Another Way Dave Ramsey Gets It Wrong

by Ron Haynes

“The biggest mistake people make is putting too much emphasis on expenses as a criterion.” – Financial Peace Revisited

Yeah, I couldn’t believe it either, but there it was in black and white.

Here, he was speaking about mutual funds. Mutual funds where he still believes a 12% plus average annualized return is possible, even using that number today to calculate a caller’s return on their investment. Even though the true historic average is about 6 to 7 percent per year above the rate of inflation with total returns of about 9 to 10 percent per year, he still advocates that listeners put 100% of their investments into stock mutual funds and irresponsibly uses that number to dole out investment advice or refer people to his Extorted Endorsed Local Providers.

Believe it or not, Dave Ramsey doesn’t advocate using index funds. Considering his general audience, THAT’S irresponsible in my opinion. But it also keeps ELP’s paying those referral fees.

Don’t misread what I’m saying. Ramsey has done a lot for the anti-debt movement, and has encouraged and uplifted thousands of people. But he’s the cheerleader, not the football player.

Investment fees will eat you alive. So will taxes. So will emotional investing.

Allan Roth covered it in his book, How A Second Grader Beats Wall Street, and said it best:

“Financial freedom to pursue our passions is a powerful thing. Did you know, on average, each 1% in additional annual returns gets you there four years earlier? And most of us have the ability to earn over 4% more per year. To get there isn’t complicated if we can think as simply as a second grader. We have to follow these golden rules.”

1. Put your money in an investment vehicle that minimizes your fees and costs. Potential of an additional 1.2 percent to your portfolio.

2. Invest in the most tax efficient way possible (read the book for more information or check with an investment professional). Potential of an additional 1.8 percent to your portfolio.

3. Invest in a way that allows you to control your emotions. Potential of an additional 1.1 percent to your portfolio.

Total potential = 4.1 percent that you and I are missing out on by not paying attention to fees, tax implications, or the emotional side of investing. That’s a lot to be missing out on because we got our advice from a professional radio star rather than a professional investment advisor.

Check out Allan Roth’s book, How A Second Grader Beats Wall Street, and you’ll learn more about investing for the long term than you’ll ever learn in 42 second AM radio segments.

About the author

Ron Haynes has written 1000 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.

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Eppie @ Better Parenting

Very interesting stuff, Ron. I have to agree that I’ve always found the 12% annual return pitch frustrating. No doubt, that’s an unrealistic expectation. Investment decisions should be made with the conservative estimate in mind, not the aggressive one.

Thanks for the good read (and links to other interesting articles about Ramsey).


You know, 12% certainly IS attainable, but not over the course of decades (unless your last name is Buffett and you spend 40 hrs+ per week examining companies). That number came from the returns of the 80′s and 90′s and I have no idea why Ramsey continues to think it’s valid.

Deacon Bradley

Interesting post Ron. I completely agree about expenses being a big deal and I’m a huge advocate for ETFs to mitigate that problem! I also think what Dave is saying in this quote is still true. Pick up an issue of Kipplinger or something similar and you’ll see lots of talk about expense ratios and what not. It’s easy to decide that that’s the single most important aspect of a fund. I think what Dave is trying to say is that shouldn’t be the feature you care about the most. I’m not saying it’s NOT important, but rather that you should look at it holistically… and then decide to use ETFs :).


I agree that a complete examination is imperative, but the idea that expenses are “over-rated” as a criteria demonstrates (to me) that something is amiss.

And ETF’s usually have great fees and expense ratios! Agree completely on that one.

Thomas De Jong

Ron, I wrote a ‘blue paper’ (everyone is writing white papers) on Dave Ramsey’s financial advice, if you care to give it a read. It’s also available in printer-friendly (white paper) format. :) You may email me for the blue paper or go to to download the white paper.
Thanks for the interesting post. As a financial professional, I have to say…I agree! But I am not allowed to comment on mutual funds, as everything we do is regulated. :)

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