“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.