Dangerous Retirement Planning Advice From Financial Guru Dave Ramsey

Ever heard of Dave Ramsey? If not, let me introduce you. Ever since 1992, Ramsey has been helping people get out of debt, start saving, and ensure secure retirement planning.

Ramsey owns a company, The Lampo Group, which focuses on financial counseling. He has written several best-selling books that have likely helped millions of people. He has his own radio show, and he has appeared on the Motley Fool Money podcasts from time to time.

One of my favorite quotes from Ramsey, which sums up much of our collective financial folly, is: "We buy things we don't need with money we don't have to impress people we don't like." 

If you don't get the point I'm trying to make, it's that on the whole, Ramsey has done a lot of good for a lot of people. But there's one part of his plan -- which has gotten a lot of attention lately -- that could leave a lot of investors in an unexpected bind when retirement time comes around.

Sound behavioral advice for investing
I'll get to what I think Ramsey's biggest mistake is in a minute. But it's also important to note that much of the behavioral advice he offers when it comes to investing is spot-on.

He pleaded with people not to sell their investments during the Great Recession, he advises getting an investing professional to help you with financial decisions -- especially during volatile market periods -- he thinks your investing horizon should be a minimum of five years, and he's a big proponent of setting a regular investing schedule and sticking to it no matter what. These are all characteristics we Fools embrace.

So what's the problem?
There are actually several problems with Ramsey's advice for retirement planning from what I can see, but first and foremost is this: He encourages listeners and readers to assume that they can expect average returns of about 12%, and that they should use this assumption when planning for retirement.

Back in February, he posted this on his Twitter page:

Source: @DaveRamsey Twitter page. 

Clearly, he's not making it a secret that investors should expect to get about a 12% yearly return on their investment. When I tried to find out why he chose 12%, I found this claim on his website: "Dave is referring to the average annual return of the stock market since 1926, which is very near 12 percent annually when adjusted for inflation." 

Really? When adjusted for inflation, to boot? I'm not sure what numbers Ramsey is looking at, but this is akin to telling your teenager who is about to attempt a cross-country road trip that they'll only need half a tank of gas to make it.

When we use market returns compiled by Yale economics professor Robert Shiller, we see that the S&P 500, including dividends reinvested, has returned an average of 9.9% per year since 1926. And when we adjust that for inflation, it dips down to 6.7%. That's a far cry from "very near 12 percent annually." Check here if you don't believe me.

The best that I can suspect is that -- for some reason -- Ramsey is using the average yearly return, instead of the compounded annual growth rate (CAGR). That may sound confusing, but consider Ian the Investor, who is investing $100 in the stock market for two years.

  • In year one, the investment goes up 100%, leaving Ian with $200.
  • In year two, the investment goes down 50%, leaving Ian with $100.

Maybe Ramsey is just averaging out the two returns. If you take 100 (the first year's returns) and subtract 50 (the second year's returns), and then divide that by two (the number of years), you would say that the average return is 25%. That should mean Ian has about $156 after two years.

But the fact of the matter is, this math doesn't work with investing. Ian started with $100, and he ended with $100. He had a CAGR -- or average annual return -- of 0% per year.

Why this could be dangerous to your retirement planning
One could argue that even if Ramsey is wrong, he's getting people to save, which is good. That's fair, but I think it's also a blatant form of false hope, and sets people up for a cruel reality check as they get closer to retirement.

Let's take the case of a 25-year-old who is going to start saving today, and wants to retire when he's 65 with $1 million -- just as Ramsey mentioned on his Twitter page.

If that investor assumes he'll make a 12% return per year on his investments, he'll need to save $97 per month. If, however, he assumes his return will be 6.7% -- the S&P 500's CAGR while factoring in inflation, which Ramsey claims to do -- that number jumps to $422 per month.

Think about that: $97 per month versus $422.  That's an enormous difference! 

For the hapless investor who saved $97 per month but experienced a more-normal 6.7% return per year, he will be over $770,000 -- or 77% -- short of his investment goal.

I'm not sure why Ramsey harps on this 12% figure while not offering any solid numbers to back it up. His followers would be well served to dial down their assumptions before adjusting their retirement planning process.

Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically under-saving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. Learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.


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Comments from our Foolish Readers

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  • Report this Comment On June 03, 2013, at 3:21 PM, TMFMorgan wrote:

    Good stuff, Brian.

  • Report this Comment On June 03, 2013, at 3:39 PM, svaiskau wrote:

    I think Ramsey's formula is more useful as a directional tool than a computational one. His audience are people in their 40s or older who need simple steps to follow in order to make drastic shifts in their behavior, with limited financial literacy and practically incapable (or unwilling) of performing any type of analysis for themselves.

    His audience isn't comprised of sophisticated planners or lifelong investors, but rather the market's (and, for that matter, retirement industry's) fools. These are people who need to be told simple things like "Maximize your 401k contribution" and "Pay off your credit cards each month."

    Ramsey seems to be a pretty smart and practical guy, but his product's target market doesn't have a whole lot of natural overlap here. You're kind of preaching to the choir.

  • Report this Comment On June 03, 2013, at 4:28 PM, TMFCheesehead wrote:

    @TMFMorgan-

    Thanks

    @svaiskau-

    I agree, the audience is different. I still have trouble wrapping my head around why he uses that number. Would love to get an official explanation.

    Brian Stoffel

  • Report this Comment On June 03, 2013, at 4:39 PM, TMFBlacknGold wrote:

    Poor Ian!

  • Report this Comment On June 03, 2013, at 4:50 PM, Costanzawallet wrote:

    The other problem, is that many who are 25-30 do not have the extra $100/month let alone $400/month to invest with student loans and all the other living expenses. How about this, for every child born, stick $1000 in the index and let it sit and compound for 65 years at Ramsey's 12% and you'll get over 1.5 million without making any other contributions.

  • Report this Comment On June 04, 2013, at 2:09 PM, ana12 wrote:

    When you have only 140 characters you can't explain everything in detail so you add a link to your website to give more info. Basic Dave Rules is getting out of debt first so that you can use the extra money to heavily invest in various way.

    In the example: If the 25-30 person in the example wants to have $1million at 65 he needs to first pay off ALL his debt (which means living BELOW his means for a while, may people don't want to do it). Then once the person is debt free he has more than just a few hundred dollars a month to invest.

    A lot of people don't like Dave's principles because they don't want to give up the idea of "buying things we don't need with money we don't have to impress people we don't like." They want to keep up with the Joneses even if that means living on maxed out credit cards. It is only when they wake up at 45 and realize they can't retire because they have two car notes, too much house but no savings. If we as a society are willing to delay instant gratification, we will be able to live quite well in our later years.

  • Report this Comment On June 04, 2013, at 2:54 PM, mercedesgalvan wrote:

    Please first study everything about what Dave Ramsey teaches before you write about him.

  • Report this Comment On June 04, 2013, at 2:55 PM, ramseyfan wrote:

    From the article: "He encourages listeners and readers to assume that they can expect average returns of about 12%, and that they should use this assumption when planning for retirement."

    He does use 12% in his illustrations. However, if you had taken any time at all examining his best selling books, or even heading over to his website you would see that baby step #4 is "Invest 15% of household income into Roth IRAs and pre-tax retirement."

    He doesn't tell you to come up with a retirement goal number and assume 12% returns to back into a contribution amount. Invest 15% of your income... 12%, 8%, 20%, 1%, whatever the return is, you'll be better off for having done it.

  • Report this Comment On June 04, 2013, at 2:58 PM, jberlat wrote:

    Even certain index funds can get 12%.

  • Report this Comment On June 04, 2013, at 2:59 PM, daleng wrote:

    In reading this article, I wonder if the author actually knows what Dave's advice is on saving for retirement. Dave makes no mystery about his advice. His advice is consistent. I have heard it on his radio show, it's on his web site, it's in his books and training material. Dave's advice is to invest 15% of your income for retirement.

    For those who say, 'I can't afford 15%', Dave's advice begins with advice on living within your income, getting on a budget, getting and staying out of debt so that it is possible to put away 15% of your income.

    My guess is the author would have a difficult time finding anyone who managed their money in the way Dave advises and after 40 years found themselves unable to successfully enter into retirement.

  • Report this Comment On June 04, 2013, at 3:02 PM, jberlat wrote:

    Brian, even if you use a 9% number, what if a person doesn't get that? It ALL depends on how you are invested. It all depends on when your money goes into the market. ALL of these people that say, Well, if you had invested $1 on Jan 1, 1946, you would have $1,000,000,000..... At the end of the day, it is all HYPOTHETICAL. The point is to save money and that the stock market has returned a certain percentage and certain asset classes have gone above the average and below the average. I would be fine if Dave used 10% because he nitpicks the mutual funds he uses and doesn't talk about the fees in those mutual funds. I would prefer all you finance people tell beginner investors to start with INDEX funds until they learn more about mutual funds.

  • Report this Comment On June 04, 2013, at 3:04 PM, jberlat wrote:

    The market is up 100% over the last 5 years. Isn't that a 20% rate of return?

  • Report this Comment On June 04, 2013, at 3:06 PM, jberlat wrote:

    Don't assume every college kid graduates with debt. Many actually work through college and went on scholarships.

  • Report this Comment On June 04, 2013, at 3:06 PM, STAN0430 wrote:

    I was just listening to the Dave Ramsey Show on the radio. He had Brian Stoffel on as a guest after this inflamatory article was published.

    Brian, you just got served. Unfortunately you went after a giant and he stepped on ya and scraped you off his shoe. 20 yrs of teaching finance vs 2 yrs says it all. Dave did take the high road. He could have talked about his own holdings and amounts. He uses the same principles he teaches. Better luck next time.

  • Report this Comment On June 04, 2013, at 3:07 PM, onofrio79 wrote:

    Brian,

    I just listened to the segment on Dave’s show. I think the bottom line is that half-truths are lies. Claiming Dave’s advice is dangerous while avoiding to mention that he teaches to save 15% of your income (versus $100/month) is not telling the entire story.

    You made a GREAT illustration of why $100 is not enough, but Dave never suggested it was. You provided great ADDITIONAL information as to why saving more for retirement is important. I think had you left it at that, versus trying to discredit Dave’s work you would have been better off.

    Just a thought.

  • Report this Comment On June 04, 2013, at 3:09 PM, neebird wrote:

    Brian-

    Just hear you on the Dave Ramsey show. Dave had you on the ropes and you seemed never to get on track to defend your article. Fool is as fool does! Cheap shot for your proverbial 15 minutes!

  • Report this Comment On June 04, 2013, at 3:14 PM, EnigmaDude wrote:

    Ramsey fans are defending the man without regard to the point of this article. Sure, saving 15% or more starting at 25 and continuing for 40 years is likely to generate enough for anyone to retire comfortably - unless they expect the interest to compound at an annual rate of 12% per year!

    And to jberlat - if you can show me an index fund that generates 12% per year over more than a 10 year period, please tell me what it is! I will go all in!!

  • Report this Comment On June 04, 2013, at 3:30 PM, asrjmiller wrote:

    Brian,

    Yes you are a fool. I just heard you on Dave's show and I agree with Dave. You don't know what you are talking about. I cannot imagine how an English Lit major thought he could get away with insulting the best financial advisor of all time.

    I am debt free including the house and retired, with plenty of money - thanks to Dave.

  • Report this Comment On June 04, 2013, at 3:33 PM, toby1999 wrote:

    Fools

  • Report this Comment On June 04, 2013, at 4:00 PM, TMFCheesehead wrote:

    For anyone who wishes to see the calculations for where Dave Ramsey and I disagree, please visit here:

    http://www.moneychimp.com/features/market_cagr.htm

    Type 1926 and 2013 into the fields.

    I simply think it makes more sense, and is more responsible, to use the CAGR.

    Brian Stoffel

  • Report this Comment On June 04, 2013, at 4:09 PM, jpokergman wrote:

    Stoffal....Saving is Dangerous? like the guy is going to get killed? I was a submariner. We went underwater for 3 months at a time. That was dangerous.

    You have an obvious agenda. He is famous for seriously making a lot of people wealthy. Me included. You are just a putz with a chip on your shoulder.

    How did you get this job? what fool did you tumble with?

  • Report this Comment On June 04, 2013, at 4:28 PM, TMFCheesehead wrote:

    @jpokergman-

    No where did I say "saving was dangerous", instead, I said planning your retirement expecting annual returns of 12% was dangerous.

    Brian Stoffel

  • Report this Comment On June 04, 2013, at 4:36 PM, TheDumbMoney wrote:

    Dave Ramsey is something of a snake oil salesman, in my view. Not a fan. While he has offered valuable insights at times, and I suspect he has done more good than harm, his behavioral advice is not original, and is available in many other places (including in about 40 years worth of Berkshire Hatahaway annual reports and in every interview Charlie Munger has ever given), including on this website, most commonly provided by TMFHousel. And his financial planning advice is basically cribbed from Personal Finance for Dummies. I have no problem with some self-promotion that comes close to the line of unseemliness -- we all do it. But Dave Ramsey goes way over the line in my view by presenting himself as a guru when in reality he is just very good at collecting and regurgitating other people's advice, while presenting it as a spectacular insight of his own, and collecting money for his troubles. Accordingly, I am fairly certain that Dave Ramsey is primarily interested in one thing above all: promoting Dave Ramsey. In that vein, overestimating market returns is more likely to get people following his program (false hope and all), and people devoted to him are neither likely to recognize the point you are making on their own, nor frankly to care ten years down the road, even if they do eventually realize it, so long as following his advice has helped them save additional money (which is the good he hopefully does).

  • Report this Comment On June 04, 2013, at 5:01 PM, mastfamily wrote:

    I used to listen to Dave's podcast on a daily basis, and never understood where he got his claims of consistent 11% returns on a "good mutual fund". After looking at the calculator, I now understand, but I agree this is misleading.

    I do think Dave is a great cheerleader for personal finance. If the 11% motivates people to save, and then save more, that's probably ok. I'm hoping that those of us who are pragmatic enough to follow the rest of his great advise will also, through the use of an investment adviser or enough research on our own, learn a that a more realistic CAGR number (maybe 3-6%) makes sense and plan accordingly.

    Thanks for the good article! The headline did get my attention!

  • Report this Comment On June 04, 2013, at 5:12 PM, Jensenx2 wrote:

    @TheDumbMoney: Eric Tyson's book Personal Finance for Dummies was first published in 1995. Dave Ramsey has been on the air since 1992. He also mentions, almost daily, that his advice is common sense. He doesn't ever claim to be a guru, rather a guy who screwed up royally and has learned from his mistakes. He is inly considered a guru because common sense isn't common in America. He also doesn't have any issue, I don't either, for getting paid to do what he does. Getting paid to perform a service that people want is why capitalism is great. Dave also gives a lot of his products away for free as well as donates to his church and other charities.

    As far as investing goes, if you listen to his show or read his books the lions share of what he promotes is getting people out of debt. Even if he was over estimating rates of returns it is only a small portion of his program.

  • Report this Comment On June 04, 2013, at 6:37 PM, TMFCheesehead wrote:

    Fools--

    For what it's worth, Ramsey's folks let me know that the first link I provided now shows that the 12% rate IS NOT adjusted for inflation as it had originally stated. It was an error that has now been fixed.

    Brian Stoffel

  • Report this Comment On June 04, 2013, at 6:41 PM, pvames wrote:

    It's not really an argument worth having. Dave is right on just about everything he says. And so if I'm dollar cost averaging 15% of my income into retirement using a few index ETFs (and staying debt-free), my retirement will take care of itself whether the market averages 12%, 9%, or 7%. Dave's plan is simple, conservative, and effective.

  • Report this Comment On June 04, 2013, at 6:51 PM, TheDumbMoney wrote:

    Jensenx2, well, I'm always willing to admit when I'm judging somebody too harshly. I personally find him off-putting and crudely self-promoting. But I pretty much find all motivational speaker and self-improvement types (e.g., Tony Robbins, etc.) pretty irritating and smarmy. If he works for you, and helps you, fine and great. Maybe he is just what many people need. Also, my comment about finance for dummies was meant to be general, I was not making a direct reference to that series. Pop personal finance books have been around for decades.

  • Report this Comment On June 04, 2013, at 7:19 PM, norcallian wrote:

    Dave Ramsey is more of a motivational speaker than a financial adviser. I think this article does a great job of pointing that out. His advice can be useful, but needs to be taken with this understanding.

  • Report this Comment On June 04, 2013, at 7:19 PM, susieqhead wrote:

    Brian, We all have hard times coming up with a blog post..but I think this post subject is flimsy at best. Your assuming a rather ignorant investor who keeps his head in the sand for a long-long time. Mr. Ramsey gives solid, basic financial advice and has been very instrumental in helping many people get out of debt and begin a responsible savings and investing program for their future. My suggestion is to ask Ramsey for forgiveness for your poor choice of a header and agree to disagree on projected annual returns.

  • Report this Comment On June 04, 2013, at 7:30 PM, squiddoo wrote:

    Brian, I listened to Dave's show today. I am a huge Dave fan, I've read all of the books, completed Financial Peace. I've attended his live event, and even worked at one in Dallas a couple of years ago. I've implemented many of his teachings into my life. But today I was ashamed for him. He acted like a bully pretty much the entire interview and attempted to belittle you.

    At one point near the end of the interview he made a threat saying if you continued writing these types of articles that 'you and he would have a huge problem'. I wish you had asked him what that means. But I think you handled the interview well and said nothing to embarrass yourself. You disagree with him and he can't handle it. So he has you on his nationally broadcasted show to challenge you. That is classic bully mentality.

    Dave professes a Christian faith and regularly guest preaches at churches across the U.S. His conduct today during your interview was unbecoming of a Christian, At least, the Christ I follow would not have addressed you as Dave did.

    Stand your ground and ignore those that suggest you should apologize or ask forgiveness from Dave. He is the one who should apologize.....(but I wouldn't hold my breath waiting for it)

  • Report this Comment On June 04, 2013, at 8:41 PM, TMFTypeoh wrote:

    Brian,

    I'm with you 100%. I love Dave Ramsey, and agree with 96% of his advice. I wish the entire US would follow what he says to the letter, as I think the country would be a far better place.

    However, there are a few parts to Dave's advice I do not agree with.

    1) The assumption he makes about 12%, but this one doesn't bother me too much

    2) He constantly signs the praises of mutual funds. WHY???????? You would think he would do nothing but push index funds. Lower costs, better returns. In fact, his way to pick mutual funds is to find those with long track records. Well, thats great, but what if the manager that created those great track records is no longer at the helm? What then?

    3) This is the biggest grip I have with him: life insurance. He tells people to get 10x the income they want to replace, as the market returns 10% per year, and you can pull that out to replace your income. Well.....how would this advice work in 2000? 2008? Answer...it wouldn't. You need more like 20x the income you want to replace (if not 25x), that way you can mix bonds/stocks to pull out the income you need without touching the principle.

    Again, I really like Dave Ramsey. I look forward to listening to his show tomorrow to hear the interview in person.

    Brian

  • Report this Comment On June 04, 2013, at 8:46 PM, phychobm wrote:

    I heard the article one the air: it seemed a fair-minded one that gives Dave credit for the main emphasis of his show and then proceeded to take exception on one point in which the author considers Dave's message to be wrong. Dave called the article a hit job. In other radio shows I've heard him refer to those who disagree as haters. On the radio show he ascribed those that take issue with the 12 percent stock market return expectation to be motivated by negativity or wanting to shooting at the guy on the pinnacle; leaving no room for the possibility that someone can only agree with him 95 percent of the time and still be reasonable in an area of disagreement. It would be better that one leaves the judging of motives to the Lord.

  • Report this Comment On June 04, 2013, at 9:01 PM, TheDumbMoney wrote:

    "...leaving no room for the possibility that someone can only agree with him 95 percent of the time and still be reasonable in an area of disagreement."

    That's called a prophet complex. Very common in motivational types. Disagreement and ever being wrong harms the all-important personal brand.

    Reminds me of someone else who used to blog here for a long time, became a TMF writer, and no longer writes for the Fool.

    I like this piece by the way.

  • Report this Comment On June 04, 2013, at 9:04 PM, Megbliss wrote:

    Brian,

    I applaud you for standing up for the truth! Teaching the average American (who has no background in investing) that a 12% return can be expected is ridiculous. You are right, this is dangerous advice! There will be a lot of upset people at their retirements- I hope he's ready to face them.

    Why a real estate agent (who got greedy and lost millions) considers himself an expert in stock investments is beyond me! He has no degree or experience in the investing world, and he needs to avoid teaching others, as if he's the only one who knows what he's talking about. Dave has experience getting out of debt and selling homes, that's about it- he needs to stick to those areas.

    Thank you for getting the truth out there! Don't let him bully you into thinking you're wrong- thousands of real, qualified investment experts agree with you, not him. 12% is simply misleading!

    There are a number of other misleading statements he makes, but that's for another day. Suffice it to say, he is wrong about quite a few things, and society will notice sooner or later if it hasn't already.

    Again, thank you for speaking up. The public needs to know the truth about investing.

  • Report this Comment On June 04, 2013, at 9:45 PM, Janspete wrote:

    Just listened to the Dave Ramsey response to this article on the radio. He sounded pissed off. We listen to Dave all the time, but some of his rants have been getting a bit exhausting.

    He is great for the people that are living beyond their means, but for those of us that were taught by our parents that credit cards were not for credit, his advice has much less of an impact. I have tried many of his recommendations, so based on my first hand experiences, I comment on good and poor advice:

    Good advice

    15 year fixed rate mortgage

    Save 15%

    Emergency fund

    No car debt

    Budget

    Poor advice:

    Churchill mortgage

    Real estate ELPs

    Debit cards

    I am on the fence for the FICO score. Sure is nice going into a mortgage refinance with 799. Hope to never need it again.

    Later

  • Report this Comment On June 04, 2013, at 9:54 PM, TheBard8 wrote:

    Brian,

    I just listened to the show. At first I expected you as a guest to get it handed to him since I believe Dave Ramsey's advice is pretty spot on when it comes to 95% of what he is talking about. But I was quite surprised.

    One example was when you asked something like "why don't you just use 10%?" he said "because it is my show" was one of the times that I shook my head. I felt like moments like these made me question his reasoning. In short, Dave was unsuccessful in his attempt to defend his usage of 12%.

    Here is an example of why what you are talking about is important. I was actually doing some investing calculations today using 12% which was seriously misleading to me. Only after hearing your interview and doing further research as a result, did I find out that 5-6% is a more reasonable amount. The average person probably only hears 12%. This is the number they plug into formulas and web calculators. They don't think about inflation or annualized numbers. Thank you for causing this to be brought to my attention.

    Your article body was quite fair and charitable, moreso than most would be when criticizing a "big dog". I think you handled yourself very well during the interview and Dave did not. You had a logical way of going about things and while Dave did as well, his character soured my view of him as a person, while 95% of his advice is good (for the general masses which in my view is the best he can do)

    You took issue with his numbers, which is valid in my book. I think though where you might have gone wrong two things. 1) It is misleading people to believe (mostly through the title) that Dave Ramsey gives bad investment advice. Him saying saving 15% into retirement is irrelevant to the percentage he uses and 15% will do the job people want to accomplish. 2) You concede that he recommends a professional investment person. If someone sees a professional they will guide them in the truth about the actual percentages. So as a whole his investment advice in general for the masses is good.

    I too wish he would just revise his numbers because if his advice is generally for the masses, the masses don't know the truth which is a problem.

  • Report this Comment On June 04, 2013, at 10:06 PM, Amd2456 wrote:

    Brian got owned by Dave on national radio! Funniest. podcast. ever!

  • Report this Comment On June 04, 2013, at 10:08 PM, TMFCheesehead wrote:

    @phychobm-

    Thanks for what you wrote. You were able to capture, in better words than mine, why I was so confused at Dave's anger on the show. I think he may have given me a little too much credit to think I could put a dent in his reputation (which, as the first half of my article makes clear, I wasn't really trying to do).

    Brian Stoffel

  • Report this Comment On June 04, 2013, at 10:10 PM, djmaddone wrote:

    Brian,

    You are an idiot. You are a mediocre author giving "dangerous" advice for a clueless sensationalist "financial" website. Let's not let a silly thing like facts get in the way when trying to quote directly from someone's web page.

    Here's a great idea, let's invest in the Motley Fool funds and get a whopping 1.3% average return

    >>From marketwatch.com>>

    Of course, one year does not a track record make. How have the Motley Fool portfolios stacked up over the 6-plus years the HFD has tracked the service? Taking into account several portfolios that it used to maintain but which were discontinued along the way, the HFD calculates that the Motley Fool produced a 1.3 percent annualized return between Jan. 1, 1997 and Jan. 31, 2003, underperforming the 3.4 percent annualized return of the Wilshire 5000 over the same period.

    Furthermore, among the 98 newsletters for which the HFD has data over this 6-plus year period, the Motley Fool stands in 62nd place.

    <<<<<

    If you want to learn about stocks read "How to Make Money in Stocks" by William O'Neil. If you want to get out of debt listen to Dave Ramsey. If you want to live a sad underwhelming life, get an English degree like Brian!

  • Report this Comment On June 04, 2013, at 10:13 PM, TMFCheesehead wrote:

    @TheBard8-

    It makes me extremely happy to know that listening to the show helped you to reconsider those projections.

    As for your two points at the end, the only caveat I might add is that if someone comes along his advice later in life (say, 40's to 50's) I'm not 100% sure 15% would do it. I'd have to run the numbers (although everyone's lifestyle is different, so there's no template to use). At that point, the 12% assumption might be misleading to the point of having a real effect.

    Brian Stoffel

  • Report this Comment On June 04, 2013, at 10:17 PM, TMFCheesehead wrote:

    @djmaddone-

    If you have a full URL address for that quote, I'd be very interested to read the piece.

    If you wish to see how our newsletters are performing, they are updated daily and on display on our frontpage at fool.com. Currently, 5 out of 7 are beating the S&P 500 (though it should be noted that Pro's objective is not to be the S&P 500)

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 12:01 AM, mleedds wrote:

    Here is what Brian was trying to say, plain and simple.

    From Jan 1, 1926 - Dec 31, 2012

    CAGR = 9.87%

    Average Return = 11.88%

    1. Go to http://www.daveramsey.com/articles/article/articleID/investi...

    2. Enter $1 as starting

    3. Use average return at 11.88%

    4. $0 monthly

    5. 87 years for both

    The answer is $27,153.47

    Try it again with CAGR at 9.87%.

    The answer is $4,885.24 (MUCH closer to the true value of $3,600!!!)

    In summary, CAGR is technically correct. 12% may be an illustration, but simply plugging 12% into an investment calculator is highly incorrect. We should be using the 9.87% figure for actual projections (based on history). I believe Dave was in the wrong here. He was defending his philosophy while backing up his 12% with data from the S&P 500 and other mutual funds. Of course these guys are going to use the "average"! It's better!

  • Report this Comment On June 05, 2013, at 12:14 AM, TMFCheesehead wrote:

    @mleedds-

    Thanks for the link and running the numbers.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 12:35 AM, hornet96 wrote:

    It is amazing to me to see all of the sheep coming to the shepherd's defense in such a zealous way over a claim that is factually inaccurate (i.e., that 12% is the historical average for stock market returns). It is also quite telling about a man who (1) cannot admit that his estimate of returns is misleading and/or cannot admit that he does not understand the difference between compound annual returns and arithmetic average returns, or (2) perhaps worse, is willing to sternly defend such a gross misrepresentation of "expected" stock market returns in order to more favorably promote one of his products (i.e., the high fee, high load mutual funds that pay him a referral fee through the Lampo Group).

    To be clear, I have no problems with the behavioral aspect of his advice (spend less, save more, live below your means, etc.) and I am sure that much of his advice does indeed help the folks who really are clueless about managing their basic finances. However, as Brian notes in his article, it's perhaps the biggest and most ironic "stupid tax" of all to wake up when you're 65 expecting to have over $1M after saving $100 per month for 40 years, only to realize that you are about 77% short of that goal.

    In other words, the math matters - specifically, using the right math for the problem at hand matters. This is important for people to understand, especially in the context of retirement planning.

    With all of that said, there is a good quote that I believe applies here, and it goes something like this:

    "You can only convince people who think they can benefit from being convinced."

  • Report this Comment On June 05, 2013, at 12:42 AM, BlackEyedE wrote:

    Brian,

    Listened to the Dave Ramsey podcast today...I WAS a huge fan of Dave but not after today. Dave sounded a lot like Rush Limbaugh, another arrogant blow hard. You got my respect by staying cool and trying to get a word in edgewise.

    After the 1st break I thought Dave was going to check his website and issue statement that he needed to revise his website based on your insight. I would have continued to respect Dave if he went there where I thought he was going. After the 2nd break he came back "pissed off" as he stated and just ranted. I was disappointed.

    Like he said his brand is so much bigger than yours (like how he made sure everyone knew you were an English major with 2 year experience..what poor class that was) why did he need to act like Donny Trump.

    He acted like the bankrupt baby he was before.

  • Report this Comment On June 05, 2013, at 12:48 AM, knilmai wrote:

    Brian,

    Your post here is silly, and if we are being honest with ourselves saying that someone gives dangerous advice is ok to say but your points in this post are invalid.

    If you want to say that Dave's advice to avoid debt is stupid thats fine. If you want to say that Dave is dum for using 12% interest as a model for his lets pretend moments that is fine.

    But the reason your blog post is garbage and the reason Dave was critical of you was because you were not being accurate.

    Dave has never advised people to make retirement plans based on 12% projections. Thats the problem with your article.

    Your reference to his tweet was also flawed. He was never advocating for people to save only $100 a month, he was pointing out that people have no excuse to retire with nothing because even $100 per month invested wisely will become a big chunk of change.

    Ramsey's advice has always been 15% of your income invested in retirement until you pay your house off. And after paying your house off maximizing ever available tax deffered or tax friendly investment option available.

    You did not mention this in you post and that is the shame of what you wrote. You either are unfamiliar with his teaching and information or you were at best being careless with the facts.

    Your article offers no helpful information because Dave Ramsey is already teaching what you are saying he should.

    The better point you could have made was "investor beware, listen and follow everything Ramsey says but understand that you may no get the fabulous returns he suggests are so available."

  • Report this Comment On June 05, 2013, at 12:49 AM, pum12 wrote:

    I was surprised Dave actually debated this practically nobody. Makes me wonder if this is some publicity stunt. Seriously, we're gonna squabble for a few % points!?

    First of all, is really betting on exactly 10 or 12% next 40 years? Heck, it could be 15 or it could be 5--it's purely speculation based on historical results. We're not that stupid, Brian!!

    As a fool fan, I do agree with Dave that this article is a hit-piece and really serves no useful purpose other than publicity for the guy that wrote it.

  • Report this Comment On June 05, 2013, at 1:54 AM, knilmai wrote:

    Brian,

    Just listened to your conversation with Dave on his show. You admitted you had never been to his class, live event, or read any of his books all the way through.

    Hopefully this will inspire you to take his class or read his books. You will not agree everything he says, I certainly don't, but you will understand why calling one of the most conservative financial advisors in the country is dangerous was wrong.

    I suppose it would be fair if you added a heading to your article that stated " I have never read his books or attended his classes" but at that point who would want to know your opinion on what he says in thoses books or classes. That's the point.

  • Report this Comment On June 05, 2013, at 2:37 AM, stumo3d wrote:

    Kudos Brian,

    I'm a big Ramsey Fan but I've never understood why he uses 12% all the time as well. I totally agree with you that he should use a more realistic figure. His pride won't let him however but I totally agree with you and the historic return of the S&P. It's no where near 12 and even if it was, your "ELP" would get his cut of it leaving you with far less than 12 in the end. "Splitting hairs".... when it comes to retirement even just 1% over 40 years makes a huge difference. Great job on the radio! Dave was kind of like an cranky child and you kept your cool and had know difficulty defending your point.

  • Report this Comment On June 05, 2013, at 8:50 AM, Lindsay242 wrote:
  • Report this Comment On June 05, 2013, at 9:50 AM, kimdvm wrote:

    I just heard Ramsey's podcast with this interview and in my opinion: Ramsey had a blatant childish temper tantrum.

    He didn't like you commenting on a tweet if you (and theoretically everyone who heard the tweet) didn't read all of his books and attend his events. Fella, if you don't want people looking at small bits of information, don't tweet. Or if you do tweet, use correct numbers, not lies/exaggerations.

    I am basically a Ramsey fan/follower and agree he does a great job of marketing the idea of being careful with your money. But it's not uncommon for him to twist facts to emphasize his points.

    You asked why he couldn't use the correct number, and he shouted "because it's my show!". Okay, Dave, do what you want on your show. But Brian isn't on your staff and doesn't have to support you.

    I actually think this article is very supportive of Dave, and he should be grateful that you brought attention to him with your title. Yes, it would make people question his investment advice but it also may make them pay attention to Ramsey in general.

  • Report this Comment On June 05, 2013, at 9:54 AM, Martilyo wrote:

    "He encourages listeners and readers to assume that they can expect average returns of about 12%"

    I have listened Dave for over 4 years now. At no time have I ever heard him say one should expect 12% return on a mutual fund. Why does everyone think that 12% is not obtainable? I averaged over 20% on my investments last year. Any numbnut investment advisor should be able to help ANYONE get at least 12%

    So maybe instead of slamming Dave, maybe you should give us your financial wisdom on what to do with our money.

    There are some things I do not agree with Dave about but saying one can not get at least 12% average a year is ridiculous...

    I think if anyone listens to Dave, they will benefit far more than not listening to anyone and staying in debt.

  • Report this Comment On June 05, 2013, at 10:05 AM, CrashRizzo wrote:

    I don't know why I'm taking the time but...

    For those critical of Ramsey, each one of you, including the author, is missing the point. Dave makes two things clear:

    1) His advice isn't proprietary but rather common sense.

    2) He is not a financial planner. (In fact, his books state as much.)

    Instead his teachings are aimed at those who, thus far, have been irresponsible with handling finances. I find absolutely no harm in steering someone towards a debt-free life.

    In regards to the 12% versus 9% versus 6%, who cares? Especially in the volatile market of the past 5 years. If you're reading this article and devote time to the Fool, then, chances are, you handle your own investments. As do I. As such, I find Dave's repeated comments of a 12% gain mutual funds silly. I choose to invest in single stocks and actively manage my portfolio. However, to categorically dismiss his investing advice as dangerous is, in of itself, dangerous, especially for those aforementioned inviduals that know nothing of interest payments on a credit card let alone the forward P/E for an individual stock. The last thing the author should want, as a financial author, is to intimidate one from investing at all.

    The bottom line - there is absolutely nothing wrong instructing an uninterested investor to contribute to growth, growth and income, aggressive growth, and international mutual funds on a monthly basis. Because even if they don't make 12%, their dollar cost averaging virtually assures them of building a decent nest egg at retirement.

    And that is the point of Dave Ramsey!

  • Report this Comment On June 05, 2013, at 10:08 AM, Farmwf wrote:

    I enjoyed the program yesterday because I enjoyed listening to someone with decades of experience, including a finance degree, nail a guy with a couple years under his belt and an English degree who hasn't done his research on the subject he was writing about. When you've read all Dave's books and attended his classes, maybe come back and try and be the expert. Until then I'll stick with staying out of debt and building wealth and living like no one else. I want to see your portfolio before I take your advice, Brian, because I don't take advice from broke people.

  • Report this Comment On June 05, 2013, at 10:22 AM, eburkholder wrote:

    Enjoyed the radio broadcast yesterday Brian. One person came off professional and it happened to be the person with "an English degree and only 2 years of experience." (Ridiculous cheap shot especially when Dave thinks being a "licensed insurance agent" makes him qualified to give investment advice).

    Here is the thing people. First, as Brian made the point, 12% and 10% is not "splitting hairs" as Dave said. It makes a huge difference. But the main point is, whether or not it makes a big difference, it is INCORRECT. Would a Dr. be qualified to give advice if he suggested eating donuts would solve headaches? That advice would probably not hurt anyone, but it shows incompetence. Just like using an average rate of return and not compound. It disqualifies you to be an expert!

    Dave is wrong that it is not a big deal, because he also used that number to recommend an 8% safe withdrawal rate in retirement. This is crazy and absolutely will cause major damage to anyone who follows it.

    I wrote an open letter to Dave that elaborates even more on some of the points Brian makes. But never got a response.

    https://docs.google.com/file/d/0B97_BmOZs5tVN2k5bFFYd281LWs/...

  • Report this Comment On June 05, 2013, at 10:37 AM, TMFCheesehead wrote:

    @farmwf-

    My retirement portfolio can be viewed here: http://www.fool.com/investing/general/2013/05/28/why-the-wor...

    My growth portfolio is here: http://www.fool.com/investing/general/2013/06/03/why-the-wor...

    And my monthly Roth IRA portfolio adds stocks each month, so displaying them all in one article isn't really practical, but the average pick has returned 22.5% and is beating the S&P 500 by 2.7%, as of last Friday.

    Also, I'll readily admit that the titles of the portfolios are a bit heavy handed.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 10:39 AM, cpashia wrote:

    I'm disappointed to see this article on Fool.com. It is so petty to argue over the figures he cites in an illustration on how compound interest can lead to wealth. I've heard him many times use 12% 10% and 8% as an example when he gets challenged on this figure and they all seem like they make for a good retirement.

    I expect quality information to come out of Fool.com. I listen to the podcast every day without fail and invest according to the advice I receive from this company. But this is just a trashy piece of journalism. I'm sorry that it was posted.

    I still love the Fool though.

  • Report this Comment On June 05, 2013, at 10:45 AM, TMFCheesehead wrote:

    @eburkholder-

    Just read your article, those were the << several problems with Ramsey's advice for retirement planning from what I can see>>, though I believe you go above and beyond what was originally in my mind.

    Good luck in hearing a response.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 11:15 AM, 21jmoney42 wrote:

    Hahaha you got owned by Dave. You should quit the financial business and stick to something using your English degree.

  • Report this Comment On June 05, 2013, at 11:26 AM, Brains001 wrote:

    Yikes Brian. You didn't even read DR's books? You've barely listened to his radio show? Looks like you wrote an article on minimal information. You could have at least prepared.

    Dave lowered the boom on ya buddy. Next time know what you're talking about before you attempt ripping someone to shreds.

  • Report this Comment On June 05, 2013, at 11:33 AM, MarianneSC wrote:

    I've been listening to Dave Ramsey's full show on iHeartRadio the morning after it airs as I do my housework. Dave's advice for living below one's means, having an actual plan for your money that you agree on with your spouse ahead of time, and staying out of debt is great. But lately, even before this article was written, I'd realized that I need to start educating myself more about investing, because in 4 months once our non-mortgage debt is paid off, we'll again start investing 15% of our gross income into retirement savings. The fact is that I don't know much about what to choose, and as one criticism I read about Dave Ramsey's retirement planning advice described it, it's a little unsophisticated.

    Years ago I read a great book by the Motley Fools geared at getting young people to start saving early. Brian's article and subsequent conversation on air with Dave has reminded me that fool.com is out there and available to me as I take the training wheels off my financial planning and start learning more about investing well for my future.

    Brian, I do think Dave was probably correct that you used his name in the title of the article as a marketing tool to get more hits. It worked! I'm here, and I am ready to learn to be a Fool.

    Best regards,

    Marianne

  • Report this Comment On June 05, 2013, at 11:50 AM, TMFCheesehead wrote:

    @Marianne-

    Glad to have you aboard!

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 12:04 PM, RockoKellyJr wrote:

    Check out Prlax Vwmdx FLNTX or SEVAX. Also see returns for FMIMX and CGMFX.

  • Report this Comment On June 05, 2013, at 12:08 PM, handsopen wrote:

    We just heard this debate on the radio in my office in Raleigh, NC. It was a horrible debate by Brian. How unprepared you were!

    How embarrassed you must be. If Dave's information is simple *at least he gives information. Personal thoughts: It would have been better to inform Dave to correct his what you say are "mistakes" rather than to lose the respect of possible followers.

  • Report this Comment On June 05, 2013, at 12:35 PM, lukrisi wrote:

    I've been a fan of Dave Ramsey for years. I am debt-free, own my own home and have a savings plan in place for retirement and my children`s education.

    And I've always been bothered by the 12% that I read in this books.

    I appreciate you bringing this to light. I just listened online to the program from yesterday where you and Dave had a chat. You were very civil and well-spoken. You acquiesced when he made a good point and stood your ground on your main point of contention, Annual vs Annualized.

    I wish, for the sake of listener education, that Dave would discuss the finer points of that difference on his show. Your "up 100%, down 50%" illustration perfectly illustrates the flaw in quoting annual returns.

    Despite what he said, I think Dave's concern was less about you distracting people from saving and getting out of debt and more with tarnishing his good name. He put words in your mouth and came across as a bully. I wasn't impressed with his handling of the discussion

    Regardless, I appreciate you, a fellow English major (I got my English degree 14 years ago), pointing out the vast difference between the two words. And I wouldn't have known about it had it not been for a tweet from Dave Ramsey. How's that for irony?

    (And I will still listen to Dave Ramsey and recommend his books. As we all know, he's doing great things, helping people get their finances in order.)

  • Report this Comment On June 05, 2013, at 12:36 PM, Laniel wrote:

    I am amazed at the number of first-time posters here who just joined today. Brian, did you post this article to boost TMF's membership rolls?

  • Report this Comment On June 05, 2013, at 12:48 PM, nccoast79 wrote:

    We've been DR fans for many years, have attended live events, etc. I'm 10000% behind his lifestyle financial advice (stay out of debt, drive used cars, etc etc) but I've always struggled a bit with his continual phrase "...getting 12%" Regardless of why he does it, it's misleading to the average person (like myself).

    Brian - you have a right to free speech and can pretty much write whatever you want ... and Dave has the same right, which he exercises daily to millions. I don't have a problem with your article or his response.

    Bottom line is this - if folks listen to Dave's show for any amount of time they will be better off than had they never heard it. "The American Dream" is screwing the next generation - I won't do it to my kids.

  • Report this Comment On June 05, 2013, at 12:52 PM, TMFCheesehead wrote:

    @Laniel-

    Not in a million years would I have guessed all that's happened in the last 24 hrs.

    @handsopen-

    I think what Dave offers is enormously important, I took great pains to make that point in the first two sections of my article.

    I don't, however, think I would be qualified as "unprepared" for not having been to one of his shows. There are several ways to educate one's self on matters of finance. Ramsey is a great one, but he's certainly not the only one.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 12:54 PM, TMFCheesehead wrote:

    @ncccoast79-

    Totally fair, thanks for the response.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 12:59 PM, EngMarty wrote:

    Wow, I'm impressed by all the Dave Ramsey fanboys who felt the need to rush to his defense.

    I'm familiar with Dave Ramsey and didn't think the article disrespected at all the volumes of good financial advice he's preaching.

    The article questions (quite legitimately) one stat he's using. Instead of responding to the numbers, lots of angst and personal insults.

  • Report this Comment On June 05, 2013, at 1:01 PM, TMFMorgan wrote:

    I would propose a simple challenge to Ramsey.

    Out of 10,000+ mutual funds, find how many have posted a 12% real rate of return over 20+ years. Report that number to your listeners. I think they'll be amazed.

  • Report this Comment On June 05, 2013, at 1:09 PM, TMFCheesehead wrote:

    @TMFMorgan-

    It would be very informative to his listeners.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 1:11 PM, Melaschasm wrote:

    I have always disliked Dave's use of the 12% annual return, and I think the author did an okay job of pointing out concerns with that number.

    In Dave's defense the few times I have heard him mention 12% is in the context of hiring a professional advisor to help pick funds which consistently beat the market over at least 5 to 10 years. If I am going to hire a professional to advise me, he better be able to provide market beating returns, otherwise it is a waste of money to pay an advisor rather than use a few index funds to provide a basic asset allocation model of investing, which slightly exceeds the S&P over the long run.

    This is not so different from buying the Fool newsletter which recommends top performing funds managed by the best in the business. A high quality professional investment advisor should be offering similar investments.

  • Report this Comment On June 05, 2013, at 1:37 PM, Davefan wrote:

    This is based off of one tweet-the author admits he has only read a sample of one of DR's book! Check out this interview - An english major get trashed by someone much longer in the financial field go to - june 4th 2013 date http://www.daveramsey.com/radio/home/#archives-tab

  • Report this Comment On June 05, 2013, at 1:43 PM, Superflydaddyo wrote:

    Brian, I have not read but a couple of the replies, but I'm just wondering why you didn't follow GOOD journalism standards and ASK Ramsey if what you are printing is factual or not? As he has been on the Fool in the past I would assume he would have taken your call. If it look’s, sounds and smells like a cheap shot, it probable is. Not a follower of either, but will not be one of yours.

  • Report this Comment On June 05, 2013, at 1:45 PM, slhoffman wrote:

    The author of this post made a mistake: using the word "dangerous." It is libelous and misleading, especially when the author hasn't bothered to read any of Mr. Ramsey's books or attended any of his conferences. In other words, the author didn't do his research.

    Full disclosure: I am 55 years old with no debt. My house is paid for. Never bought a car with a loan. I have $2 million in my retirement fund alone, my kids' colleges (undergrad and grad) are fully paid for by me. I started out with nothing but student debt. When I opened my first IRA in grad school, I used a 14% 30 year expected stock market return as my expected return over life, and used that to set my retirement contributions. It worked not because of the expected return, but because of my commission-based advisors and my own hard work. The point is this: the author should be celebrating people like Mr. Ramsey and teaching them how to stick with a plan, not biting at their ankles...

  • Report this Comment On June 05, 2013, at 1:52 PM, TMFMorgan wrote:

    <<This is based off of one tweet-the author admits he has only read a sample of one of DR's book!>>

    You don't need to read a full book to know it's disingenuous to use average return instead of CAGR. It's like mistaking Fahrenheit for Celsius -- it's just wrong, regardless of what other arguments are made. Mutual funds don't average a 12% real return. Full stop.

    The fact that people keep bringing up that Brian majored in English is hilarious. When when you can't argue, resort to ad hominem.

  • Report this Comment On June 05, 2013, at 2:28 PM, slhoffman wrote:

    It doesn't matter what the rate of return is that you use. It's a target. Then, you analyze each year's actual returns against that target and adjust your contributions to meet the retirement goal. In years I made 40-50% during the internet boom I made NO contributions. In years the return was negative, I made more. Full stop.

  • Report this Comment On June 05, 2013, at 2:36 PM, TMFMorgan wrote:

    Here's the problem.

    When Dave says someone saving $100 a month for 40 years at 12% will have $1.17 million, he's using compound average return.

    But when he discusses mutual fund assumptions, he switches to a different calculation -- average annual returns.

    This is like saying the average weight of a student is 100 pounds, therefore you should expect your child to weigh 100 kilograms.

    Different calculations result in wildly different assumptions and outcomes.

  • Report this Comment On June 05, 2013, at 2:50 PM, toby1999 wrote:

    I always enjoy reading comments from people who discredit Dave Ramsey. I wonder what it is they are trying to do. Are they trying to inspire or are they trying to discourage/ dissuade others? If Dave Ramsey's advice is so bad I wonder why they don't outline their plan for the average person or better yet write a book or host a radio show.

    The article written by this author does not provide an alternative for the "Dangerous Retirement Planning Advice" that Dave Ramsey gives. So I go back to my original impression. Is this person trying to inspire or are they trying to discourage/ dissuade others?

  • Report this Comment On June 05, 2013, at 2:57 PM, TMFMorgan wrote:

    <<Are they trying to inspire or are they trying to discourage/ dissuade others?>>

    It has nothing to do with discouraging others. Everyone encourages people to save and pay off debt and invest wisely and plan for their future.

    But giving false numbers is a disservice to people trying to plan for the future. No one investing in mutual funds should assume they will earn a 12% real annual return over 40 years. There is no historical precedent for that assumption. If they do use that assumption, they will almost certainly find themselves unprepared for retirement -- which is what everyone is trying to avoid.

  • Report this Comment On June 05, 2013, at 3:18 PM, toby1999 wrote:

    So everybody is bent out of shape because Dave uses 12% is that all..??

    People.. Keep in mind the emphasis is on SAVING 15% not the rate of return. If someone saves 15% of their income for 20 years or more they may not be a multi-millionaire with their own private island but, they will be able to maintain their standard of living at the very least.

    Find me someone who has been investing 15% of their income for more than 10 years who has based everything on a 12% real annual return for over 40 years. You won’t because it's all hypothetical.

  • Report this Comment On June 05, 2013, at 3:28 PM, TMFMorgan wrote:

    Toby,

    Assuming a 12% real return vs. the S&P 500's historic real return of 6.7% when saving $100 a month for 40 years is the difference of $1.2 million vs. $244,000. The issue isn't quibbling over a few minor details ... it's the difference between retiring rich or not retiring at all.

    Thanks for the discussion, all. I think this is a really important topic and I'm glad Brian and Dave are addressing it.

    -Morgan

  • Report this Comment On June 05, 2013, at 3:35 PM, cgervasi wrote:

    I'm unclear whether Ramsey even stands behind the 12% or if that was just for inspirational purposes. He jumps between the argument from final consequences, argument from authority, and special pleading.

    Argument from final consequences: Facts don't matter, if they motivate people to make a positive change in their lives. The important thing is getting people to execute on their investment/saving plan.

    Argument from Authority: I have more years of experience, a more relevant degree, etc.

    Special pleading: I can find you countless mutual funds that beat the average (probably about half of them) and work out an average among these winning funds.

    You ask a good question: why not just use 9.8% in the movitational talks? If it's just splitting hairs in his mind, despite the effects of compounding, why not just use the correct number?

  • Report this Comment On June 05, 2013, at 3:36 PM, toby1999 wrote:

    TMFMorgan-

    You go back to the one tweet. I agree that is a bad example. Do you think there are people basing thier entire retirement on that one tweet??

    "The emphasis is on SAVING 15% not the rate of return"

  • Report this Comment On June 05, 2013, at 3:37 PM, TMFCheesehead wrote:

    @toby1999-

    There are a couple of people even in this comments section who have said that they plan on starting their 15% savings plans soon and now know to dial down their assumptions.

    It also ignores the fact that some people may be picking up Ramsey's advice in their late 40's or 50's, and while saving 15% and earnings 12% will lead them to believe they'll hit their goal, if their returns are more like 9%, they will be significantly short.

    <<That's all?>> Over 10, 20, 30 and 40 years, the difference in even one average percentage point is enormous.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 3:39 PM, toby1999 wrote:

    If $100 was 15% of your income you are only making $8,004 a year. I think you have bigger problems than retirement.

  • Report this Comment On June 05, 2013, at 3:44 PM, toby1999 wrote:

    Ok, I give.. Dave Ramsey's advise is bad.

    I still have not heard a better plan. Please help I'm an average person making $40,000 a year. How much should I invest and what should be my expectations for retirement?

  • Report this Comment On June 05, 2013, at 3:56 PM, TMFCheesehead wrote:

    @toby1999-

    Taking care of debt and setting up emergency funds and saving 15% (all as Dave suggests) are great things to get done first.

    After that, if you want a simple plan: a regular buying schedule of low-fee market ETFs (like Vanguard) are a great starting place.

    If we go all the way back to 1871 (the earliest date I can get my hands on), the CAGR of the market is 8.9%. Setting expectations anywhere between 8 and 9% sounds reasonable, with the lower you go, the more safety you have upon retirement.

    Of course, if you want a more involved approach, you can create your own portfolio of individual stocks, slowly easing your way into the market.

    Or a combination of these two.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 3:59 PM, tomfrere wrote:

    I saw Dave live and did his 9 weeks Financial Peace University. He usually uses 14% and not 12% and tells people to avoid stock and use Mutual Funds for long term investing. He even give the break down of what type of funds to look at. I don't know I have ever heard him talk about buying individual stocks.

    Also, a big part of his teaching is the benefit you not having debt to weigh you down and control your life and keeping investment simple and understanding them.

    The debtor is the slave to the master (MasterCard!)

  • Report this Comment On June 05, 2013, at 4:07 PM, hornet96 wrote:

    Why does Dave defend his 12% return assertion? Simple - 12% looks better than 9%, and admitting he is wrong about this would be damaging to his brand and the front-load mutual funds pitched at his "ELP's" (and would in turn, be damaging to his own referral and advertising fees earned).

    Another good quote that applies here:

    "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

    All of this, of course, is ignoring a (perhaps) even more "dangerous" problem - a 100% stock allocation is almost certainly beyond the risk CAPACITY of most of his devout followers, especially those who are nearing their retirement years.

  • Report this Comment On June 05, 2013, at 4:12 PM, jarcher777 wrote:

    First of all, I really enjoyed reading this article and I believe it brings up some great points when looking at expected retirement nest eggs given a certain % of return.

    I've been "Following" the Dave Ramsey plan for about a year now and by paying off my debts and saving up an emergency fund I have freed up a good amount of income to start investing and to keep those investments protected with my emergency fund padding for when life throws me a curve ball.

    I started doing some heavy investment research once I became capable of investing a good chunk of my income and this is when I started disagreeing with Dave's investment advice. For those who think the difference between 10% average annual return and 12% average annual return is not a big deal, look at these numbers.

    Investing 15% ($625 per month) of my current gross income over 35 years.

    10% return = 2,392,673

    12% return = 4,059,544

    Difference = 1,666,871 (Roughly 44% short of my nest egg goal if I was basing the goal on a 12% return)

    This is the reason I decided to sell off my Mutual funds that averaged a 1% yearly exp ratio and go with some cheap vanguard index funds that average a .07% annual exp ratio These indexes were also performing better than my mutual funds.

    I personally make a point to listen to all advice but trust none of it. Only after doing extensive research on the subject will I then agree or disagree with the advice given to me. I would encourage everyone to take this approach when it comes to finance. Just because some guy has a well-known name doesn't mean he is correct 100% of the time. Do your own research and come up with your own conclusions that best fit your goals.

  • Report this Comment On June 05, 2013, at 4:14 PM, toby1999 wrote:

    Brian-

    I think your advice is reasonable. I think the bottom line is that it is very important for people to educate themselves when it comes to retirement planning. Relying on one person or source for your financial education is not in ones best interest.

    Personal responsibility goes a long way in planning for your future and retirement.

    Best of Luck~

  • Report this Comment On June 05, 2013, at 4:18 PM, nccoast79 wrote:

    I love seeing a bunch of people arguing over HOW TO SAVE MONEY ... what a great topic to disagree on and I wish more of our population cared like this.

    Dave would be proud of this discussion, regardless of the percentage point difference :)

  • Report this Comment On June 05, 2013, at 4:51 PM, TMFCheesehead wrote:

    @jarcher777-

    That's a great way of showing it. Some may say (who cares? those are both big numbers). True, but (1) they may not be so big when you retire and (2) someone older and earning less than you wouldn't have those big numbers either way.

    @toby1999-

    << I think the bottom line is that it is very important for people to educate themselves when it comes to retirement planning. Relying on one person or source for your financial education is not in ones best interest.>>

    Might be the smartest thing anyone's said on here today.

    Thanks,

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 5:15 PM, theschaef47 wrote:

    Let's assume Brian's worst number on here - 6.7% - is the most accurate.

    Average household income of $48k, I save 15% (not "$97", not "422", but what was actually stated, FIFTEEN PER CENT) for 40 years.

    I retire with $1.46m.

    Where's the danger in retiring a millionaire?

  • Report this Comment On June 05, 2013, at 6:12 PM, ecourtneyjones wrote:

    Brian -

    At 26, I was staring down the barrel of bankruptcy. I checked out Dave's books from the library in a desperate attempt to learn where I'd gone wrong.

    At 32: I've managed to pay off $216K in debt . NO student loans, NO car payments, NO house payment. I've got a little over $100k in retirement, over $100k in other investments. Let's say I only get 6% on my investments over the next 40 years. I'm pretty sure I won't retire cursing Dave Ramsey. (*Side bar, like you, I am a school teacher. That's pretty ballin' for a school teacher.)

    Remember that in the actual business world (i.e. not a secure gov't job) you succeed based on the number of people that you help. "Your kindness will reward you, but your cruelty will destroy you."

    I hope you got the number of clicks you wanted.

  • Report this Comment On June 05, 2013, at 6:44 PM, Bruciboy wrote:

    Brian, I want to make you aware of a flaw in your article, which you use to try and discredit Dave Ramsey's financial advice. Lets look at your example of Ian the investor. He begins with $100, and invests it for two years, the first yielding a 100% gain and the next taking a 50% loss, leaving him flat where he began. You say "Maybe Ramsey is just averaging the two returns" and that " 'I' would say the average return is 25%". Well Ramsey, for one, never used that as an example for anything, and secondly nobody would ever say that is a 25% return. As you pointed out, "this math doesn't work with investing". The reason that math sounds so blatantly wrong is because that math is so blatantly wrong.

    Lets look at another example. Say someone starts with $100 dollars, and after one year makes 10%, and then in the second year makes 15%. The first year, 10% of $100 dollars, we can all agree is $10. The second year, 15% of $110, bear with me - gains him $16.50. The two year span will total a gain of $26.50, and to find the average over two years, we split that in half for an annual gain of $13.25. Because we started with $100 dollars, the dollar amount happens to equal the percentage gain, 13.25%. Straight forward enough so far, right?

    The problem with the example you borrowed from the MoneyChimp ( http://www.moneychimp.com/features/market_cagr.htm ) is that that author doesn't know how to do math and is treating percentage gains as integers to calculate what he is calling the "arithmetic mean". Using his formula, the investor in my example would net only 12.5% annually, because we would be taking the first years gain as a percentage (10%), and adding it to the second years gain (15%), and dividing the sum of an apple and an orange to net broccoli.

    (10%+15%)/2=12.5%

    Your example of Ian, if you're sure you want to claim it as yours, properly shown in mathematical terms would look like this.

    ($100 + -$100)/2 = $0.00

    $0.00 is of course a zero percent annual gain over two years, and that's what Dave Ramsey would have called it if he were using such a ridiculous example to talk about the power of investing. The Fool should be ashamed to have published you and you should have done your homework before going on national radio to debate him.

  • Report this Comment On June 05, 2013, at 7:52 PM, TMFCheesehead wrote:

    @Bruciboy-

    I'm not sure what you're trying to prove. The "Average annual return" is what Dave uses when he says that the market has returned an average of 12% per year.

    The average annual return calculates things *exactly* the same as my over simplified version with Ian would say that he had an average annual return of 25%.

    Here's the explanation: http://www.investopedia.com/terms/a/aar.asp

    If you want, go back, add up all the yearly returns on the monkeychimp website, and then divide them by the total number of years (87 if you go back to 1926). You should get 11.88%

    In other words, Dave's claim of 11.88%, is exactly the same as Ian's hypothetical claim of 25%.

    @ecourtneyjones-

    I'm glad that you, especially as a school teacher, have been able to do so well. If you go back and read my piece, the main issue I have is that encouraging investors to assume 12% is misleading.

    I would ask, then, what if you came upon Dave's books 20 years from now, and didn't have time on your side anymore? If you assume 12% and get 9.9%, you'll be in for a rude awakening. I'm glad that won't be happening to you, but I think it's naive to think that there are people out there who will run into this situation.

    And its *such* an easy problem to fix. Just tell people 9.9% would be a better conservative estimate. Anything above that is gravy.

    Brian Stoffel

  • Report this Comment On June 05, 2013, at 8:21 PM, mleedds wrote:

    @Bruciboy

    You said "Well Ramsey, for one, never used that as an example for anything, and secondly nobody would ever say that is a 25% return."

    Nobody? Except Dave.

    This is exactly the same way we arrive at the 11.88% Dave uses. Over 87 years, there is enough market data to make this number more realistic but is NOT in any way reflective of how much you ACTUAL MONEY grew (as Brian points out in his response to you).

    This whole thing really upsets me because here Brian is trying to present a fact about projecting growth and everyone is attacking everything else.

    Brian, how about write another article about what $1 would look like today if started in 1926, and which % is closer. It's a no brainer. Make 3 columns.

    Actual growth of $1

    Growth assuming average %

    Growth assuming CAGR

    It's so simple that it's almost unbelievable that Dave is blowing this off.

  • Report this Comment On June 05, 2013, at 9:04 PM, longlive73 wrote:

    A couple of very simple points:

    1. 12% is an example

    2. Would you really wait until the LAST year to check your retirement account? S.t.u.p.i.d.

    For those thinking Dave was a bully - Brian was the one that lashed out at Dave. If you are going to publicly attack someone maybe do your homework? Just a thought...

  • Report this Comment On June 05, 2013, at 10:05 PM, tomsutc wrote:

    @longlive73

    1.) 12% is not just an example, it's backed up: http://www.daveramsey.com/article/the-12-reality/lifeandmone...

    2.)

    Where was the lashing out? Brian went out of his way to say that Ramsey is a highly respected leader of the financial community, and in the show repeatedly stated that he agrees with most of what Ramsey espouses to his followers.

    Ramsey is making a fundamental mathematical error - plain and simple. He has lost a lot of credibility in my book not only for making the error, but by not understanding how the difference affects those who take his every word as gospel.

    (As a side note, he lost a lot of my respect by being incredibly condescending, interrupting multiple times, and playing the exit music over Brian's last words at the end of the show. Good for him for helping many people figure out their finances, but it doesn't give you a license to be an ***hole)

    Fool on, @TMFCheesehead!

  • Report this Comment On June 05, 2013, at 10:15 PM, TheDumbMoney wrote:

    Wow, you'd think this article was attacking SirusXM or Apple, from the vitriol it has generated!

    Note also that Ramsey has "Endorsed Local Providers" that he refers people to as financial advisers. I wonder if these ELPs pay him for the privilege? These people tend to make less money when investors simply buy index ETFs than if they buy high fee mutual funds, I suspect.

  • Report this Comment On June 05, 2013, at 10:26 PM, ecourtneyjones wrote:

    I think what really bothers me about this post is the title. I get why: bloggers need traffic to eat. It makes sense to punch at a well-loved financial guy to get people like me, who otherwise wouldn't happen by, to be here. You've done a good job of that.

    BUT: What if, instead of me searching for a financial system to help me six years ago, I had searched this morning? I'd have seen something about Dave Ramsey giving dangerous advice. Would that have been enough to send me elsewhere? Maybe. And that sucks, because the danger of turning struggling people away from a system that's worked for hundreds of thousands of people seems more detrimental overall than the possibility that people will plan for 12% and only get 10%.

    What's more: in Financial Peace (the book), Financial Peace University (13-week) and Financial Peace University (9-week), Dave makes it clear that 12% is an example (and explains where he got the figure), and pretty clearly disclaims that results vary. He also discusses the need to outpace inflation, and talks about how that and fees will eat into his example figures. Almost always he follows with the joke "and, seriously, if I'm half wrong . . . really? Shuuuut Up."

    As for a simple fix: Not really, when you've had 4 NYT bestsellers and mentioned the figure in all of them. Not to mention, 2 (now three) video series, live events, blogs, podcasts, etc. I mean, would YOU go back and change all of your product lines?

  • Report this Comment On June 05, 2013, at 10:28 PM, Orionswallet wrote:

    really folks...

    Ain't nobody got time for this!

  • Report this Comment On June 05, 2013, at 10:45 PM, longlive73 wrote:

    @tomsutc

    Might want to start with the title of the article. Everyone invests the minimum with the expectation of 12% for a return. Really? I will state again - Brian should have done his HOMEWORK before writing the article and going on the show. He had NO background or leg to stand on. Also, do you really think Dave controls the music for the end of the show or the commercial breaks? Sounds like you are reaching for anything. Keep trying :)

  • Report this Comment On June 05, 2013, at 11:03 PM, tomsutc wrote:

    @longlive73 - You don't need to have read his book or attended one of his seminars to understand how investments, compound interest, mutual funds (and their fees), or budgeting works.

    Every one of the loaded questions (https://yourlogicalfallacyis.com/loaded-question) Ramsey asked at the beginning of the interview was purposefully asked to discredit Brian. Reading Ramsey's book or attending his seminars does not preclude Brian (or me or you) from having a discussion about the merits of Ramsey's claim that 12% is a reasonable market expectation for the next few decades.

  • Report this Comment On June 05, 2013, at 11:27 PM, toby1999 wrote:

    tomsutc

    Did you read the article you linked to? It says it all.

    http://www.daveramsey.com/article/the-12-reality/lifeandmone...

    "In fact, if you’d rather project your mutual funds to grow at 10% or 8%—that’s cool with us. Just set a goal and invest whatever you need to in order to meet that goal."

    "It’s simply a part of the conversation about investing".

  • Report this Comment On June 05, 2013, at 11:49 PM, tomsutc wrote:

    @toby1999

    Yes, I did read that part. But if I'm struggling to pay down credit card and student loan debt, and have no idea how investments work, I likely also have no idea that 12% is not a likely long-term rate of return.

    Ramsey clearly takes great offense to using different projections, otherwise he wouldn't have been so angry that Brian and many others think 12% is too high.

  • Report this Comment On June 06, 2013, at 12:29 AM, TMFCheesehead wrote:

    @ecourtneyjones-

    It seems like the title is where people get the "lashed out" from.

    For what it's worth, I did a little analysis. The first 30% of the article offered nothing but praise for Ramsey. If I was looking to get out of debt, my article pointed people right to Ramsey.

    I'll give you that the part about a cross-country road-trip was metaphor that wasn't crucial to the article.

    But everything else dealt squarely with the difference, which some see as splitting hairs, between average annual returns and CAGR.

    And I think it is a simple fix. You just go on air, on TV, whatever, and say

    <<For a long time, I've been using 12% returns as an educational example for my audience to see the power of compounding money year over year. I think it's motivated a lot of people to save.

    But when asked "Why 12%?", I've often said its because its the average annual return of the S&P 500. While that's technically true, a better representation would have been the market's annualized (CAGR) return of 9.9%. This doesn't change much in terms of the importance of saving and investing, but more accurately represents how people should go about getting an idea for what they'll have saved up for retirement."

    The Fool used to have something called the Foolish Four. It was long before I worked for the Fool. It was a way of picking winning stocks every year. For a while, it became synonymous with the Fool.

    The problem was, it simply didn't work! So Tom and Dave let everyone know: "Hey guys, we were wrong on this!" It's been done before, it can be done again.

    Brian Stoffel

  • Report this Comment On June 06, 2013, at 1:11 AM, pum12 wrote:

    You financial geeks still don't get one simple fact--you are arguing over a presumptive figure!! The stock market is a volatile and extremely unpredictable beast and to argue over a few %age points of what the future will hold based on 1900's history is silly. I imagine that we'll find both of you to be wrong!!

  • Report this Comment On June 06, 2013, at 1:21 AM, FinancialDave wrote:

    @ EnigmaDude

    "And to jberlat - if you can show me an index fund that generates 12% per year over more than a 10 year period, please tell me what it is! I will go all in!! "

    Dude, both you and Brian failed in the homework department and have been served!

    DFA has a few index funds with 15 year track records > 12%

    DFEVX 13.94% 15 yr

    DEMSX 13.86% 15 yr

    When you go all in, don't forget your life preserver.

    fd

  • Report this Comment On June 06, 2013, at 1:31 AM, FinancialDave wrote:

    Brian,

    You had a good point, you just didn't know how to nail it down and you didn't do your homework.

    I hope Dave taught you something -- it is that homework is important and having an action plan is just as important. You did not seem to have either and got mowed over, even though you were 100% right in your points.

    This is a good lesson for investors as well - homework is important along with an action plan to get at your goal and don't let someone "mow you over" with distractions.

    fd

  • Report this Comment On June 06, 2013, at 4:46 AM, Fools2103 wrote:

    I do listen to Dave Ramsey and find much of his advice incorrect. The information in the Fools blog clearly got to Dave Ramsey or he would not have had Brian on the show and try to discredit him. Dave’s show is not spontaneous “just in time” life and financial advice, but a choreographed scripted entertaining performance that is anything but spontaneous. Last week, a caller wanted advice on marriage and he was getting married “the next day.” Dave verbally beat up on the guy saying “and you’re calling for advice now!” The guy’s response was “this is when your call screener called me back.” Dave’s callers are not calling in, they call in, leave a message, and the phone screener gives them another number to call in for the show. It’s crafted for good radio.

    Dave used numerous terms to discredit Brian. Did anyone pick up Dave called Brian “son” at one point (as if to give fatherly advice). While subtle, he threw in many condescending comments. I’ve listed to the show and Brian’s final comments are edited by the Ramsey show staff on the podcast. We will never know what Brian’s finally words were.

    Brian was level headed and provided calm sober facts; Ramsey’s mood deteriorated throughout the show until at the end, Ramsey openly admits he is pissed because someone tried to discredit a bigger brand. The tone each used is revealing, one was emotional and one factual.

    Ramsey never figured out that the February tweet that caused all this controversy is because he uses a 12% return (which he now says is for “illustrative” purposes) that is unattainable and can only be proven through back testing (which past performance is not an indicator of future returns). Brian suggested he “dial the percentage down” but Ramsey said “go get your own show.” Ramsey can’t figure out that if he would just use a realistic number for illustrative purposes he would not get a hailstorm of feedback.

    Another subtle comment is when Brian pointed out the 12% inflation adjusted came from Ramsey’s FAQ’s on his website. While Dave asked his team in the booth to “find where it says 12%” he slipped and said “I don’t always read what has my name above it.” Ramsey does not read what he supposedly teaches, on his own website. Shows his brand may be too big that he cannot control the message. I bet this blog has some Ramsey employees (trolls)adding comments to "fight back."

    Anyone who listens to Ramsey’s show other than the entertainment factor is being misled. The Fools blog headline using the word dangerous was spot on. 2% for me personally in my 401k is a million dollars. I think I will use CAGR and adjustment my contribution accordingly, thanks for the facts Brian.

  • Report this Comment On June 06, 2013, at 8:03 AM, SuperJt wrote:

    Brian Stoffel,

    I saw a reference to this 'controversy' and listened to the radio segment of you on Dave Ramsey's show then read your article and browsed a couple more of yours.

    IMO, you're just another talking head trying to make a name. You are no different than Rush Limbaugh, Sean Hannity, Glenn Beck, Bill O'Reilly, or any other 'personality' in political, sports, financial, or any other hotbed topic.

    Congratulations, you have some fame now and it gives you something else to write about to try to make a living, like the rest of us.

    JT

  • Report this Comment On June 06, 2013, at 8:19 AM, anasianjew wrote:

    Brian,

    I would be cautious harping on a 2% difference because of some wonky math precision. The guy just wants people to save.

    For the record, I like the Motley Fool and Dave Ramsey: both provide a useful service. Motley Fool caters more to those want to try and beat the market; Ramsey caters to the average Joe who just wants to live a comfortable life.

    I took the time to listen to the podcast: I agree Dave came off as way too defensive; however, I do see his frustrations. As with any hypercompetitive business (esp. internet/media), you need to generate interest by having a catchy phrase: whether or not it is misleading or partially misleading is a 4th tier concern. Yes you are technically right, 10% is a better number. If you want to get wonky, inflation adjust returns should be around 5% or 6%. Mind you; however, all the MF newsletters (I subscribe to one of them btw) do not inflation adjust their returns. Bottom line, the purpose of that tweet is to peek peoples interest in saving: just as your article trying to illicit readership by juxtaposing "dangerous" with "Dave Ramsey".

    I just want to point out a few things that annoyed me about this analysis, especially coming from a Motley Fool employee (I am assuming you are an employee: pardon my mistake if you are not). I would say 80% of Motley fool articles have some gimmicky catchphrase at the end (usually to sell some "premium report" or "Newsletter") that is borderline misleading. Additionally, while I do believe the Motley fool does make honest attempts to be transparent, there are some blunders that your company "would rather advertise" (again understandable since you are a business: no one, whether an organization or individually likes airing out dirty laundry). If we wanted to be 100% transparent, the MF would mention some of these blunders as full disclosure before selling their newsletter.

    MF fully transparent?

    Yes you do advertise your active portfolios and their performance comparison with the S&P (very good). What the MF does not do; however, is advertise previously promoted and defunct portfolios. Let us not forget the notorious Foolish Four http://en.wikipedia.org/wiki/Foolish_Four or the abysmal returns of the now closed Global Gains newsletter. I do not see anywhere on your front page documenting their performance. If we are to talk about "dangerous retirement advise", I would consider any investment in the "Foolish Four" or "Global Gains" newsletter as infinitely more dangerous than citing 12% vs. 10% annual returns for the S&P 500.

    Examples of misleading catchphrases of the MF.

    This is what annoys me the most about the MF. I do not know why MF still does this: I would say the performance of Rule Breakers and Stock Advisor alone speaks volumes. Why continue to try and sell newsletters like used car salesmen is beyond me.

    "Jeff Fischer and team have demystified options. And they can rack up income like $1,030... $2,626... and $3,228 on a schedule you can set your watch by!" Oh Rly? If I sign up for this service, I can make +100% like clockwork? Again, looking at this alone leads the reader to "overly optimistic" returns.

    At the end of an AAPL article, I read this nonsense: "Simply click here now to unlock your copy of this invaluable resource."

    From the defunct Global Gains Newsletter "Finally, U.S. investors can profit from China's "final"

    revolution..."

    Below is a link to the multipage Global Gains e-pamphlet selling the Global Gains Newsletter

    "http://www.fool.com/shop/newsletters/25/f5706307-cfe2-49d1-b...

    If we are going to seriously sit here and discuss the degrees of "dangerous" advice, perhaps it would be more prudent to clean up house locally, then harp on a tweet 140 character max tweet because he cited 12% instead of 10%. Again the purpose of that tweet is to get people to save. If the investor realized "only" 10% over 40 years and only hit 77% of his/her target, how is this bad? Dave Ramsey providing "dangerous" retirement advice because of the difference? Hardly...I can tell you that it is a better return than what he/she would have got if they invested heavily in the Foolish Four or Global Gains.

    You asked him why he doesn't cite 10% instead of 12%: I would like to ask why your company does not post the performance of closed portfolios or why the MF still continues to market newsletters that leads the reader to mistakenly believe subscribing will result in +1000% returns over the 5 to 10 year period?

  • Report this Comment On June 06, 2013, at 8:33 AM, Olliecoop13 wrote:

    All good points here on both sides and very educational.

    I just turned 34 and started Dave's plan 6 yrs ago. My wife & I have built a net worth of over $300M in that short amount of time following all of his advice (even through a recession). No debt, no payments and I sleep great every night. We could very well be millionairres within the next 12-15 years.

    Think ill stick with Dave. Either way, it was GREAT radio!

  • Report this Comment On June 06, 2013, at 8:33 AM, peteypub wrote:

    I heard the show today - Typical Dave Ramsey: If you agree with him than everything is good but if you challenge him he throws a fit in the corner. Keep up the good work Brian.

  • Report this Comment On June 06, 2013, at 10:46 AM, tgoods504 wrote:

    I just listened to the interview on Dave Ramsey’s show. I agree with Dave that Brian used Dave’s well-known name and a shocking title to generate interest in the article. Dave clearly laid out how he arrived at 12% rate of return. Brian has a right to disagree with Dave’s projected rate of return (it’s an academic discussion), but his article completely misses the point. Dave is trying to inspire people to save more (something that is sorely needed in America). Dave has a right to defend his brand and teachings. In regards to comments that Dave sounded like a bully in this interview – fair statement. But Dave is an extremely passionate person and he is understandably upset that a financial newbie is slamming the Dave Ramsey brand in order to self-promote.

    It’s a fair statement that if Brian would have read Total Money Makeover or taken Financial Peace University then he wouldn’t have even written this article. He would have had a clearer understanding of Dave’s over-arching message of being a good saver and smart investor. Dave never said “All you need to do is save 100 bucks a month and you are set for life, guaranteed!”

    BTW, Why has nobody mentioned dollar cost averaging in this academic discussion? I am no guru, but from reading The Intelligent Investor my understanding is that dollar cost averaging can significantly enhance your rate of return over a long period of time. Any studies out there that show rate of return for an investor who has dollar cost averaged the S&P 500 for a long period of time?

  • Report this Comment On June 06, 2013, at 10:59 AM, jlclayton wrote:

    While using 12% as an annual return could be misleading, you need to take his whole message into consideration, especially before writing an article that calls his advice dangerous.

    Brian, you do need to take responsibility for a couple of things in this article that are reasonable for Dave Ramsey to take offense to. You could have written the same article and not have named Dave Ramsey specifically since I've heard the same claims from others. But you used his fame and reputation to get people to read the article and make the point. Saying that Dave's advice is "dangerous" for people's retirements in a title does mean you've used him in a negative way even though you praise a lot of his advice in the article. The very fact that you wrote the title that way is evidence that you know how much impact it can have.

    Also, I agree with some of the posters that the Motley Fool uses misleading claims to make an impact when trying to sell their subscriptions. I am an avid fan of the Fool, but touting some of the biggest stock gain percentages is misleading as to the actual gains of an individual portfolio. Even though there are always legal disclaimers at the bottom, a person needs to do research into your philosophy before declaring that your claims are not valid. Just as you can cherry pick gains in certain stocks, Dave can cherry pick mutual funds that have great performance. Everyone must use their own judgment to make decisions to keep on track for retirement, and the MF would not respect anyone who used 1 fact from your wide variety of advice to base their whole retirement on, especially a fact designed to inspire and see potential.

    I am a big fan of MF and Dave Ramsey, but I do think that you used Dave's reputation to make a point about something that Dave uses as an inspirational tool. He's not wrong for having a problem with that.

  • Report this Comment On June 06, 2013, at 2:16 PM, lukrisi wrote:

    Hold up... I just read this on fool.com from Sept 4, 2011:

    "In a January 23, 2008 phone call, he [Dave Ramsey] excoriated Peter Schiff's book, Crash Proof, after telling the caller that he had never heard of the book or Schiff.

    This was unconscionable. The rule is simple: if you attack a book, read it first."

    http://caps.fool.com/Blogs/dave-ramsey-is-an-evil-idiot/6382...

    Irony, anyone?

  • Report this Comment On June 06, 2013, at 4:25 PM, FinancialDave wrote:

    While I agree that 12% is a dangerous example to use in any investing / retirement context, I also agree with the poster who stated that many of the advertisements on this site are quite DANGEROUS as well. Maybe I'll post that on my website!

  • Report this Comment On June 06, 2013, at 4:43 PM, daleng wrote:

    I was curious, I did a search on www.fool.com to see if there was an article on compound interest. There was. I was curious, would it use 12% like Dave Ramsey? Would it use 9%? Would it 'be honest' and use 6.7% like Brian suggests? I was surprised. The top article I read, illustrated the power of compound interest using 15%.

    I am not suggesting this article should be renamed Dangerous Retirement Planning Advice From Financial Website Fool.Com. I understand it is being used to illustrate the power of compound interest.

  • Report this Comment On June 06, 2013, at 6:47 PM, pykevd wrote:

    brian,

    you're a hack. someone giving investing advice with an english degree and two years of experience shouldn't try to trash someone's name just for more hits.

    shame on the fool for letting this idiot write here.

  • Report this Comment On June 06, 2013, at 6:54 PM, TMFCheesehead wrote:

    @FinancialDave-

    I think that's a totally fair criticism of some of our advertising methods. I'm not someone involved in putting those out, so I don't know what goes into them, but I think you've got a very valid point.

    Brian Stoffel

  • Report this Comment On June 06, 2013, at 8:46 PM, polyharmonic wrote:

    Brian -

    While I agree with the gist of your article and feel Ramsey was being very bullyish and condescending in your interview, I do think he has a point.

    The title of the article was clearly provocative and aimed to draw readers BUT at the expense of his reputation and credibility. To be fair his basic core retirement planning advice is to INVEST 15% of your income which really can't be said to be "dangerous". He DOES NOT say invest with 12% returns in mind.

    I do agree that the use of 12% average annual return "example" is very misleading and overstates returns and understates risks.

    Still I think if you had titled it differently you could have still drawn in readers but have been more fair to him. For instance, if you had titled it:

    Be cautious if you invest based on Dave Ramsey's Often Touted 12% Return

    Its not as provocative but much more fair.

  • Report this Comment On June 06, 2013, at 9:09 PM, polyharmonic wrote:

    Or better yet, a title like: Dave Ramsey's Misleading But Often Touted 12% Return

    would have also done the trick. It would have drawn readers in but would have made clear exactly what you're talking about. This title is more fair than simply saying that Dave Ramsey give some undisclosed "dangerous retirement advice".

    I understand a lot of blogs and articles use these hook titles to draw people in. But in this case, realize that the title itself is a direct attack on Dave Ramsey and is overly broad without any context.

    Because even if you claim the article itself is fair (which I feel it largely is), you have to realize that a lot of people aren't going to be reading the article and based on the title alone, they are going to be told or given the impression that Ramsey, in "general", gives "dangerous advice".

  • Report this Comment On June 06, 2013, at 11:31 PM, TMFCheesehead wrote:

    @polyharmic-

    Very fair feedback. A different title could have led to a more productive discussion on the radio.

    Though, I do need to point out, there are several instances where Dave has suggested using 12%. Here's one for example from his newsletter:

    http://www.daveramsey.com/newsletters/online/edition/investi...

    Foolish best,

    Brian Stoffel

  • Report this Comment On June 06, 2013, at 11:40 PM, alb4363 wrote:

    Garbage article Brian.

  • Report this Comment On June 07, 2013, at 12:13 AM, theschaef47 wrote:

    I still haven't heard anyone explain to me why it is dangerous to pay down my existing debt (particularly the sort that bears interest) and save 15% of my income toward retirement.

    Because the average return might be 10% instead of 12? Sounds ruinous.

  • Report this Comment On June 07, 2013, at 7:58 AM, rockinbb wrote:

    I have not read everyone's comments, but, I am a Dave Ramsey Financial Coach, have been for 11 years. I've personally lived his plan and teach it everyday. The 12% is an AVERAGE rate of return. And, yes, for the last 11 year of following the advice of Dave Ramsey and my ELP (Endorsed Local Provider) and by investing as he teaches, we have been able to AVERAGE 12% and better on our investments.

    Maybe you should try meeting with a financial coach to learn how this can actually be accomplished. I am a member of an Elite Team of Financial Coaches who have been able to consistently help people get out of debt and aggressively save for retirement.

    We have entire generations of people who haven't saved anything for retirement. And, if you really listen to what Dave is saying, if you start at age 25 and save $100 per month and that's all you do for the rest of your working life... but what if you get a raise and instead of going to buy a new car you add more to your retirement???

    I have more than one client who has done exactly what Dave recommends over their working lifetime and they are actually retiring with over a million dollars - and never made more than $40-50k a year during their working lifetime!

    Don't be "FOOLISH" this CAN be DONE!

    For more information about this elite group of financial coaches visit our website at www.mymoneywellness.com.

  • Report this Comment On June 07, 2013, at 9:02 AM, acompton5 wrote:

    I don't know if anyone will make it down to the 133 comment, but Dave Ramsey has given dangerous advice based on the 12% average return. I've listened to his Financial Peace CDs and watched the updated DVDs as well as listen to the show daily. He gives a lot of great advice as the article stated, but there have been two particular times I have shaken my head and turned off the podcast.

    A caller asked when do I have enough to retire. Dave answered that when you can live off of 8% of your investments. If the stock market returns 12% on average and you take out 8% your money will go on forever. That is not true! A portfolio 100% in stocks has too much volatility to support an 8% withdrawal rate. A bear market would wipe out the account. There wouldn't be enough money left to recover from losses.

    Another time a recent widow called who had a lump sum from a life insurance payout. She had ten times her husbands income. Dave recommended investing in 100% stocks and withdrawing 10% (the late husbands annual income) each year. Again, this is not sustainable. That is dangerous advice.

    As a side note, the front loaded funds that Dave invests in will not mathematically allow the investor to receive the mutual funds stated return. I like Dave, but I don't understand why he is so stubborn.

  • Report this Comment On June 07, 2013, at 4:34 PM, timtobbes wrote:

    Brian great job trying to dig at Dave Ramsey. I absolutely loved hearing him drag you back and forth through the coals on his radio show. You made yourself look like an idiot. Great job! Not sure I will read anything else you write. Great job again!

  • Report this Comment On June 07, 2013, at 7:35 PM, polyharmonic wrote:

    @ timtobbes

    Dave Ramsey didn't do himself any favors. His "defense" basically amounted to a bunch of ad-hominen attacks and talking down. But ultimately when it came to the substance of the matter, all he said was something along the lines of, it's just an "example" and "well it's my show I'll say what I want".

    And Brian was completely right when he said that not only did Ramsey tout this 12% but even (since corrected) that it was INFLATION ADJUSTED!

    Ramsey fanboys are going to like him no matter what. But a lot of people that are more critical view him more negatively as a result of how he handled himself.

  • Report this Comment On June 07, 2013, at 7:44 PM, davmcv wrote:

    Awesome debate. Came over here to check it from Ramsey's FB page where all "negative" responses -- and there were a ton - mostly about Ramsey's tone -- were removed. Guess he's not happy. I will continue to follow the debate here because it's vital and fascinating.

  • Report this Comment On June 07, 2013, at 8:02 PM, polyharmonic wrote:

    He and his staff can remove the comments all they want. But the people that wrote those negative comments ALREADY HEARD THE PODCAST and their opinions so formed. He can erase the negative comments but can't "erase" the negative opinions themselves from people's heads.

    Now let me re-iterate that I think Brian was wrong to use the title that he did. It is to some extent unfair and overly harsh. And I think Dave was completely right to defend and explain himself. HOWEVER, I think he blew and chance to do it with grace and class.

  • Report this Comment On June 07, 2013, at 8:05 PM, jhurstman2014 wrote:

    I followed Dave's advice, including his DANGEROUS retirement advice and have been 100% debt free for a decade. I just upgraded in house with cash. I have been putting 15% of my income into retirement per Dave's advice for 12+years. It's dangerous how fast cash has piled up.

    12% is for example purposes and jives with the S&P website. You can nerd out over annual return versus annualized or whatever all day long, but you miss the big picture.

    "Dangerous" is what the vast majority of people do for retirement which is next to nothing.

    Dave has helped millions of real people get out of debt.

  • Report this Comment On June 07, 2013, at 9:03 PM, TMFCheesehead wrote:

    @davmcv-

    Fascinating. I just went back and checked, there were a lot of responses that have been removed. That's too bad.

    You can be rest assured, so long as they aren't vulgar or promoting some type of ridiculous hate (or are simply spammers selling things from Nigeria), all of the comments here...both positive and negative...will stay posted.

    That's the only way to show respect to our readers and allow them to make decisions that are in their best interests.

    Brian Stoffel

  • Report this Comment On June 08, 2013, at 2:20 AM, Bujutsu wrote:

    @TMFCheesehead-

    You wrote: "I simply think it makes more sense, and is more responsible, to use the CAGR."

    I agree, but isn't criticizing Dave Ramsey for not using CAGR hypocritical coming from someone at The Motley Fool?

    TMF doesn't use CAGR for its own newsletter and service returns on its website. That is like the pot calling the kettle black.

    I know that I have repeatedly asked TMF to clearly state the CAGR of its newsletters and services on the main homepage for years.

  • Report this Comment On June 08, 2013, at 9:05 AM, KLJDBA23 wrote:

    Let's not worry about who is right or wrong. The question is based on the discussion...What % will you use when you calculate your plan for retirement? Simply put, I am an optimist, but when we say 12%, I am forced to become more of a realist. I use 8% as my guiding return rate. It is less about the individuals and more about your retirement planning. You can vote with your assumptions, and if you vote for 12%, I disagree, but it is your retirement. Just don't be mad when you have to work a couple years extra because your assumptions were too high.

  • Report this Comment On June 08, 2013, at 9:34 AM, davmcv wrote:

    Sorry i was unclear. I meant on Ramsey's FB page negative comments were removed

  • Report this Comment On June 08, 2013, at 10:58 AM, christaylor121 wrote:

    Brian -- great intention -- but you pulled back man! Every critic in the financial business soft pitches every 12% critique of DR by mentioning how many people he "helped." I have to disagree EVEN WITH THAT. Yes. He branded "saving more than you make" and sells it back to people in books and seminars which have "helped" make him a squillionaire. His branded advice is about as insightful as look both ways before you cross the street or brush your teeth. There is nothing new. The success of his packaging does not change that.

    Maybe that's some definition of "helping" but I would argue that people that have gotten out of debt helped themselves and, by the way, read a book or two on the journey. They did because they were scared shitless. Maybe the book helped, maybe not. The fact that they will so willingly give the credit to a failed real estate salesman turned writer/TV host (a uniquely american phenomenon no longer limited to Tony Robbins or Jimmy Swaggart), when they did the work is pretty odd to me -- but a whole other semester of psych 101.

    I'm sort of fine with that I guess part of his success. That's just age old PT Barnum stuff — and there there IS one born every minute. Add a little scripture in the mix and you are (wait for it) beyond reproach

    But the "save your money" pitch sets up the counterpunch ... and it a knockout and Ramsey's real genius: selling mutual funds and insurance. Dave Ramsey sells stocks without a license, ingeniously avoiding that title and pesky regulations by using the gears of PR and marketing to steer readers, listeners and viewers to his ELPs and charging them for the privilege. I think that used to be called a kickback.

    He is a simply sales guy who pushes overpriced, loaded mutual funds and insurance using his books and radio show and wraps it up by rolling his sales push into the earlier "baby steps" of "save your money", keeping it all tightly intertwined so it's becomes more difficult to discern sound (albiet incredibly obvious) advice from the opportunistic sale.

    It's an ingenious scam and NOBODY mentions it. It's also a conflict of interest and patently dishonest. I'm shocked nobody has come after him for it.

    So of course He has a vested interest in selling 12 percent, as it statistically pushes more unsophisticated people into buying mutual funds with completely unrealistic expectations -- his confused customers. They are dazed and exhausted from "beans and rice" and being "gazelle intense" and other other catchy marketing gags -- and just need Dave to tell them what to do next.

    Step right this way, folks. Welcome to my ELP tent! 12%! 12%!

    Listen to that show closely now -- it's a sale every break.

    He was threatened by the Fool headline because a) it is true and b) could threaten his sales business if it catches fire, which I hope it will. The 12% dream is the backbone of phase two of his entire scheme. Take credit for people getting of debt, then guide them smoothly into mutual funds with patently false numbers for the second payoff (the book and seminar being the first).

    He has to defend it, even if he knows its a BS. He's in too deep. It's in the book! People are buying from my ELP'S!

    Brian, you've poked at a lot more than a difference in a number. You threatened to screw up his entire scheme -- that number is practically a logo. I'm glad you didn't know it at the time because you NEVER would have been asked on the show.

    Anyway, you did a good thing, even for an English major.

    ...And yes, Ramsey people, this is all my opinion.

  • Report this Comment On June 08, 2013, at 11:10 AM, christaylor121 wrote:

    ...and yes I meant to say "saving more than you spend" not "make" which would be technically impossible.

  • Report this Comment On June 08, 2013, at 12:31 PM, JoeTaxpayer wrote:

    The blogging community has been discussing this for some time now. The reaction here is no different than we've seen - (a) the citations of the good works he's done and (b) the support for Dave as if you've question the divine nature of the reader's deities.

    It's plain and simple - all of his return numbers are average returns vs CAGR. His 12% average is correct, but becomes 10% when using proper CAGR discussion. Even for the 'lost decade' Dave's article quotes an average 1% return, when $1000 became about $910 in a costless S&P index over that time.

    Last - Dave speaks in absolutes, there's no accounting for individual differences. "There's no responsible use of credit cards." Thus spake the David. The guy that budgets, sticks to the budget, but uses a card he then pays in full? No good, it's Dave's way or the highway. I read a Q&A in which a woman asked Dave if she should pay a higher rate card first. No, Dave's Debt Snowball (tm) dictates low balance debt gets paid first. Pay off the 0% $2000 debt, the 6% $4000 debt, and only then should you pay that $12000 card with the 24% rate. Money is 99% emotional, and only 10% math. (math error intentional).

    Brian, excellent article. Even though you know Dave puts more people in jeopardy in 10 minutes than you can help in a year.

  • Report this Comment On June 08, 2013, at 4:57 PM, TMFCheesehead wrote:

    @bujutsu-

    That's a fair recommendation. Or maybe leave the site up as it currently is, but add how many years the newsletter has been around.

    The one thing I like--since it seems like people sometimes fail to appreciate what a big difference a few percentage points can make--is that the overall returns make it clear how much money you'd have now following the rec's vs. just buying the S&P (which isn't a bad choice either) at the same time.

  • Report this Comment On June 08, 2013, at 4:58 PM, TMFCheesehead wrote:

    @KLJDBA-

    Very well put.

    Brian Stoffel

  • Report this Comment On June 08, 2013, at 5:03 PM, TMFCheesehead wrote:

    @christaylor121-

    While I think you've got some points, his books have helped people, and I think that's great.

    The 12% number, however, needs almost no research, and its important to explain and educate people on why it's misleading.

    Brian Stoffel

  • Report this Comment On June 08, 2013, at 7:09 PM, christaylor121 wrote:

    I suppose it depends on your definition of the word "help." Seems to me he is pretty well compensated for his help and one could argue that his readers, attendees and mutual fund customers are helping HIM become a very very rich man. Follow the money. Who is helping whom?

    Again, I think you're letting him off the hook by not zooming out and looking at the big bigger picture, which is probably because you're a nice guy or concerned about incurring the wrath of an litigious (and clearly worried) financial empire, which I get. "You and are are gonna have a problem..." That's a threat.

    I think the 'he's helped many people' argument is not valid in the same way I feel about TV preachers who enrich themselves by reading the Bible out loud, rebranding it and then asking for money.

    He is taking advantage of people at their most vulnerable and confused time with false information and even worse - not disclosing the full extent of his financial gains by doing this.

    I think that's a huge problem.

  • Report this Comment On June 09, 2013, at 11:16 PM, christaylor121 wrote:

    Looks like I KILLED this conversation. :)

  • Report this Comment On June 10, 2013, at 1:41 AM, JoeTaxpayer wrote:

    Chris - with respect to the preacher's Bible rebranding, that's exactly what The David does.

    “Annual income twenty pounds, annual expenditure nineteen nineteen six,

    result happiness. Annual income twenty pounds, annual expenditure

    twenty pounds ought and six, result misery.”

    You recognize this quote? Charles Dickens’ novel David Copperfield, published in 1850. The mantra of spend less than you earn isn't new. Nor is anything the David preaches. Except perhaps the fantasy returns not supported by fact. The difference between the 10% history and the 12% Dave dreams of is the difference between planners recommending you withdraw no more than 4%/yr from your retirement account vs Dave's 8% advice. Let me be very clear - Anyone who retired in the latter 90's and started taking 8% withdrawals adjusting a bit for inflation, found himself wiped out by the end of 2011. Zero would remain. The 4%er wasn't happy, but still had 75% of the starting number.

  • Report this Comment On June 10, 2013, at 11:09 AM, lugose wrote:

    I'm only about a third of the way through the comments so this might be a repeat, but this is a case where you are both right, but wrong in the way you went about it.

    1) Brian, you shouldn't have discounted all that Dave teaches the way you did with your title. If you have a problem with is his illustration of the power of interest and compounding interest in saving, say it and attack that aspect. I read the article and agree with most of what you said, but I don't think people saving on Dave's plan are calculating their contributions based off 12%. For years I've heard of the 7 year rule, isn't that basically the same thing?

    2) Dave, you shouldn't have used your national forum and show to attack Brian. I get that you feel wronged, and I think you were, but by putting him on your show, you allowed yourself to get hot and let him have it. This kind of made you come off as a bully. You could have talked to him mono-e-mono and he might even have changed the title and recanted a bit. (probably not)

    That said, the way the conversation went, I think you two are like my wife and me. YOU ARE BOTH PIG HEADED AND STUBBORN! :)

    That said, I have to say, that for the most part I believe Dave has been a positive influence to thousands of people and helped motivate them to get out of debt and stay there. If there were more people promoting saving, we could possibly avoid the difficulty that I believe this country is going to face in the next 30/40 years. We're not getting pensions any more and people are living like there is something magical that is going to happen when they can't work anymore that will allow them to avoid dog food. Wake up people!

  • Report this Comment On June 10, 2013, at 11:20 AM, jhurstman2014 wrote:

    @christaylor121, what Dave actually does is INSPIRE people to get out of debt.

  • Report this Comment On June 10, 2013, at 11:59 AM, christaylor121 wrote:

    I agree that Dave appears to inspire, but it's an illusion and a marketing ploy. DEBT inspires people to get out of debt. Dave makes millions off it. He's just that good of a salesman and has that finely tuned of a PR machine that you've forgotten. If you're inspired by him, that's wonderful. Just keep in mind, after the "inspiration phase", he's guiding people into bad investing decisions for his own profit.

    ELP's are A ripoff. They don't have the newly debt free's clients interest in mind. If he were not making a kickback from them, he would NEVER suggest using them. He'd make up a clever nickname and lump them with car leases and credit cards.

  • Report this Comment On June 11, 2013, at 3:56 PM, supermaku wrote:

    Brian,

    I heard this "debate" on the radio last week. While I am a Dave Ramsey fan, I was disappointed in the way he treated you.

    I do have a Bachelor's degree in Finance and agree with you and your calculation. Dave Ramsey does inspire to get out of debt and if you are debt free can easily save more.

    But technically, you are correct. Dave handled it poorly.

  • Report this Comment On June 12, 2013, at 1:31 AM, StillPaysTaxes wrote:

    Brian,

    I have struggled with personal finance for all of my 48 years. I started Dave Ramsey's plan about 3 years ago and for the FIRST time in my adult life I am 100% percent DEBT FREE (that means I don't owe ANYONE ANYTHING !!). I have MORE MONEY in the bank today than I could have ever imagined. When I go to the bank these days, statements such as "with the amount of money you have with us, I'm happy to do that for you" among many others.

    Dave Ramsey's plan is thorough, comprehensive, and it simply WORKS. You are TRULY a FOOL for taking exception with a TWENTY YEAR VETERAN in the business of helping people become financial secure who has a track record second to none.

    I don't care if the rate of return is 12%, 2% or 82% percent .. ANYONE with half a brain knows that when they invest there is risk involved.

    Please post how many people you have helped achieve financial freedom.

  • Report this Comment On June 12, 2013, at 3:57 PM, polyharmonic wrote:

    @ June 12, 2013, at 1:31 AM, StillPaysTaxes

    His get out of debt plan might work but his retirement plan won't. If you invest with 12% returns in mind, keep all your money in stocks, and plan to withdraw 8% while in retirement, that's just a recipe for disaster.

    Also while he might help people, you do realize he helps himself by steering people towards his ELPs who push expensive loaded funds, not because they are in your best interest, but because they are IN DAVE'S BEST INTEREST.

  • Report this Comment On June 13, 2013, at 7:19 AM, christaylor121 wrote:

    I would say that the article's bold headline actually WILL help people achieve financial freedom. If discerning readers delve into the finer points because of the "dangerous" headline, great! They will have much more accurate planning strategies that DR sells.

    People need to begin thinking for themselves, don't follow leaders and watch the parking meters. Dave's a TWENTY YEAR VETERAN in the book and radio business -- not as a financial advisor. You're debt free -- awesome. Next "baby step"? Take your money and RUN!

    ...And NOT to an ELP.

  • Report this Comment On June 13, 2013, at 4:38 PM, garonhano wrote:

    As has already been said many times in this comment thread, all of you detractors are misrepresenting Dave's teachings. Like the author, you apparently do not really under stand what Dave teaches. The 12% is only an example of which he adequately explained where he gets his number from during his phone conversation with the author on his radio show. Nowhere in Dave's teachings does he say to base your investments on a 12% return. Dave has consistently taught to save 15% of your income into four types of mutual funds, regardless of the rate of return.

    His example is just to illustrate the power of compounding interest. If you don't like his plan, then do something else, but don't say his advice is dangerous when you are totally misquoting and misrepresenting his teaching. It's almost like you have never taken the class or read the books.

  • Report this Comment On June 13, 2013, at 6:30 PM, polyharmonic wrote:

    "His example is just to illustrate the power of compounding interest."

    ----------

    Except that his example does NOT demonstrate "the power of compounding interest" because Stocks do not act like CDs which "compound interest" AT ALL!

    If a stock has high enough gains, they can OVER TIME have the same equivalent gain as a CD which compounded interest. HOWEVER, the 12% quoted is an "average annual return" of the SP500 which is simply (sum of returns)/(number of years). It is NOT the same as a CD which returned 12% year after year compounded!

    If you had a stock which had 100% return one year and -80% the next year, it would have (100-80)/2 = 10% "average annual return". But guess what, that stock actually lost 60% in value at the end of year 2 as opposed to gaining 21% if you had assumed that the 10% average annual return was the equivalent of 10% compounded return.

    I mean losing 60% of your initial investment vs gaining 21% is a HUGE deal even though ostensibly both situations had the same "average annual return" of 10%!!!

    And this is where the second part of Dave's retirement advice is harmful. He treats stocks like they were CDs which "compound interest" at around 12% so that you can withdraw 8% and it would still grow 4%! That is just some real ignorant advice he peddles.

  • Report this Comment On June 13, 2013, at 9:50 PM, christaylor121 wrote:

    "Nowhere in Dave's teachings does he say to base your investments on a 12% return."

    ...Except for in every single calculation in Total Money Makeover, which I do own and have read, which is where I realized just how far off he really is. There are at least 50 references with various versions of this assumption. If it is "a teaching tool", then his tool is calibrated incorrectly. His workbooks are wrong, his examples are wrong. Yes. We all know investing 15% is ideal. Not his idea. 12% is, and it's dangerous advice. Period. He is leading people astray and his influence is too big for this.

  • Report this Comment On June 14, 2013, at 12:43 AM, StillPaysTaxes wrote:

    If you want to be rich, do what rich people do. If you want to be poor, do what poor people do.

    I will do what Dave Ramsey does.

    Christaylor, Polyharmonic - you keep doing what you've been doing......... and we'll all be happy.

  • Report this Comment On June 14, 2013, at 4:39 PM, polyharmonic wrote:

    @ StillPaysTaxes

    What Dave Ramsey does to get rich is have a nationally syndicated talk show and sell books and seminars and events and endorsement deals (aka "ELP").

    He DIDN'T do it investing in stocks with "12%" returns and setting aside 15%. (The 15% advice is actually not that bad BTW).

    So if you plan to actually DO what Dave Ramsey is ACTUALLY doing to get rich by becoming a big name talk show host, seminar host and write, then good for you.

  • Report this Comment On June 14, 2013, at 11:18 PM, jkelz wrote:

    Brian,

    I just listened to Dave's podcast. That was good of you to appear on his show. I was dissapointed with the way he treated you.

    Basically, he can't admit the simple fact that his constant use of 12% as an illustration is crap and he should use something different which you correctly point out.

    Furthermore, his phrase if "I'm half wrong" is so annoying, because neither he nor many of his listeners realize that due to compounding a very small change in the rate of return equals a huge difference in the ending amount.

    In the case of 100 per month invested for 40 years, if the rate of return changes from 12% to 6% (which is a more realistic compounded rate after adjusting for inflation), the value is approximately 20% of what was projected using 12%.

    While, I somewhat like Dave and listen to his show regularly (and read his Financial Peace book). It is quite obvious that he doesn't handle criticism well.

    Keep up the good work.

    And to all the rabid Dave fans on here. Chill out. Dave is not infallible and the loudest person is not always right.

  • Report this Comment On June 15, 2013, at 2:35 AM, christaylor121 wrote:

    The line needs to be amended to say "I am already half wrong, so If I'm three quarters wrong, you'll still do okay."

    Guess that's not quite as sexy a closing line.

    It would be useful hear from people here that have invested using his ELP that have returned 12% after all the points are figured. I'm sure there must be thousands.

    Otherwise, all the fans are really not addressing this issue but instead blindly defending a millionaire author/radio host they've never met personally as if he was their father, even though he made his profits from selling to them. All seems a little backwards.

  • Report this Comment On June 15, 2013, at 6:56 AM, TMFCheesehead wrote:

    @jkelz-

    Thank you for the thoughtful response.

    Brian Stoffel

  • Report this Comment On June 16, 2013, at 8:35 PM, Tobithy wrote:

    Dave's arguments were weak. Also, there is ample evidence of people, even his avid followers, basing their savings off of 12% growth instead of saving 15%. See, for example, the post at https://fpuonline.daveramsey.com/modules/fusetalk3/forum/mes..., where a user decides to only save 7% of their income instead of 15% because they ran the calculation and saw they'd have 5 million at retirement, and felt they didn't need 10 million.

    Also, the budget calculator (admittedly a "lite" version") located at http://www.daveramsey.com/tools/budget-lite/ says Dave recommends 5-10% of income go to savings, including retirement. To me, this conflicts with his oft-repeated 15% to retirement mantra.

  • Report this Comment On June 18, 2013, at 8:39 PM, dfanscha wrote:

    Brian, Based on the title of the article on this page, and comments, I am going to assume that you might be the Brian who called into the Dave R. show on June 4th. I am a financial advisor who has been in the business for 27 years. Would you be willing to visit with me a little by telephone?

    Dan

  • Report this Comment On June 19, 2013, at 12:31 AM, christaylor121 wrote:

    DON'T DO IT MAN! IT'S A SET UP!!!!!

  • Report this Comment On June 20, 2013, at 11:02 AM, dfanscha wrote:

    Chris, Thanks for your feedback! I am not sure if your advice was directed at me or to Brian. If it is to my I think I can handle it.

    Brian, I am involved in work which is studying Dave's advice. I would rather not say more, which is why I would like to visit with you by telephone. If you are open to this I would appreciate your willingness to do so. I believe in a very short period of time on the telephone you will appreciate why I would like to visit and understand why it is "not a set up". If you are willing and could provide me with a person e-mail address I would send you my cell number.

    Thanks Dan

  • Report this Comment On June 20, 2013, at 2:48 PM, jcunning1998 wrote:

    I fully admit to liking Dave Ramsey for the most part. He got me out of some massive debt burdens and has changed my financial life forever.

    Rather than bicker about the projected returns of this and that, why not try to find someone that has followed Dave's plan for a long period of time and see if they are complaining about the projected return he uses. My bet is you won't find anyone because they are so wealthy it doesn't really matter anymore.

    I know I will be wealthy based on my current financial situation and behaviors. Not because of some projection in 20-30 years.

    My advice is to take financial peace. It won't hurt you at all and may even change your financial life.

  • Report this Comment On June 21, 2013, at 10:51 PM, polyharmonic wrote:

    @ jcunning1998

    Rather than defending Dave even though he is wrong, why not simply just admit that the is wrong? He is right on getting out of debt and saving but not so right when it comes to stock investing (expecting 12% returns) and especially counting on being able to withdraw 8% in perpetuity.

    If people ARE succeeding, at least on the stock investing and retirement withdrawal part of it, it is IN SPITE OF or just IGNORING his advice rather than because of it.

    Very few people would succeed if they took his advice of planning their retirement based on "12% average annual returns" and therefore you can withdraw 8% each year with 4% left over for continued growth. This is actually very easy to verify if you "simulated" on your spreadsheet what would happen if you had been doing this.

    Essentially your "defense" is that Dave's bad advice doesn't matter because that part of the advice is going to be ignored. Well we don't know that and bad advice is bad advice.

  • Report this Comment On July 15, 2013, at 6:24 PM, Silverliningboy wrote:

    I heard your interview with Dave. In addition to the fact that your argument was based on a false premise about his retirement advice, the other major flaw in your argument is that your employer teaches that you can beat the S&P’s average returns by investing in solid stocks with great management.

    You’re argument is either belittling Dave’s advice because of his choice of logic or it’s belittling the Motley Fool’s claim that you can beat the S&P’s return.

    Either way you’re wrong—I have a portfolio return of 40.1% so far this year and 396.03% since December 2008. Not only have I slaughtered the S&P’s return over the same period of time, but I have done it following the advice of both the Motley Fool and Dave Ramsey.

    Your article is definitely bad form. I’d issue a correction and a public apology if I were in your shoes.

    -Scott Gardner (the other Gardner brother)

  • Report this Comment On July 23, 2013, at 7:02 AM, rob312chicago wrote:

    I've been following dave ramsey's advice and as a result am a completely debt free 28 year old, save 15% for retirement and am earning 16% average annualized returns on my investments. it's not theory, it works. http://from0toonemillion.blogspot.com/

  • Report this Comment On August 01, 2013, at 11:12 PM, shersch wrote:

    Average annual returns are meaningless. If you get 100% in year one, 100% in year two, 300% in year three, and -100% in year four, your average annual return is 100%...but you end up with $0. It's not a matter of mere semantics or two equally valid approaches. Fact is, average reruns tell you nothing. Annualized returns tell you what's really going on. In statistics, this is the distinction between arithmetic and geometric mean. It does matter. A lot.

  • Report this Comment On August 19, 2013, at 9:11 AM, mikesal1 wrote:

    Brian - your advice is right on. I've been investing for 18 years and have an average return of 11.05% over that time, but a CAGR (not adjusted for inflation) of 8.8%, which appears to line up with market averages. Confusing one number for another and extrapolating over a long period of time would indeed make unwise investing advice.

    I've a huge Dave fan but have always been bothered by the unsubstantiated 12% average return claim. The numbers just don't support it. It was sobering to hear Dave on the podcast resort to ad hominem attacks rather than really examining the numbers, but it was a good reminder that although most of his advice is right on, he is a sinful and fallible man just like all the rest of us.

  • Report this Comment On March 29, 2014, at 6:57 PM, matthewcutler wrote:

    Family and general practitioners are what most people think of when they hear the term <a href="http://bglions.com/">Entertainment news </a> as they are often the first doctor patients see within the health care system.

  • Report this Comment On April 22, 2014, at 1:57 PM, yalerider wrote:

    I find most of these comments amusing. I am a Dave Ramsey follower, have his books and DVDs etc. However, that does not mean I am going to berate Brian for simply pointing out facts. Yes, Dave has helped a lot of people including me. Brian agreed with all of that, the point in contention is his investing advice. I used his get out of debt plan, but there is no way I'm going to put all my money in growth stocks.

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