I occasionally read an independent wealth manager / fund broker’s blog on DIY Investing. He posted an article that was critical of Dave Ramsey’s use of 12% returns in his examples on radio, during his Smart Money arena events, and in his books and classes. The author of this post stops short of plagiarizing a similar article in Money magazine from a few years ago when describing how Ramsey’s investing advice is misleading and potentially harmful. He then says, “Finding a Fund that averages 12% over the long term is like trying to find the next triple crown winner. Good luck!”
He goes on to list nine Large-Company Stock Funds and examines their 10-year and 20-year performance. He says, “…you’ll see no 12% returns”. Now, one of them has a return of 11.54%, but I guess that’s not close enough.
I commented on his article with some verifiable facts that contradicted what he wrote. To begin with, it took 3 minutes of research to find a domestic equity fund, one of the four types that Ramsey recommends, that has returned 13.09% compound annualized, since its inception in 1984. Even net of fees it’s over 12%. The 10-year average is 11.22%.
These funds do exist. Some years will be higher, some lower. It’s an average. It doesn’t mean that if you put only $100 a month into your retirement that in 20 years you can retire. Some people have the attitude, “What’s the least amount of money I can save and still be wildly rich?” I also don’t think it is wise to assume you will get 12% a year unless you have a good long look ahead. I for example am about 10 years from retirement. I don’t assume I’ll get 12% returns on anything. If I had 30 years to retirement, yes. You can assume a higher average return the longer you have to invest.
We recommend putting 15% of your gross household income into tax-favored retirement plans. It’s what Dave Ramsey teaches in Financial Peace University and what he and Chris Hogan teach in their books. Even the hit piece in Money magazine said, “…if you take Ramsey’s very wise advice to save 15% of your income a year, you’ll be doing okay in the end whether you earn 7.6% or 12%.” This, of course, was buried ¾ of the way down the article.
When you knock someone who’s as big a presence in the industry as Dave is in personal finance, you invariably will get more attention to your site or your endeavors. That’s why some people do it. All I’m asking is for you to be a thoughtful, informed, and wise reader, saver, and investor.
Step back a moment and think about the numbers of people that Dave has helped through his radio show, books, and classes. It’s in the tens of millions, if not hundreds of millions. For anyone to draw attention to themselves by saying “He’s wrong and I disagree”, make sure you understand their entire message, whether they do or not. What they’re really saying is, “I disagree on this one little piece taken completely out of context”. And then show you an incomplete sample of data to “prove” their point.
To the author’s credit and integrity, he did publish my comment in its entirety. He followed up with a comment that the fund I suggested had a lower than average return for the current year. I’m not sure what that comment reveals about him, but I don’t look at the performance over one year. You should not be investing in the stock market for anything less than five years. Ten or more is best.