, so his investing strategy is subpar. I think it is a bit dated, because his justification for active managed mutual funds comes from the 90s. It seems DRs plan for investors needs updated. DR can be egocentric at times, so admitting his strategy is outdated would be a big deal for him. Plus, his show show is moving towards multiple personalities, so his attention to investing has been on the back burner. DR does use the disclaimer that SmartVestor Pros should be consulted over investing.
I like Dave Ramsey, but he doesn’t know very much about investing at all! The one-size-fits-all approach is absolutely ridiculous. Love y’all!
I wouldn't say that he "doesn't know very much." I think he knows a LOT. But the reality is that his program is absolutely one-size-fits-all and that's just not ideal for investing. Your AA is very personal and based on your needs and risk tolerance.
Colin Precisely! I mean, Dave Ramsey has a nice stock & property portfolio himself yet still gives poor investment advice. I think he just doesn’t want to be an “investment guy”. But the one-size-fits-all approach is a no-go for most ALL of us. I’m only 33. I need to be far more aggressive than his model shows. My mom needs to be more into index funds, Blue Chips w/dividends, bonds, a bit of various Precious Metals, etc.
@@MountainGirl420 - It's very easy to become an "investment guy" and be known for that only. I think it's pretty clear that Dave's passion has always been with getting people out of debt and he never wanted to teach investing methodology. Debt reduction is what he's known for and that's always been his emphasis. But to give you a holistic vision of financial planning though, investing is a VERY important topic. So it's good that he touches on it. It just feels like he mails it in. I love Dave, but it always felt like he was just pushing people off to advisers and saying, "These guys will help you with that piece, I'll help you with everything else." So to then take his simplistic one-size-fits-all investing advice as gospel seems silly. I've done Dave's program with just a few modifications. And not following his investing advice is definitely the biggest. I've always been an indexer.
I remember he would promote someone else once you were done with paying off debt.
He knows how to get the ELPs rich with their 5% front load funds
I appreciate that you all don't want to insult Dave R; I also appreciate that on your videos you have never insulted my personal political beliefs. The one and only time I tried to watch a Dave R video within 15 minutes he insulted about 53% of the population and it really upset me. It made he seem small, petty and uninformed to me. Thanks for being balanced even if in your personal life you follow a similar mantra as Dave. Keep up the great advice!
"it really upset me".......get some thicker skin snowflake. I listen to people with different political beliefs if they have something of importance to say even if I disagree with their politics.
I agree. Dave needs to keep politics out of it. If it was a political channel, I’d know what I was in for. But when I’m watching an investment/money channel, it has no place. Makes him look petty.
Chase She can voice her opinion. And the “snowflake” term is sooo overused. You also seem petty.
@@Mexicobeanpole She can absolutely voice her opinion. And I can voice mine at how sad and thin skinned it is to be that upset about someone voicing their political opinion. I hope she never goes outside or reads the internet she might really freak.
@@chase4116 How was that thinned skinned? How was I "that" upset? Everything is not zero or one hundred...it seems you just want to go around attempting to insult people and I guess if it keeps you from picking on a weaker soul go ahead and bash me all you want cause I can take it! I a not weak.
I didn’t realize you guys were in Franklin. I did my debt free scream at Dave’s last month I would have loved to stop by and see you guys. I like your show as well as Dave’s. I think there is a lot of room for respectful disagreement in the fine details.
We completely agree 👍
One of the focusses was on risk adjusted performance of each investment strategy (s&p vs ramsey) over set periods of time. Does risk equal volatility? And did the performance figures provided factor in growth through dollar cost averaging into the investment strategies? If the ramsey method is more risky and/or volatile, would DCA make up for some of the shortcomings of the strategy?
I love Dave. His book "Total Money Makeover" completely changed my life 15 years ago. But...his investment advice scares the crap out of me. High fees, high risk, high volatility...it's a recipe for all the wrong things that are going to happen. Not having any money is bad...only slightly worse is having it gobbled up by poor asset allocation.
I love how you used the efficient frontier. However, that is data for only 5 years. That was when large tech was outperforming.
Man I really need to educate myself because I have no clue what they’re talking about. At least I’m debt free now thanks to Dave. Any suggestions on where to begin learning about this stuff? Thanks.
What's the difference between growth and aggresive growth funds? And what are downside of aggressive funds? Does age have anything to do with it?
Please do a episode on cash management plans! I've heard you mention them, but I'm not sure what exactly it is.
This is essentially a budget that you have mastered and internalized. Instead of tracking every penny, you have trained yourself to be good at spending your money. Often times this means bigger categories and a simpiler system for accounting. It is less about every dollar an more about the overall plan.
Yes that is a great topic for a
Video for us to learn please yes
Do a video on that if lead 🙏
Oooh this is gonna rile up some folks!
Yeah Dave always gets salty when people say he's the debt guy and doesn't understand investing :P
Where did you get the charts comparing risk/reward on those funds? Very useful graphic!
Well done. 👍
Agree with money guy show on most everything. Good job.
You guys pretty much touched upon the 3 main problemas with Dave Ramsey. He's great in getting people out of debt, but unfortunately mutual fund fees will chew away the profit for a low cost index fund
Just found the channel and I cannot believe the almighty algorithm hasn't recommended this before.
Awesome perspective. Love the expertise mixed with humility.
Absolutely. Very well balanced and objective.
So what would you say to a new investor who has implemented this plan. Would it be recommended to sell the mutual funds and start from scratch? Let's say 4k each across all 4. I do own a Vanguard total stock etf with 4k as well. Any thoughts, I'm a noob
One problem with DR advice is expecting past performance to be repeated in the future. He often says " jusst find good funds ". It's not that easy for Joe Public. That's the flip side of just doing the indexes which are so cheap.
Everything is measured relative to the past, example standard deviation, diversification (how reits and international stocks perform relative to domestic) all are measured using data from the past. Assuming everything is equal (fund structure and selection criteria), then the past can be a predictive basis for future performance.
@@wjennin1 Dave never reveals the name of the funds he invest in, the only thing he references to on his show is the S&P 500 without revealing exactly the fund name. Dave never mention Mid-Cap or Small-Cap. so the example in video is subjective. There are plenty of growth funds that beat the S&P 500, unless Dave revealed the funds he invest in, it is hard to prove him wrong or right.
@@tvuser5557 I take your point however - when do you think bonds will recover using that theory ? 100 year bonds now paying ~ 0.5%. The past bond rates of 6/8% are long gone so they , for example , are not a good predictor of looking at the past to predict the future. It's accepted gemerally that oil/companies will struggle to ever get back to the ' mean '. Many more changes to come.
@@johnristheanswer When financial experts talk about asset allocation, diversification, ... etc, they use things like efficient frontier, standard deviation, ... all of these theories are base on data from the past. Although it's hard to predict the future, one can look at the past for some direction, the point is not to beat the market, rather to build wealth. Who would have thought of bonds going negative, it's happening now. Can we now say that bonds are not safe anymore?
hey money guys; have you read ‘unshakable’ or 'money, master the game’ by tony robbins? would be interesting seeing a show like this based on those books.
The CFA curriculum actually mentions that a simple 1/n investment strategy actually produces results not that much different that an optimized portfolio. So if you have 4 mutual funds you like and you contribute 25% to each one, it's not sexy but it's not as bad as it sounds.
If you are going to pick a mutual fund you might as well just pick a stock. Another thing that sucks about active funds is they are never 100% invested. This fund I was in when I first started had a 5% cash reserve. You really want every dollar working hard when just starting out.
Question….(keep in mind I just started watching you guys so I don’t know where you stand on this issue) retiring with a very strong pension in 6-8 years at 50 - 52. What is your opinion on me max funding an IUL for supplemental income on the pension? I know Dave don’t like it. Im three years in on it.
Hey Guys! I appreciate your deep dive into this subject. No doubt Dave has helped millions (including myself) realize how dumb debt is. However, if you actually listen to him on how well his investment performs, he states that he consistently averages 12% or more per year. I have been using actively managed funds for the past ten years and I have seen as high as 23% and even a low of 8% a year, so it is entirely possible he’s telling the truth. I do agree with you guys that Index funds are a great value and thank you for continually providing excellent content and high quality videos! Keep up the great work and I hope you hit 100k subscribers this year!!
Out of curiosity, what is the breakdown of your AMF? Do you know? Right now we have a Roth and 401(k), and trying to figure out if I need to change anything in there. I have amerifunds for my Roth. The 401(k) is just a general target year account.
I've been using passively managed funds for 10 years and have seen as high as 23% and as low as 8%.
I am investing both Index (roth ira account) and Growth funds (personal investing account)...Should it be one way of the other?
No argument, but I'm curious. How do you compute a numerical value for risk?
You are totally correct that index investing produces better returns than actively managed funds. However, I have a few issues with your analysis:
1. Comparing Dave's portfolio (using indexes as a proxy) to the SP500 over the last 10 years to prove that point is not fair. 10 years is a very short period of time in investing. U.S. large caps have performed unusually well in the last 10 years compared to international, midcap and small cap stocks. In the 2000-2010 period, US large caps did worse than midcap, small cap, and international funds.
2. There is an important diversifying benefit to having midcap, small, and international funds in addition to US large cap.
3. Another issue with Dave's advice is that he suggests people pay off debt before getting employer match on 401K. That seems like bad advice even on high interest consumer debt, at least for the rational wealth builder who is not at risk at going bankrupt on their debt.
You don't see rational wealth builder and high interest consumer debt in the same sentence much. If you move jobs before your vested you don't get that money anyway so it's worth paying down the debt first imo.
Agree with comments below- as you become financially more literate foo is better, but baby steps is a useful strategy to tackle debt and for those less disciplined.
Sensational presentation over Dave's plan and investing strategies. Can you do this on Robert Kiyosaki?
This should be good!
I hadn’t really looked at expense ratios for my 401k funds until you brought it up in this episode. Looks like all of mine are under 1% but I do have one (Virtus Small Cap) that’s 1.11%. However, the 10 year rate of return on it is over 21%. You guys didn’t touch on whether to factor in rate of return when considering expense ratios so just wondering if you think that’s an acceptable trade off? Thanks!
Look at turnover rate it represents the percentage of the mutual fund's holdings that changed over the past year. ... The higher the turnover rate, the greater the turnover. Higher turnover rates mean increased fund expenses, which can reduce the fund's overall performance.
I did FPU in 2017. It was the best tool for getting me in the right financial track. However, once we were out of debt and looking to start seriously investing I was lost. Dave held my hand through BS 1,2, and 3 but left me hanging at 4 and 5. I had to do a lot of reading, you tube watching, and just tinkering in the market to even remotely begin to understand what he expected of me. Luckily, my employer has a pretty good 401k and they guided me, unbeknownst to me, into index funds with ridiculously low expense ratios. I am also seriously thinking about dropping the international fund. It seems to be the giant turd of the few funds I have. I even heard Dave on his radio show contemplating revamping his investment advice and excluding the international funds from his mix. One problem with Dave in my opinion is that he has so much money if he’s up 5 % or 8% he can’t tell the difference. But most people really need that 8% in order to be able to comfortably retire.
gthree0239
I agree, DR most likely doesn't realize how little the Int fund performs in comparison to the other funds. Also, DR has a majority of his wealth in residential and commerical real estate, much larger than his mutual funds.
I’ve always struggled with this topic. With all the data available, it’s extremely difficult for me to be able to easily identify the top performing mutual funds over a decade +, and choose the index alternative. I’m always filled with doubt regarding the difficulty of identifying mutual funds in the top 5%. I understand that the overwhelming vast majority, ~80%, of mutual funds underperform the index, but it’s so easy in 2020 with the wealth of immediately available online resources to identify funds in the top 5% over the past decade +. I always wonder if we chose broadly diversified mutual funds to a specific cap, not sector, in a Roth accounted from the top 5% of funds, could I out consistently outperform the index. Clearly, you’d have to re-evaluate when the fund manager changes, but the thought hits me often.
Have you tried this to test your hypothesis?
Grab 5-10 years of past market Morningstar reports & watch which funds move around in the quintiles (20%). Look at their ranks every quarter, not just every year. That should give you 20-40 data points for each fund. Due to fund changes that render them unable to compare over the whole time range, you might have to pick 15-25 funds in each quintile... Enter this data on a spreadsheet & then run picture graphs & ask the graph to predict 5 years into the future from the resulting trend line...
Repeat this exercise with different historical decades, until your fingers drop off & your eyes become permanently blurred -- if you are a nerd with an incredible amount of perseverance!!/s
Ok - good video but here is my question. If truly passive and index investing is the way to go then why do I need an advisor or where do you really come in. I know you say it is about optimizing the risk adjusted return but aren't you simply going give me more index funds? Don't take offense (I'm just trying to understand) but why would I pay you for that? THANKS
I have heard this last 10 years in the s&p 500 has had better returns than like 99% of any other 10 year period. The returns are very unlikely to be duplicated. When comparing the s&p 500 to the more diversified portfolio did you go longer than 10 years?
Amazing video Money guy team! This is my favorite of your videos and the one that helped me most. Thanks for all the education!
Here in Canada, we pay the highest mutual fund fees in the world, on average 2.5-2.7% last I checked
Holy moly, that's high
@@MBarberfan4life yep and the vast majority of Canadians invest in mutual funds, but is slowly trending towards index funds more and more every year, but still slower then seen stateside
Spudy, that’s great. The only mutual funds I’ve thought about investing in are international funds (non-u.s.) that beat their indexes. The reason is because international index funds are pretty bad when compared to the S&P 500.
I interpreted his asset classes differently.
QQQ as the growth
ARKW as the aggressive growth
VIG as the growth and income
VEA as international
Check the performance. It's definitely more aggressive but it doesn't always underperform the S&P.
People don’t have money for retirement because of their rate of return. It’s because they don’t put money in their investment accounts. -Dave Ramsey
He also said if you don’t like your employer K plan invest in index funds.
Dave’s audience mainly want to keep it simple.
Informative vid though, it’s got me looking at index funds.
What’s your guy’s take on the efficient market theory? For or against? Why?
Dave's advice is more focused on changing financial behaviors, it's not always easy to satisfy everyone's needs.
Agreed. I think nearly every person who follows what Dave says are better off than they were. I know his concepts aren't perfect but he's helped a ton of people live (and give) in a way they never would've without him.
@vincentrich - Banned But Not Forgotten yea and they're nerds like us. The average person isn't watching personal finance videos on TH-cam lmao
i don’t think dave hates index investing. ive heard him say a few times that he puts his money in an index fund until he has enough to buy real estate(so it is good for him just not what he recommends for you. )so, dave does use index funds personally. but if he told everyone to use index funds he doesn’t get thousands of commission checks from the financial advisors he refers people to(elp’s).
I have actually heard Dave recommend to a caller to "park" his money in an S&P index fund for short to medium periods, such as a house down payment.
@@wjennin1 I mean at the lowest it was down about 25%, and now less than 6 months later the S&P500 is already back to within 1% of its all-time high. Even at the lowest point anybody who had put in money 5 years ago would still be better off than if they'd put the same money in a savings account.
Yes, for periods of greater than 5 years. That's perfectly good advice. Especially if you realize that you're investing and it could just as easily drop as it could go up.
And I've heard similar calls where he hasn't said "invest ALL of it." He usually says to invest a portion - the portion that they're comfortable if it goes down.
@@wjennin1 - If you're actively shopping for a home and ready to make a purchase then you cash it out. You're not literally investing until the day of the home purchase. Let's use some common sense here. This strategy makes sense when you're parking money for 5+ years. But when you're negotiating a loan and making offers on properties it's time to know the exact amount that you have to put down. So you cash it out. Seriously - not hard to follow.
I was hesitant to watch this video because I love Dave Ramsey. I was super relieved when you said that this video wasn't a trash on dave lol
That was the perfect intro!
Hey guys I am watching this video and so far it's awesome. I do have to give Dave a point though. I agree with what you guys are saying. However I do watch Dave a lot as well and once in a while I have heard him mention in some situations even he will use some snp 500 funds and has. I forgot what situations those are though. I wish I could name the situation he uses that for in some investments. I love my index funds in my Roth and taxable though. I really wish in my ABLE account though that I had a good amount of options in my ABLE account I only have a few investments available in my ABLE account you guys inspired me to make when I heard about ABLE from you guys. I have DFQTX in that account even though the fees are super high on there and ABLE itself charges me a big fee as well. But it's better than not having ABLE.
He says only to use then in taxable accounts after maxing retirement. Usually where you're looking to put money for a moderate amount of time while saving up enough to buy real estate. He's vehemently against them for retirement.
@@ArchStanton9 Thanks yeah that makes sense. I don't make that much money right now but I will look for like 2 jobs or something or get 70 hours a week at one and my goal would be to max a Roth put 5k in ABLE, max a HSA if I qualifed for one but I don't and I won't for several years, and I want to put at lesat $1100 in a 401k and at least $1640 a month in a taxable account so around 48 I could stop working if I wanted to and let all of the other accusations grow. I would want the abilty to live off of only the taxable with 1.8% a year of dividends or so. If I know that's not fully maxing everything out but I would be impresssed if I could even make enough to do that much. And I would use the taxable like that so that I could live off of it early if I choose to. Also sense for the first 52k a year you take out of a taxable account on qualifed distributions and dvidiens the tax rate is 0% but for like VTI the not qualified distributions is 30% of what you take out so effecily I would end up paying taxes on 30% of the money I take out sense I would take out 52k a year or less form that account if that makes sense. If I can increasing my income enough to be able to max everything while putting at least $1640 in the taxable account then I would of course love to do that. Do you know what I mean by that plan now? Also if I lived on 1.8% or less when I get there the account would still be able to grow forevor still being invested for the long term sense I would only need 1.8% or less from that single account, and all of the other accounts could keep growing forever if that makes sense. I really want to max everything if I can but at the same time I don't think I will be able to make enough to live off of and max everything and put $1640 in a taxable account on top of all of that. I see what you mean though and how mathematically it would be smarter to max out all of the tax advantage accounts before even touching a taxable account. I just got offered a job that I would be making $23,330 a year after taxes around or so which is a lot more than I was making from my old job sense I only made like $18293 a year after taxes from my old job. And I plan on picking up another job to work more and to save and invest more. I hope in the long term I can incrase my income to be able to do that stuff while doing $1640 in the taxable account and someday maybe get my income to be enough to max out the accounts while still doing that as well.
The real question is what about the funds that have 15 year track records of beating the index? It would be useful to explain why an actively managed fund with a 20 year record of say 13% is still less preferable than and index fund at 10% over the same time period. Even if they underperform the market more often than not, what is the average out performance? Example: if the average under performance year of the index is 2%, but the average out performance year is 15%, then the actively managed fund only needs to bear the market once every 7-8 years to have a long term rate if return better than the index.
1. Regression to the mean: funds outperform from luck and will eventually underperform overall. Many companies will remove old funds to show their (current) funds have beaten the market.
2. Sequence of returns risk. Underperforming in retirement when you’re drawing on the money is really bad. You can’t just underperform for 7 years and make up for it after you’ve already sold when it was lower.
3. Those funds have higher fees.
IF you want to beat the market easily then just tilt to small cap value.
small cap value has average 12% over the last 100 years vs 10% of the total market.
So like the way Dave attacks debt by snowballing things, is there a similar snowballing method to start investing once you're debt free? Should you diversify early on and spread things out, or work on getting a certain class of assets up to a certain level first, then work on the next one, etc.?
No. Buy the SP 500 index with whatever brokerage you use until you have 500K. Then call The Money Guy to help manage from there.
I think you could do better than comparing Dave's portfolio to the sp500 over just 3 years. The SP500 has killed everything for the last 10 years HOWEVER it gets smoked by small and mid-cap historically. Foreign is also nice as seen from 2000-2009 when the SP500 was actually negative and the foreign slice would have added a nice balance. Now, I don't like his weightings but there is good reason to have foreign, mid, and small in a portfolio.
Except all of those have been killed in 2020. But yes generally agree haha
I know you two have talked ad nauseam about index investing, but can you talk about the Magic Formula Investing concept by Joel Greenblatt? His approach seems to make sense intuitively, and some of the studies seem to indicate that it'd beat the market even on 3-year timelines.
So is this saying we should not diversify into small and mid-cap index funds? And just go all S&P 500?
When you’re comparing returns of index funds and mutual funds, are the taxes accrued due to turnover accounted for in the 1, 3, and 10 year returns? Also, I’ve heard several actively managed mutual fund advocates say that a great deal of the turn over ratio taxes are mitigated or completely removed in Roth accounts. Are both of these true?
Taxes wouldn't be considered in most return statements since the tax rate will depend on the total income of a particular investor. Turnover ratio isn't a factor in Roth or 401k accounts since their profits aren't taxed as investments in a non-retirement account would be.
@@elmateo77 This is a point that they totally (purposefully?) neglected to mention. Dave's 4 fund types strategy is only for tax-protected accounts, so turnover would never be a factor. He actually recommends index funds for non tax-protected investing.
Great job guys. Thanks for having the guts to present this. People are afraid to disagree with Dave (especially his own employees), but there are better ways to do some things in my opinion. Investment allocations are one of those things.
I definitely like Dave Ramsey, but I do agree with your perspectives. He focuses more on the psychological aspect more so than the mathematical perspective using his data on 10,000 millionaires.
The difference between very savvy financial people and Dave's main audience, is that we are able to get through the emotional and psychological perspective and look at things calmly from a mathematical perspective. Mortgage's are OK to have if you can get a larger return in investments, it's OK to invest more than 15% of your income. He tends to not indulge in other peoples perspectives on investment strategies.
I actually plan on not contributing to my retirement at a certain point once my normal investments would be 1/6th of the growth of my money. This will result in about 10% less in retirement, but 15-25 years with an additional 25%+ disposable income based on my personal simulations. The more money you save short-term in the early years, means the less money you would need to save long-term in your later working years.
Most of my money is being saved external of my tax-advantaged accounts. The resulting numbers between a taxed and tax-advantaged account actually aren't significantly different if you are strategic with the stock lots that you sell in a taxable account. You can ignore up to 40k of taxes on capital gains assuming you have no additional income. You have more freedom with that money and can easily start throwing any W2 income into a 401k in your ending working years and then realize some of your post tax gains.
Just so much that you can do that Dave R. never goes into depth about because it would confuse his general audience.
What is the money guy show perspective on VOO vs QQQ. Both are index etf but it’s s&p 500 vs nasdaq 100
Wondering the same thing, those QQQ returns are insane and quite tempting to jump into as well.
My Dave issue is personal!
Just because my Wife and I are weird!
We use a credit card but, Pay it off every month!
Only debt we have is Investment Debt!
We own our House, some Rental Houses but, we owe on a Commercial Building we are partnered on but, that’s it! Pay more than $5000/mo to pay it off early!
So we owe on debt yes, I know Dave would have me save my cash for my Investment but, that would mean $1600/mo in Rent I would NOT be getting! That’s $19,200/yr I wouldn’t get! Yes, the debt costs me a little but, even if it where $15,000/yr, would I really want to say no, I only buy cash!
Bottom line, there are weirdos like us that will not only pay it off but, aggressively pay it off!
Bottom line, I’m Daveish on Debt!
So, I’m back on BS2!
Question: I’m a finance major and I understand the concept of the efficient frontier and risk versus return here. If I save roughly 50% of my income, can I stay in higher risk/return funds longer than the average person only saving 15-25% like you recommend?
Thanks for the videos guys!
Your investment timeframe, goals, and income/job security matter IMO to answer that question appropriately.
If you are younger than 40, you would be able to aggressively invest.
I pay .78% for my mutual fund but the return is 6% higher return than a sp index for 10+ yrs.. to me its worth the .78%.. am I missing something?
which mutual fund?
maybe you're not missing anything. maybe you are one of the lucky ones. but since you asked, and just in case you are, is your mutual fund benchmarking by the sp500? It may be beating the sp500, but the types of holdings in your mutual fund may be better compared to a different benchmark.
Yes, Google “regression to the mean”. It means those funds just got lucky and will likely underperform in the future.
Fee are guaranteed, returns aren’t.