### Author Topic: Distancing myself from Ramseyism.  (Read 50125 times)

#### boyerbt

• Bristles
• Posts: 268
• Location: Ohio
##### Re: Distancing myself from Ramseyism.
« Reply #100 on: April 13, 2017, 12:40:36 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

You are assuming an 8% return over each of 3 years in your calculation... that is a short term time frame.  An 8% return may be safe to assume for the long term, but in 3 short years... who knows what could happen?  I don't think it's a terrible idea to pay off debt at a guaranteed interest rate of 4%, 6%, etc for such a short amount of time such as 3 years then begin to invest at an accelerated rate with no debt once all debt is paid off.

I used easy whole numbers because DR does this as well.

You are correct that we don't know what could happen in the short term but it this could also be a positive. Year 1 could be +15% or -10% we don't know. My point is that investing is a long term plan and being shortsighted in saying that you should eliminate your investing completely until the debt is paid off is incorrect. The longer you have money in the system the better off you'll be because of the compound interest.

I am not saying that you should pay off your loans at a much slower pace, I am simply saying that you should still invest while paying off your debt. In real life, I kept my 401k open to the match level (3%) while I was finishing my student loan debt repayment. It took me 30 months to pay it off so I am pretty close to Dave's time frame that he was discussing on the call that day. If I had ceased my investing I would have paid off my debt by only about 2.5 months. Do you think that in 25+ years that the small amount of money that I invested during my loan repayment will be worth more than the additional 2.5 months of being in debt?

I do.
Act. Your. Wage.

There are no secrets to success. It is the result of preparation, hard work and learning from failure

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #101 on: April 13, 2017, 12:55:07 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

You run the numbers correctly, but implicit in following DR's advice to pay down debt is the understanding that--when the balance on that mortgage is zero--you've accustomed yourself to a lower standard of living from which you're investing MORE each month than if you'd made the contributions on schedule.

I was tickled to hear a couple from Longmont, CO, do a debt-free scream earlier this week. They had paid off about \$40K/year from an \$85/k annual income. Perhaps one of us was this couple?

#### v8rx7guy

• Pencil Stache
• Posts: 986
• Location: PNW
##### Re: Distancing myself from Ramseyism.
« Reply #102 on: April 13, 2017, 01:03:50 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

You are assuming an 8% return over each of 3 years in your calculation... that is a short term time frame.  An 8% return may be safe to assume for the long term, but in 3 short years... who knows what could happen?  I don't think it's a terrible idea to pay off debt at a guaranteed interest rate of 4%, 6%, etc for such a short amount of time such as 3 years then begin to invest at an accelerated rate with no debt once all debt is paid off.

I used easy whole numbers because DR does this as well.

You are correct that we don't know what could happen in the short term but it this could also be a positive. Year 1 could be +15% or -10% we don't know. My point is that investing is a long term plan and being shortsighted in saying that you should eliminate your investing completely until the debt is paid off is incorrect. The longer you have money in the system the better off you'll be because of the compound interest.

I am not saying that you should pay off your loans at a much slower pace, I am simply saying that you should still invest while paying off your debt. In real life, I kept my 401k open to the match level (3%) while I was finishing my student loan debt repayment. It took me 30 months to pay it off so I am pretty close to Dave's time frame that he was discussing on the call that day. If I had ceased my investing I would have paid off my debt by only about 2.5 months. Do you think that in 25+ years that the small amount of money that I invested during my loan repayment will be worth more than the additional 2.5 months of being in debt?

I do.

I am saying that you are basing your opinion on this being bad advice because you are assuming for a short 3 years that this person will return an average of 8%.  In my opinion, this is just another form of market timing, or at minimum a bad assumption.  Re-run your calculation for other situations that are just as likely to happen in a short 3 year window (0%, -2%, 3%, -8%) and you'll find that paying off debt at 4% (or whatever it might be) isn't necessarily bad advice, in fact it can be great advice.  YES, I realize that in the long term you can return 8% on your investments, but to to say that the better decision is to start investing now vs. paying off debt for 3 years and then start to invest is making a untrue assumption about those 3 years.

#### Milizard

• Pencil Stache
• Posts: 534
• Location: West Michigan
##### Re: Distancing myself from Ramseyism.
« Reply #103 on: April 13, 2017, 01:10:40 PM »
If you are foregoing a 50-100% company match in order to pay off 4% debt, you are making a terrible decision.  (Unless of course, you will never vest in that match).

#### Proud Foot

• Pencil Stache
• Posts: 894
##### Re: Distancing myself from Ramseyism.
« Reply #104 on: April 13, 2017, 02:57:11 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

While I agree with your math and the argument V8rx7guy is making, I do have an issue with how you did your comparison.  You assume the person has the \$5,500 to put towards their IRA, how does your number change if they were to put that \$5,500 instead towards their debt? Assuming \$36k debt, \$1k monthly payment and an 8% return starting at day 1 it takes 3 years to pay debt off at \$1k/mo.  If they also have 458.33 (\$5,500/12) to max out an IRA it takes 25 months to pay off debt and then investing monthly amount they have an invested balance in  24 years of \$96k vs \$99k of investing that 458.33 each month at tje start. So if you have that additional \$5,500 to max out an IRA there really isn't much of a difference.  Now a 401k with a 50% match assuming the \$5,500 does not max out the match the numbers are really different.  Investing from day 1 into the 401k will have a value of \$148k.  This obviously assumes you stay at the job long enough to become fully vested in the match.  My calculations also do not take into account any tax implications.

In my opinion, unless you have high interest debt and a low match rate, you will be better off contributing enough to max out the match, particularly the longer your payoff takes.

#### daschtick

• 5 O'Clock Shadow
• Posts: 67
##### Re: Distancing myself from Ramseyism.
« Reply #105 on: April 13, 2017, 04:14:44 PM »
I used to listen to Ramsey at times also.  I never had debt, but I enjoyed the debt-free screams, and I found some of his segments inspiring.  On thing I agree with him is that if household finance was purely mathematical, everyone already knows exactly what to do.  His point is that human behavior gets in the way.  The debt snowball is not the most effective way to pay down debt, however, the quick results help top motivate and keep the focus required.

That said, I sort of lost interest also, as I disagree with his 12% returns, his ELP startegy, his views on politics and religion, and I find Rachel Cruz's voice to be irritating.

#### Milizard

• Pencil Stache
• Posts: 534
• Location: West Michigan
##### Re: Distancing myself from Ramseyism.
« Reply #106 on: April 14, 2017, 08:05:43 AM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

While I agree with your math and the argument V8rx7guy is making, I do have an issue with how you did your comparison.  You assume the person has the \$5,500 to put towards their IRA, how does your number change if they were to put that \$5,500 instead towards their debt? Assuming \$36k debt, \$1k monthly payment and an 8% return starting at day 1 it takes 3 years to pay debt off at \$1k/mo.  If they also have 458.33 (\$5,500/12) to max out an IRA it takes 25 months to pay off debt and then investing monthly amount they have an invested balance in  24 years of \$96k vs \$99k of investing that 458.33 each month at tje start. So if you have that additional \$5,500 to max out an IRA there really isn't much of a difference.  Now a 401k with a 50% match assuming the \$5,500 does not max out the match the numbers are really different.  Investing from day 1 into the 401k will have a value of \$148k.  This obviously assumes you stay at the job long enough to become fully vested in the match.  My calculations also do not take into account any tax implications.

In my opinion, unless you have high interest debt and a low match rate, you will be better off contributing enough to max out the match, particularly the longer your payoff takes.

I like to look at it like this:

We are only considering the money that would go toward the match.  Match is 50%, + you get a risky 8% return.  That's a 58% return on that money, with some risk.  What if that investment actually loses 10% instead of gaining anything?  Still a 35% return on your investment (=10% loss on principal and match.).  Paying off debt at 4%, is a 4% risk-free return.  That's not too bad for a risk free return these days, but way worse than 35%, right?  What about 30% debt?  That's pretty close to 35%, but you still have a good chance for the average 58% return, or even more.

Of course, this is completely dependent on actually vesting into your match.

#### v8rx7guy

• Pencil Stache
• Posts: 986
• Location: PNW
##### Re: Distancing myself from Ramseyism.
« Reply #107 on: April 14, 2017, 08:25:36 AM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

While I agree with your math and the argument V8rx7guy is making, I do have an issue with how you did your comparison.  You assume the person has the \$5,500 to put towards their IRA, how does your number change if they were to put that \$5,500 instead towards their debt? Assuming \$36k debt, \$1k monthly payment and an 8% return starting at day 1 it takes 3 years to pay debt off at \$1k/mo.  If they also have 458.33 (\$5,500/12) to max out an IRA it takes 25 months to pay off debt and then investing monthly amount they have an invested balance in  24 years of \$96k vs \$99k of investing that 458.33 each month at tje start. So if you have that additional \$5,500 to max out an IRA there really isn't much of a difference.  Now a 401k with a 50% match assuming the \$5,500 does not max out the match the numbers are really different.  Investing from day 1 into the 401k will have a value of \$148k.  This obviously assumes you stay at the job long enough to become fully vested in the match.  My calculations also do not take into account any tax implications.

In my opinion, unless you have high interest debt and a low match rate, you will be better off contributing enough to max out the match, particularly the longer your payoff takes.

I like to look at it like this:

We are only considering the money that would go toward the match.  Match is 50%, + you get a risky 8% return.  That's a 58% return on that money, with some risk.  What if that investment actually loses 10% instead of gaining anything?  Still a 35% return on your investment (=10% loss on principal and match.).  Paying off debt at 4%, is a 4% risk-free return.  That's not too bad for a risk free return these days, but way worse than 35%, right?  What about 30% debt?  That's pretty close to 35%, but you still have a good chance for the average 58% return, or even more.

Of course, this is completely dependent on actually vesting into your match.

If there's a match... that's a whole story.  Not every employer matches, and there was nothing said about the match in the original post about this situation.

#### Chris22

• Magnum Stache
• Posts: 3110
• Location: Chicago NW Suburbs
##### Re: Distancing myself from Ramseyism.
« Reply #108 on: April 14, 2017, 08:41:55 AM »
If there's a match... that's a whole story.  Not every employer matches, and there was nothing said about the match in the original post about this situation.

Hence the problem with Ramsey.  There's never any nuance about anything.  There's "if you have debt you're a bad person and will be until you get rid of it!"  The kind of debt, the interest rate, the investment alternatives, the potential for investment compounding in the interim, the potential benefits (i.e. matching) you may sacrifice, none of it is ever brought up.

If you're a complete dummy and just need to have "debt bad" screamed at you, I guess Ramsey makes sense.  If you have even the faintest grasp of real math, you can quickly see how fast RamseyMath falls apart.
"If I could get all the money back I ever spent on cars, I'd spend it on cars." - Nick Mason

#### runewell

• Bristles
• Posts: 419
• Age: 46
• actuary
##### Re: Distancing myself from Ramseyism.
« Reply #109 on: April 14, 2017, 10:13:09 AM »

I am saying that you are basing your opinion on this being bad advice because you are assuming for a short 3 years that this person will return an average of 8%.  In my opinion, this is just another form of market timing, or at minimum a bad assumption.  Re-run your calculation for other situations that are just as likely to happen in a short 3 year window (0%, -2%, 3%, -8%) and you'll find that paying off debt at 4% (or whatever it might be) isn't necessarily bad advice, in fact it can be great advice.  YES, I realize that in the long term you can return 8% on your investments, but to to say that the better decision is to start investing now vs. paying off debt for 3 years and then start to invest is making a untrue assumption about those 3 years.

If 8% is the expected return on investment, that is what you should expect over a 3-yr period as well.
That assumption is more likely to be wrong over a 3-yr period than a 30-yr period.  There will be more VARIANCE in the annualized return over that time period and hence the percentage of simulations that has you better off paying down your debt will be higher over 3 years than 30 years.  But mathematically the invest option is still going to be better odds.

#### v8rx7guy

• Pencil Stache
• Posts: 986
• Location: PNW
##### Re: Distancing myself from Ramseyism.
« Reply #110 on: April 14, 2017, 12:39:26 PM »
Let me say it another way.  To say:

Eliminate debt @ 4% for 3 years then invest at 8% average for next 27 years = bad advice because you'll have less money at 30 years

vs.

Invest now for 30 years at 8% average and pay 4% interest on debt = good advice because you'll have more money at 30 years

The 2nd choice being the better advice is completely dependent on what happens in the 1st three years.  We can presume that one can average 8% over 30 years, but that doesn't mean that the first three years will return more than 4% which is the only way for that to be the better investment.  3 years is short term, you cannot say that investing is better unless you make a short term assumption.

#### Proud Foot

• Pencil Stache
• Posts: 894
##### Re: Distancing myself from Ramseyism.
« Reply #111 on: April 14, 2017, 02:21:31 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

While I agree with your math and the argument V8rx7guy is making, I do have an issue with how you did your comparison.  You assume the person has the \$5,500 to put towards their IRA, how does your number change if they were to put that \$5,500 instead towards their debt? Assuming \$36k debt, \$1k monthly payment and an 8% return starting at day 1 it takes 3 years to pay debt off at \$1k/mo.  If they also have 458.33 (\$5,500/12) to max out an IRA it takes 25 months to pay off debt and then investing monthly amount they have an invested balance in  24 years of \$96k vs \$99k of investing that 458.33 each month at tje start. So if you have that additional \$5,500 to max out an IRA there really isn't much of a difference.  Now a 401k with a 50% match assuming the \$5,500 does not max out the match the numbers are really different.  Investing from day 1 into the 401k will have a value of \$148k.  This obviously assumes you stay at the job long enough to become fully vested in the match.  My calculations also do not take into account any tax implications.

In my opinion, unless you have high interest debt and a low match rate, you will be better off contributing enough to max out the match, particularly the longer your payoff takes.

I like to look at it like this:

We are only considering the money that would go toward the match.  Match is 50%, + you get a risky 8% return.  That's a 58% return on that money, with some risk.  What if that investment actually loses 10% instead of gaining anything?  Still a 35% return on your investment (=10% loss on principal and match.).  Paying off debt at 4%, is a 4% risk-free return.  That's not too bad for a risk free return these days, but way worse than 35%, right?  What about 30% debt?  That's pretty close to 35%, but you still have a good chance for the average 58% return, or even more.

Of course, this is completely dependent on actually vesting into your match.

Obviously it is a lot better if there is a match and you actually vest into it.  In boyerbt's original post he referenced investing into an IRA (no match) which there really isn't much of a difference between the two strategies (\$3k in my above calculation)

As far as DR's advice, I would imagine the majority of his callers non-mortgage debt is at 4%.

#### Milizard

• Pencil Stache
• Posts: 534
• Location: West Michigan
##### Re: Distancing myself from Ramseyism.
« Reply #112 on: April 15, 2017, 08:39:38 AM »
But Dave's advice is to forego the match in order to pay off debt as quickly as possible, and that's the beef that the majority of people have with his one-size-fits-all advice.  I don't have a problem with choosing a guaranteed 4% ROR over a risky 8% one, if it's over a short time period.  However, that interest rate is usually associated with mortgages, which wouldn't usually be paid off in a short time period/the interest also being tax deductible.  There are also some tax savings that could be had on student loan interest.  That lowers the ROR by the marginal tax rate, making it a worse deal.  Also, the 8% does not include dividends, which I've heard argued raise the return on stocks up to 11% in the long term.

I understand Ramsey's audience is those people that have no discipline for investing, so, other than the match issue, his advice in this regard is fairly sound for them.  I just worry when his advice ventures into the realm of people who are clueless, but not bad with money/spending/debt.  They could do a lot better with some real financial education instead of cookie-cutter spoon-fed advice for babies.  ;-)

#### Virtus

• Stubble
• Posts: 216
##### Re: Distancing myself from Ramseyism.
« Reply #113 on: April 15, 2017, 05:01:52 PM »
I don't think there is anything wrong with what he is doing, but I am 100% on the same page of having no interest in listening to advice from people who are profiting fantastically off freely available advice.

People crack me up. Did you know that Mr. MM gives advice that is freely available and he makes a boat load of profit off it?

#### maizeman

• Handlebar Stache
• Posts: 2408
##### Re: Distancing myself from Ramseyism.
« Reply #114 on: April 15, 2017, 06:12:21 PM »
I am saying that you are basing your opinion on this being bad advice because you are assuming for a short 3 years that this person will return an average of 8%.  In my opinion, this is just another form of market timing, or at minimum a bad assumption.  Re-run your calculation for other situations that are just as likely to happen in a short 3 year window (0%, -2%, 3%, -8%) and you'll find that paying off debt at 4% (or whatever it might be) isn't necessarily bad advice, in fact it can be great advice.  YES, I realize that in the long term you can return 8% on your investments, but to to say that the better decision is to start investing now vs. paying off debt for 3 years and then start to invest is making a untrue assumption about those 3 years.

I don't have a horse in this race, but let us run the numbers.

There are currently 1720 36-month intervals in the Shiller stock price dataset. Numbers below are with dividends reinvested, and without accounting for inflation (since inflation won't effect debt repayment either).

Of these intervals 427 saw decreases in the stock market (24.8%), 294 (17.1%) saw increases with an annualized rate between 0-4%, 257 (14.9%) saw growth between 4% and 8%, and the balance 742 36-month periods (43.1%) saw increases greater than 8% per year.*

So we can say the probability of investing in stocks being a better choice than paying off debt at 4% over a 3 year timeframe is ~58%. Better than even odds, but not great.**

OTOH we cannot say that a return of -8% is equally likely as a positive 8% return. Returns less than or equal to -8% per year occurred in only 113 of 1720 36 month intervals (6.6% frequency) while returns greater than or equal to 8% occurred in 742 36-month intervals (43.1%). This makes an 8% per year investment return from the stock market six and a half times more likely than a -8% per year return.

*The highest was an annualized rate of 35.0%/year which translates to a 146% increase over three years.

**I completely agree with those who are arguing that it's essentially impossible for investing enough to get any company match to be a bad investment though. That's a different scenario.

#### COEE

• Bristles
• Posts: 429
##### Re: Distancing myself from Ramseyism.
« Reply #115 on: April 16, 2017, 09:43:55 AM »
If it weren't for Dave Ramsey - I'd be broke.  I only wish I had taken his class 5 years sooner when I first learned of him.  I'd likely be retired today if I had.  But that's water under the bridge.  I also think YNAB was critical in our success - and I don't think I would have been successful 5 year prior without it.

I thought his FPU class was incredible.  The advice was sound - although not always optimized.  For \$100 or so I took the class and I can take it again - at any time - without any additional fee.  Most of the classes are in a church - which I'm not fond of - but I'm smart enough to have a good religious filter.  There were no ads during the class that I recall.  I still have the CD's and I listen to them occasionally to brush up on things.  Particularly insurance - I've found it to be the most comprehensive and reasonable advice out there.

I do think his investment advice is horrible - but it's not impossible.  I found two funds at Schwab that have done better than 12% returns over the last 10 years - and have pretty much always out performed the market in any 10 year period.  One had even had a better than 12% track record since inception - in 1985.  FBIOX and JAGLX.  They have higher expense ratios and are less tax efficient than a low cost index fund.  But they do have a track record - and meet Ramsey's requirements for a good investment.  The downside is that they are both sector based - so if that sector crashes - well - you could lose it all.

He gave me the tools that I needed to win.  His advice was simple - so it didn't scare me away.  There are psychological aspects of paying down debt that he teaches which help reinforce the good behavior - just like Pavlov's dog.

I didn't stop at 15% of my investments as he suggests - but I do plan on maxing out my tax advantaged accounts before I start paying down my house quicker.  This way I get the best of both worlds - maybe it's not optimized, but it has psychologically positive results at each gate.  So I guess I'm on baby step 4.  I plan on skipping 5 - trading for additional years of work (if I need to) to fund my child's school - which also has psychological advantages - not for me, but for my child!

At one point I did the math on my 50% company match and his advice to stop contributing to my 401k.  The numbers showed that if I stopped contributing to my 401k that I would NEVER catch up in my retirement funds - and I never factored in the tax advantages of the 401k.  Because of this it took me 3 years to pay off \$40k in student loans on a \$85k gross salary.  I estimate I would have paid off my loans 1 year quicker if I had stopped my 401k contributions.  But I wouldn't have been in the financial situation I am today either.

Anyway - my \$0.02

#### englishteacheralex

• Handlebar Stache
• Posts: 1105
• Age: 38
• Location: Honolulu, HI
##### Re: Distancing myself from Ramseyism.
« Reply #116 on: April 16, 2017, 09:53:58 AM »
^^^ Awesome and refreshing to hear a voice of enthusiasm instead of cynicism. It's always so encouraging to hear a success story. I actually had a dream about Dave Ramsey last night--he was mad at me for dissing him all the time. So...yes! Glad he helped someone so much, and maybe I should stop thinking I'm so smart and putting him down. I disagree with him on a lot of things for my own personal situation, but clearly he has done a lot of good.
I journal at https://forum.mrmoneymustache.com/journals/the-aloha-journal/msg1267277/#msg1267277

Tales of a haole teacher whose futon washed up on Oahu over a decade ago.

#### Sofa King

• Bristles
• Posts: 382
##### Re: Distancing myself from Ramseyism.
« Reply #117 on: April 16, 2017, 12:20:33 PM »
Unlike most people here I respect and admire what Dave Ramsey does.

I concur. Dave is great!!  Everyone's circumstances are different but you can learn alot from what he has to say especially in the beginning of your debt free journey and then the road to FIRE!

#### v8rx7guy

• Pencil Stache
• Posts: 986
• Location: PNW
##### Re: Distancing myself from Ramseyism.
« Reply #118 on: April 16, 2017, 08:40:43 PM »
I am saying that you are basing your opinion on this being bad advice because you are assuming for a short 3 years that this person will return an average of 8%.  In my opinion, this is just another form of market timing, or at minimum a bad assumption.  Re-run your calculation for other situations that are just as likely to happen in a short 3 year window (0%, -2%, 3%, -8%) and you'll find that paying off debt at 4% (or whatever it might be) isn't necessarily bad advice, in fact it can be great advice.  YES, I realize that in the long term you can return 8% on your investments, but to to say that the better decision is to start investing now vs. paying off debt for 3 years and then start to invest is making a untrue assumption about those 3 years.

I don't have a horse in this race, but let us run the numbers.

There are currently 1720 36-month intervals in the Shiller stock price dataset. Numbers below are with dividends reinvested, and without accounting for inflation (since inflation won't effect debt repayment either).

Of these intervals 427 saw decreases in the stock market (24.8%), 294 (17.1%) saw increases with an annualized rate between 0-4%, 257 (14.9%) saw growth between 4% and 8%, and the balance 742 36-month periods (43.1%) saw increases greater than 8% per year.*

So we can say the probability of investing in stocks being a better choice than paying off debt at 4% over a 3 year timeframe is ~58%. Better than even odds, but not great.**

OTOH we cannot say that a return of -8% is equally likely as a positive 8% return. Returns less than or equal to -8% per year occurred in only 113 of 1720 36 month intervals (6.6% frequency) while returns greater than or equal to 8% occurred in 742 36-month intervals (43.1%). This makes an 8% per year investment return from the stock market six and a half times more likely than a -8% per year return.

*The highest was an annualized rate of 35.0%/year which translates to a 146% increase over three years.

**I completely agree with those who are arguing that it's essentially impossible for investing enough to get any company match to be a bad investment though. That's a different scenario.

This is good info... I am saving this for later.  And yes, you are right... I used bad wording, I did not mean to say that -8% was just as likely.  I mean to say that values values that would make investing to be the less ideal choice were just as likely... apparently it's 42% not quite 50/50.

#### princeradar

• 5 O'Clock Shadow
• Posts: 22
• Location: Toronto
##### Re: Distancing myself from Ramseyism.
« Reply #119 on: April 17, 2017, 06:44:59 PM »
I find this thread pretty amusing.  His baby steps are a good place to start for the average person who is in a mess financially.  Pretty sure most of the people on this forum are much more advanced than the average person when it comes to finances, and thus don't agree with some of his advice.  But if you are deep in debt, and are clueless about money, he's a good place to start.

I listen to his podcast often, mostly to hear the debt free screams, they always make me smile, especially when you know the person has really scarified to get out of debt.  That being said there are a few things I find really annoying:

1.  Rachel Cruze, she has zero credibility.  Actually all the Ramsey personalities annoy me, especially when they take over when Dave is away.
2.  His 12% growth stock mutual fund advice.  Not sure why he just doesn't admit that index funds are way easier and a better investment.
3.  Not crazy about the religious content, but he does know his audience.

#### englishteacheralex

• Handlebar Stache
• Posts: 1105
• Age: 38
• Location: Honolulu, HI
##### Re: Distancing myself from Ramseyism.
« Reply #120 on: April 17, 2017, 10:54:23 PM »
Second that on the Ramsey personalities. Arg Rachel Cruz.
I journal at https://forum.mrmoneymustache.com/journals/the-aloha-journal/msg1267277/#msg1267277

Tales of a haole teacher whose futon washed up on Oahu over a decade ago.

#### GilbertB

• Stubble
• Posts: 129
• Age: 41
• Location: Gent
##### Re: Distancing myself from Ramseyism.
« Reply #121 on: April 18, 2017, 01:48:27 AM »
DR is "financial boot camp", it's basic training, and for many people that have no ambition of going beyond private 1st class, quite sufficient.

Most people in debt have a mess, silly payments, stupid cars, no idea of their budget etc.
His method is really like basic army training, you must live with just a small locker, run like crazy, lose the blubber and get shouted at. The sergeant gets you lean and mean with a standardised method.
But once you get though to what he calls baby step   4 3, I think you are square enough and have sufficient oversight to judge if you can handle credit cards, loans and other investments without digging yourself into a deep hole.

At that time, you can decide to take the the "ranger" option, also known as MMM, and go from grunt 15% to Special Financial Forces of 50% or more.

DR's stuff is good for Joe Average, but you even reading this puts you in a somewhat of an outlier position where his stuff stops making sense.

As an aside, and my personal opinion:
I think DR sets his level at 15% because despite being evangelical, he knows average people are fallible and will cave in to a "bigger house", "new F150", or "Disney Spendacation" before FIRE... He leaves room for weakness. In the MMM world, the "normal" level is set much higher as these extravagances are simply seen as weird and a hurdle to FI.
Edit: Rachel Cruz's is all shouty and annoying. The weird thing is when she calms down, she does have a softer much more radio friendly voice.
« Last Edit: April 19, 2017, 11:24:33 AM by GilbertB »

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #122 on: April 18, 2017, 09:48:53 AM »
Would we be hating on Rachel Cruze a lot less if it was revealed that she had a savings rate of 60%?

#### Bettis

• Stubble
• Posts: 198
• Location: MA
##### Re: Distancing myself from Ramseyism.
« Reply #123 on: April 18, 2017, 10:50:54 AM »
I'd love to see them reveal their average monthly budgets.  Sure it's none of my business but I'm nosey like that.

#### v8rx7guy

• Pencil Stache
• Posts: 986
• Location: PNW
##### Re: Distancing myself from Ramseyism.
« Reply #124 on: April 18, 2017, 11:14:18 AM »
I'd love to see them reveal their average monthly budgets.  Sure it's none of my business but I'm nosey like that.

And what would it prove?  Not everyone subscribes to being a minimalist or savings rates of 50%+.

#### Bettis

• Stubble
• Posts: 198
• Location: MA
##### Re: Distancing myself from Ramseyism.
« Reply #125 on: April 18, 2017, 01:25:02 PM »
It may not prove anything, just being nosey.  I'm sure they're ingrained enough that they are following the Baby Steps so I'm not trying to uncover a scam here.  Actually watching him on YouTube now.

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #126 on: April 19, 2017, 08:18:10 AM »
I'd love to see them reveal their average monthly budgets.  Sure it's none of my business but I'm nosey like that.

And what would it prove?  Not everyone subscribes to being a minimalist or savings rates of 50%+.

Ultimately, Dave Ramsey sells a reduction in lifestyle now by claiming that it pays off later. If you reduce your expenses today and create some room for investing, eventually you will be able to afford opulent housing, cars, and--yes--charitable activity.

We Mustachians emphasize the fruitless nature of consumption for its own sake. Dave promises that if you sell the BMW today, you can eventually buy one when you're wealthy. MMM discourages us from ever wanting the BMW, preferring the BMX.

#### Bimmy

• 5 O'Clock Shadow
• Posts: 39
##### Re: Distancing myself from Ramseyism.
« Reply #127 on: April 19, 2017, 08:30:28 AM »
DR is "financial boot camp", it's basic training, and for many people that have no ambition of going beyond private 1st class, quite sufficient.

Most people in debt have a mess, silly payments, stupid cars, no idea of their budget etc.
His method is really like basic army training, you must live with just a small locker, run like crazy, lose the blubber and get shouted at. The sergeant gets you lean and mean with a standardized method.
But once you get though to what he calls baby step 4 3, I think you are square enough and have sufficient oversight to judge if you can handle credit cards, loans and other investments without digging yourself into a deep hole.

At that time, you can decide to take the the "ranger" option, also known as MMM, and go from grunt 15% to Special Financial Forces of 50% or more.

DR's stuff is good for Joe Average, but you even reading this puts you in a somewhat of an outlier position where his stuff stops making sense.

As an aside, and my personal opinion:
I think DR sets his level at 15% because despite being evangelical, he knows average people are fallible and will cave in to a "bigger house", "new F150", or "Disney Spendacation" before FIRE... He leaves room for weakness. In the MMM world, the "normal" level is set much higher as these extravagances are simply seen as weird and a hurdle to FI.
Edit: Rachel Cruz's is all shouty and annoying. The weird thing is when she calms down, she does have a softer much more radio friendly voice.

Probably my favorite description of Ramsey and MMM. Lose the blubber haha
Bimmy. Close relative to Billy and Jimmy Lee of the Double Dragon Series.

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #128 on: April 19, 2017, 03:01:26 PM »
http://www.mrmoneymustache.com/2011/05/19/mr-money-mustache-vs-dave-ramsey/

One major difference that MMM cites in this post is his no-budget policy. Haven't heard anything about that on this thread.

#### Virtus

• Stubble
• Posts: 216
##### Re: Distancing myself from Ramseyism.
« Reply #129 on: April 19, 2017, 04:31:33 PM »
That said, I sort of lost interest also, as I disagree with his 12% returns, his ELP startegy, his views on politics and religion, and I find Rachel Cruz's voice to be irritating.

Its funny to me that you along with others disagree with his statement of "12% average annual returns". Its like saying "I disagree with math". Ramsey claims the 12% is the average annual return of the stock market, not the CAGR or inflation adjusted return. You may disagree with his use of average annual return vs CAGR but his statement is accurate.

I get why he uses the annual average return vs CAGR:
-First the CAGR return is more sensitive to the returns at the beginning of the range. For example look at the difference between 1931 - 2016 and 1932 - 2016. The average annual return difference for the periods is 0.6% while the CAGR difference is 0.9%.
-Its easier to explain. Try explaining CAGR in 5 seconds on the radio or in a book to people that are scared by math. Average annual returns is easy to explain, if you need to explain it at all.
-The average annual is bigger. He is trying to motivate people, so the bigger the better.

For the period from 1926 to 2016:

Annual average return of S&P 500 (Nominal)... 12.02%
CAGR (Nominal)........................................ 10.06%
Annual average return of S&P 500 (Real).......... 8.93%
CAGR (Real)............................................... 6.96%

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

However, I completely agree with you that I cannot stand Rachel Cruz, and I also find her voice annoying. I don't listen to podcasts or read books created by people that are not experienced in the related subject or have not yet achieved anything worth noting in their life.

#### MDM

• Walrus Stache
• Posts: 8168
##### Re: Distancing myself from Ramseyism.
« Reply #130 on: April 19, 2017, 04:46:02 PM »
Its funny to me that you along with others disagree with his statement of "12% average annual returns". Its like saying "I disagree with math". Ramsey claims the 12% is the average annual return of the stock market, not the CAGR or inflation adjusted return. You may disagree with his use of average annual return vs CAGR but his statement is accurate.
It isn't "disagree[ing] with math".  It is saying that Ramsey leads people to believe an incorrect way to do the math.

Quote
I get why he uses the annual average return vs CAGR:
-First the CAGR return is more sensitive to the returns at the beginning of the range. For example look at the difference between 1931 - 2016 and 1932 - 2016. The average annual return difference for the periods is 0.6% while the CAGR difference is 0.9%.
-Its easier to explain. Try explaining CAGR in 5 seconds on the radio or in a book to people that are scared by math. Average annual returns is easy to explain, if you need to explain it at all.
-The average annual is bigger. He is trying to motivate people, so the bigger the better.
If you want to say "the ends [getting people to invest] justify the means [providing unsubstantiated hope for large returns]" then that is at least a defensible position.

Quote
Annual average return of S&P 500 (Nominal)... 12.02%
CAGR (Nominal)........................................ 10.06%
Annual average return of S&P 500 (Real).......... 8.93%
CAGR (Real)............................................... 6.96%
Taking (1 + return)^30 results in >40% deficit for the actual (i.e., based on CAGR) compared with the unsubstantiated hope of the "average" returns.

Finding him untrustworthy in this aspect leads me to trust him less in general.  YMMV.

#### maizeman

• Handlebar Stache
• Posts: 2408
##### Re: Distancing myself from Ramseyism.
« Reply #131 on: April 19, 2017, 05:00:27 PM »

Its funny to me that you along with others disagree with his statement of "12% average annual returns". Its like saying "I disagree with math". Ramsey claims the 12% is the average annual return of the stock market, not the CAGR or inflation adjusted return. You may disagree with his use of average annual return vs CAGR but his statement is accurate.

But only for certain start dates. If we just use the whole moneychimp dataset, the average return is less than 11%.

Quote
I get why he uses the annual average return vs CAGR:
-First the CAGR return is more sensitive to the returns at the beginning of the range. For example look at the difference between 1931 - 2016 and 1932 - 2016. The average annual return difference for the periods is 0.6% while the CAGR difference is 0.9%.

This is incorrect. To test this, take a 30 year period. Assume 10% growth every year. CAGR is also 10%. Now change the first year to -50%. Now the CAGR is 6.8%. Now reset the first year to 10%, and set the last year to -50%. Now the CAGR is 6.8% again.

Quote
-Its easier to explain. Try explaining CAGR in 5 seconds on the radio or in a book to people that are scared by math. Average annual returns is easy to explain, if you need to explain it at all.

"CAGR is the return you can expect to receive when you invest for the long term."

Quote
-The average annual is bigger. He is trying to motivate people, so the bigger the better.

This is true. I guess this one comes down to whether you are you okay with misleading people for a good cause.

Quote
For the period from 1926 to 2016:

Annual average return of S&P 500 (Nominal)... 12.02%
CAGR (Nominal)........................................ 10.06%
Annual average return of S&P 500 (Real).......... 8.93%
CAGR (Real)............................................... 6.96%

But why 1926 as your start point? Wouldn't 1916 (a full century) or 1871 (entire dataset) make more sense?

#### LiveLean

• Pencil Stache
• Posts: 675
• Location: Central Florida
##### Re: Distancing myself from Ramseyism.
« Reply #132 on: April 19, 2017, 05:28:28 PM »
Re: Ramsey personalities

I want to reach through the radio and strangle Chris Hogan and his James Earl Jones wannabe voice when he says, "Did you know that 52 percent of Americans have less than \$10,000 saved for retirement?"

Hey Chris: Did you know that 25 percent of Americans are 18 or younger? Or that an additional 10 percent are between 18 and 24?

Sorry if my 11-year-old hasn't socked anything away for retirement yet. Good grief.
Living lean at www.tolivelean.com

#### Virtus

• Stubble
• Posts: 216
##### Re: Distancing myself from Ramseyism.
« Reply #133 on: April 19, 2017, 05:46:21 PM »

Its funny to me that you along with others disagree with his statement of "12% average annual returns". Its like saying "I disagree with math". Ramsey claims the 12% is the average annual return of the stock market, not the CAGR or inflation adjusted return. You may disagree with his use of average annual return vs CAGR but his statement is accurate.

But only for certain start dates. If we just use the whole moneychimp dataset, the average return is less than 11%.

Quote
I get why he uses the annual average return vs CAGR:
-First the CAGR return is more sensitive to the returns at the beginning of the range. For example look at the difference between 1931 - 2016 and 1932 - 2016. The average annual return difference for the periods is 0.6% while the CAGR difference is 0.9%.

This is incorrect. To test this, take a 30 year period. Assume 10% growth every year. CAGR is also 10%. Now change the first year to -50%. Now the CAGR is 6.8%. Now reset the first year to 10%, and set the last year to -50%. Now the CAGR is 6.8% again.

Quote
-Its easier to explain. Try explaining CAGR in 5 seconds on the radio or in a book to people that are scared by math. Average annual returns is easy to explain, if you need to explain it at all.

"CAGR is the return you can expect to receive when you invest for the long term."

Quote
-The average annual is bigger. He is trying to motivate people, so the bigger the better.

This is true. I guess this one comes down to whether you are you okay with misleading people for a good cause.

Quote
For the period from 1926 to 2016:

Annual average return of S&P 500 (Nominal)... 12.02%
CAGR (Nominal)........................................ 10.06%
Annual average return of S&P 500 (Real).......... 8.93%
CAGR (Real)............................................... 6.96%

But why 1926 as your start point? Wouldn't 1916 (a full century) or 1871 (entire dataset) make more sense?

Let me rephrase my sensitivity statement. CAGR is more sensitive to the inclusion or exclusion of a year with extremely high or extremely low returns. This can be problematic when looking at the period from 1926 to 2007 and the period from 1926 to 2008.

When I wrote the post I was debating explaining the "1926 start year" but I figured I would just wait and see if someone asked the question. So here we are.

The reason many researchers pick 1926 as the start year for their analysis is because the data is more accurate from that point forward. You can read at the below link about the CRSP and date collection project. The one thing we will need from the link for later is that 1926 is the year the Consolidated Stock Exchange (NYSE's primary competitor at the time) ceased operations.

http://www.crsp.com/research/why-1926

The moneychimp site is based on Robert Shillers data which can be found at http://www.econ.yale.edu/~shiller/data.htm. He does not give a reference for data post-1926, although he gives a reference to one of his prior works, I assume it is based on the CRSP. On this page he also states "Dividend and earnings data before 1926 are from Cowles and associates (Common Stock Indexes, 2nd ed. [Bloomington, Ind.: Principia Press, 1939]), interpolated from annual data." If you look into the Common Stock Indexes paper, which I have just begun and it is very interesting, you will find the data used, while extensive it is incomplete.

If anyone is curious: http://cowles.yale.edu/sites/default/files/files/pub/mon/m03-2-all.pdf (the data used begins on PDF page 14)

The data Shiller and Moneychimp are using, before 1926, includes only roughly 90% (as measured by value) of equities traded on the NYSE. In 1929 the NYSE only accounted for roughly 67% of all equity transactions. In 1929 the NYSE's primary competitor had been out of business for 3 years. With some really rough math we can estimate that the study captured a maximum of 60.3% (90% X 67%) of the equities market and likely less as the NYSE had gained market share from 1870 to 1929. However, 60% is a large sample but would be skewed because it is not an unbiased sample.

Conclusion: I can understand why researchers include or exclude data before 1926 in studies. However, 1926 is not an arbitrary year selected at random it is the division point between two data sets.

« Last Edit: April 19, 2017, 05:53:18 PM by Virtus »

#### Telecaster

• Handlebar Stache
• Posts: 1182
• Location: Seattle, WA
##### Re: Distancing myself from Ramseyism.
« Reply #134 on: April 19, 2017, 06:20:43 PM »

Its funny to me that you along with others disagree with his statement of "12% average annual returns". Its like saying "I disagree with math". Ramsey claims the 12% is the average annual return of the stock market, not the CAGR or inflation adjusted return. You may disagree with his use of average annual return vs CAGR but his statement is accurate.

Accurate, but misleading.  No virtue in that.

#### tyort1

• Handlebar Stache
• Posts: 1903
• Age: 46
• Location: Denver, Colorado
##### Re: Distancing myself from Ramseyism.
« Reply #135 on: April 19, 2017, 07:01:33 PM »
MMM discourages us from ever wanting the BMW, preferring the BMX.

I lol'd :)
Frugalite in training.

#### eddie

• 5 O'Clock Shadow
• Posts: 50
##### Re: Distancing myself from Ramseyism.
« Reply #136 on: April 21, 2017, 10:58:50 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

I'm not going to argue with you math because it it correct.  But, it's all about changing behavior.  Most people are too comfortable with debt and don't use it judiciously.  I agree with Dave Ramsey, for most people, changing their behavior for a lifetime is more important than that \$100,000 lost.  I have a finance degree and took a bunch of extra math classes in college for fun.  I understand the math, but behavior is more important for 99% of people.  A few years ago my wife and I hit a tipping point.  I had started a business with \$15k of our own \$ and \$40k borrowed from a close friend.  The business failed and I closed it after 18 months.  It probably sucked another \$15k out of us while it was failing.  We also owed on a rental condo (I lived in it when I was single), my wife's car, her grad school student loans and our house.  For about 9 months we cut our retirement contributions to get my friend paid off as fast as possible.  Once we felt were headed in the right direction behaviorally we have recently upped our retirement contributions, but our main priority now is paying crap off.  We paid off the condo last year, the car last month, we will have the student loans paid off by the end of the year, and the house paid off by late 2018 or early 2019.  We'll keep 1 credit card around for travel and might get another mortgage if we move up in house, but other than that I will never use debt ever again.  I make smarter decisions without it.  Once we get everything paid off we're going into overdrive with maxing our 403b, Simple IRA, Roths, HSAs, large 529 contributions, and we should have enough left over to live a little more too.

( I know contributing to retirement at all while having non-mortgage debt and having a credit card is against Ramsey teachings but that's about all I deviate on.)

#### Virtus

• Stubble
• Posts: 216
##### Re: Distancing myself from Ramseyism.
« Reply #137 on: April 22, 2017, 08:15:05 PM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

I'm not going to argue with you math because it it correct.  But, it's all about changing behavior.  Most people are too comfortable with debt and don't use it judiciously.  I agree with Dave Ramsey, for most people, changing their behavior for a lifetime is more important than that \$100,000 lost.  I have a finance degree and took a bunch of extra math classes in college for fun.  I understand the math, but behavior is more important for 99% of people.  A few years ago my wife and I hit a tipping point.  I had started a business with \$15k of our own \$ and \$40k borrowed from a close friend.  The business failed and I closed it after 18 months.  It probably sucked another \$15k out of us while it was failing.  We also owed on a rental condo (I lived in it when I was single), my wife's car, her grad school student loans and our house.  For about 9 months we cut our retirement contributions to get my friend paid off as fast as possible.  Once we felt were headed in the right direction behaviorally we have recently upped our retirement contributions, but our main priority now is paying crap off.  We paid off the condo last year, the car last month, we will have the student loans paid off by the end of the year, and the house paid off by late 2018 or early 2019.  We'll keep 1 credit card around for travel and might get another mortgage if we move up in house, but other than that I will never use debt ever again.  I make smarter decisions without it.  Once we get everything paid off we're going into overdrive with maxing our 403b, Simple IRA, Roths, HSAs, large 529 contributions, and we should have enough left over to live a little more too.

( I know contributing to retirement at all while having non-mortgage debt and having a credit card is against Ramsey teachings but that's about all I deviate on.)

Well then I will argue with his math, because it is wrong. Lets say the term on the guys debt is 6 years but getting really intense gets him to pay it off in 3 years. Once he has his debt paid off after 3 years he will then start to invest. So over 6 years (assuming the same behavior) under either plan he will have put the same amount of money to invest/principle repayment. The difference in the strategies comes down to the difference of timing and the interest rate on debt compared to the rate of return on the investment.

#### JessicaCoaches

• 5 O'Clock Shadow
• Posts: 6
• Location: Tucson, AZ
##### Re: Distancing myself from Ramseyism.
« Reply #138 on: April 22, 2017, 11:33:05 PM »
Talk about culty.  I like a lot of what he has to say regarding budget and consumer debt.  However, I'm a real estate investor so pretty far from his core.  I had a discussion with my sister and BIL whom both follow him religiously.  I said that he was clearly a good businessman and making a lot of money.  They were shocked, they seemed to be thinking he was doing this all out of the goodness of his heart and not earning a profit?  Baffling.
FIRE, Real Estate, Low-Income Hustle, Travel, and Wellness Blog... I clearly have not found a niche! http://www.jessicacoaches.com

#### GilbertB

• Stubble
• Posts: 129
• Age: 41
• Location: Gent
##### Re: Distancing myself from Ramseyism.
« Reply #139 on: April 23, 2017, 12:46:29 AM »
So I was listening to DR today and he said something that has always irritated me but I finally ran the numbers to see how wrong he is about it. If someone would follow DR's baby steps plan you would not be contributing to retirement while repaying your debt. His response to someone's question about this is that it is only THREE years of investing that you are foregoing to pay off the debt and that this amount won't cost the caller that much in the long run. The way he said it so emphatically made me think it has to be wrong and I wanted to check it to see how bad of advice this is, as long as the person has some money to put into retirement.

Thus I sat at my desk and crunched some numbers to see what the total investment amount comes to if someone was to begin investing today by opening and fully funding an IRA and would then add another \$5,500 per year and then running the numbers alone for the subsequent three years. From there the basic math comes out to a total amount of just under \$105,000 in the same 24 years if a person waits three years to invest. This was based on an 8% return every year for simplicity which of course is not a winner in DR's book. So at a 12% return the three years of waiting would cost the person \$251,000.

Not a lot of money? Depends on who you ask I guess.

I'm not going to argue with you math because it it correct.  But, it's all about changing behavior.  Most people are too comfortable with debt and don't use it judiciously.  I agree with Dave Ramsey, for most people, changing their behavior for a lifetime is more important than that \$100,000 lost.  I have a finance degree and took a bunch of extra math classes in college for fun.  I understand the math, but behavior is more important for 99% of people.  A few years ago my wife and I hit a tipping point.  I had started a business with \$15k of our own \$ and \$40k borrowed from a close friend.  The business failed and I closed it after 18 months.  It probably sucked another \$15k out of us while it was failing.  We also owed on a rental condo (I lived in it when I was single), my wife's car, her grad school student loans and our house.  For about 9 months we cut our retirement contributions to get my friend paid off as fast as possible.  Once we felt were headed in the right direction behaviorally we have recently upped our retirement contributions, but our main priority now is paying crap off.  We paid off the condo last year, the car last month, we will have the student loans paid off by the end of the year, and the house paid off by late 2018 or early 2019.  We'll keep 1 credit card around for travel and might get another mortgage if we move up in house, but other than that I will never use debt ever again.  I make smarter decisions without it.  Once we get everything paid off we're going into overdrive with maxing our 403b, Simple IRA, Roths, HSAs, large 529 contributions, and we should have enough left over to live a little more too.

( I know contributing to retirement at all while having non-mortgage debt and having a credit card is against Ramsey teachings but that's about all I deviate on.)

Well then I will argue with his math, because it is wrong. Lets say the term on the guys debt is 6 years but getting really intense gets him to pay it off in 3 years. Once he has his debt paid off after 3 years he will then start to invest. So over 6 years (assuming the same behavior) under either plan he will have put the same amount of money to invest/principle repayment. The difference in the strategies comes down to the difference of timing and the interest rate on debt compared to the rate of return on the investment.
You forgot risk.
Paying off the house early lowers the risk (sickness, job loss etc those things that only happen to other people), your option is in essence investing against your primary residence, that's high risk in my book,
So in pure maths, you are right, add in in risk, you are either right or wrong depending on the case, add in the long term financial disfonctioness of people who start the Baby Steps, you might be wrong nearly all the time.

You are a high fonction MMM, don't assume that everybody is as principled and disciplined as you.

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #140 on: April 24, 2017, 11:38:22 AM »
Dave very blatantly emphasizes that people need to think through ideas. I have repeatedly heard him say that people need to understand what they're doing, and he leads callers through a thought-process on many issues. A cultist would not do this.

#### craiglepaige

• Handlebar Stache
• Posts: 1100
• Location: Ohio
##### Re: Distancing myself from Ramseyism.
« Reply #141 on: April 24, 2017, 07:17:46 PM »
I honestly don't give two shits about his investment advice(because any investment is better than none) and I do like the fact that Ramsey wants​ people to be out of debt and pay cash whenever possible, that's all great.

My biggest issue with him at the moment is my opinion that he has turned into an infomercial for his books, daughter, Hogan​ and every other company that promotes through the show. If feels, to me, that every call is a segway to an promo bit. EVERY freaking phone call...

That plus the aforementioned ill-advice  of wanting to send a 75yo man back to work without knowing ANY of the specifics of the situation. But it made the show more entertaining so who cares???

He's an infomercial wrapped up in a good advice. I guess it's better than most but the current vibe is one of SELL, SELL, SELLL...
-The conqueror will always become a slave to his conquest.

- Eres Un Esclavo Financiero
https://youtu.be/GO1Fsp4cUTQ

#### Travis

• Handlebar Stache
• Posts: 2236
• Location: Arizona
##### Re: Distancing myself from Ramseyism.
« Reply #142 on: April 24, 2017, 10:02:57 PM »
http://www.mrmoneymustache.com/2011/05/19/mr-money-mustache-vs-dave-ramsey/

One major difference that MMM cites in this post is his no-budget policy. Haven't heard anything about that on this thread.

Pete doesn't keep it a secret that he's an engineer, can do complex math in his head, and is obsessive about optimization.  He doesn't need to budget, but doesn't discourage others who aren't at his level from doing so. In that article he also confirms what others have stated repeatedly - they have vastly different target audiences.
My Journal: http://forum.mrmoneymustache.com/journals/will-i-or-won't-i-a-home-run-or-a-base-hit/

Unlike some other tech companies or skilled-labor industries, we're always hiring.

www.goarmy.com

#### Travis

• Handlebar Stache
• Posts: 2236
• Location: Arizona
##### Re: Distancing myself from Ramseyism.
« Reply #143 on: April 24, 2017, 10:16:02 PM »
Pete and DR seem to intersect in their view of the "hair on fire" debt crowd.  DR has a great program for dealing with that demographic.  If he just stopped there, I don't think there would be much to complain over.  Where he starts to fall apart is his investing advice.  In the best case it's poorly optimized math (but better than nothing). In the worst it's handing financially illiterate and vulnerable people who he's gained their trust to financial managers who he could certainly do a better job of disclosing his interests with.  He has a personal history with some of these companies or just likes their services.  That's fine. It's the part where these companies pay him for exposure I don't see him mention much and that bothers me given his target audience.
My Journal: http://forum.mrmoneymustache.com/journals/will-i-or-won't-i-a-home-run-or-a-base-hit/

Unlike some other tech companies or skilled-labor industries, we're always hiring.

www.goarmy.com

#### talltexan

• Handlebar Stache
• Posts: 1528
##### Re: Distancing myself from Ramseyism.
« Reply #144 on: April 25, 2017, 08:59:33 AM »
http://www.mrmoneymustache.com/2011/05/19/mr-money-mustache-vs-dave-ramsey/

One major difference that MMM cites in this post is his no-budget policy. Haven't heard anything about that on this thread.

Pete doesn't keep it a secret that he's an engineer, can do complex math in his head, and is obsessive about optimization.  He doesn't need to budget, but doesn't discourage others who aren't at his level from doing so. In that article he also confirms what others have stated repeatedly - they have vastly different target audiences.

Compare it to Pete's discussion of "Your Money or Your Life", in which he gives an A+ to the idea of recording your highest several budget items and figuring out how to reduce them each month.

#### Virtus

• Stubble
• Posts: 216
##### Re: Distancing myself from Ramseyism.
« Reply #145 on: April 25, 2017, 11:08:02 AM »
I don't think there would be much to complain over.  Where he starts to fall apart is his investing advice.  In the best case it's poorly optimized math (but better than nothing). In the worst it's handing financially illiterate and vulnerable people who he's gained their trust to financial managers who he could certainly do a better job of disclosing his interests with.  He has a personal history with some of these companies or just likes their services.  That's fine. It's the part where these companies pay him for exposure I don't see him mention much and that bothers me given his target audience.

Its funny how people criticize Dave for his investing advice and go as far as calling it "dangerous".  Now I don't have the time or resources to run an analysis on all the mutual funds that have existed over the last 100 years which would eliminate things like survivor bias; I can however, run a quick sample that should give us some general idea if Dave advice is "dangerous".

I pulled the returns since inception for several American funds from their website. American funds are a family of mutual funds that are often sold by investment advisers. I then compared these returns for the return from an S&P 500 index fund with a expense ratio equal to that of VTSAX. Even including the high expense ratios the American funds out performed the index on average.

AMCPX  from 1967 - 11.31% - exp 0.67% =10.64% net vs 10.13% (market) = 0.51%
AEPGX  from 1984 - 10.48% - exp 0.83% = 9.65% net vs 10.88% (market) = (1.23%)
AGTHX from 1973 - 13.37% - exp 0.66% = 12.71% net vs 10.14% (market) = 2.57%
ANEFX from 1983 - 10.91% - exp 0.81% = 10.10% net vs 11.22% (market) = (1.12%)
ANWPX from 1973 - 11.99% - exp 0.77% = 11.22% net vs 10.14% (market) = 1.08%
AMRMX from 1950 - 11.73% - exp 0.59% = 11.14% net vs 11.22% (market) = (0.08%)

Average out-performance of 1.73%

Now, I am not recommending American funds or suggesting that actively managed mutual funds are a better tool to invest capital. I would argue though that the statement that Dave's investing advice is "dangerous" is rooted in ignorance.

Additionally, how does he not disclose his relationship with the investment advisers? This is right on the landing page for the Smartvestor section of his website.

multi hosting

https://www.americanfunds.com/individual/investments/allfunds
http://www.moneychimp.com/features/market_cagr.htm

Assumed an expense ratio of 0.05% for market returns based on VTSAX

#### MightyAl

• Stubble
• Posts: 134
##### Re: Distancing myself from Ramseyism.
« Reply #146 on: April 25, 2017, 11:19:07 AM »
American Funds are front end loaded which you failed to account for.  Ask me how I know.  Add that in and they lose horribly.

I don't think there would be much to complain over.  Where he starts to fall apart is his investing advice.  In the best case it's poorly optimized math (but better than nothing). In the worst it's handing financially illiterate and vulnerable people who he's gained their trust to financial managers who he could certainly do a better job of disclosing his interests with.  He has a personal history with some of these companies or just likes their services.  That's fine. It's the part where these companies pay him for exposure I don't see him mention much and that bothers me given his target audience.

Its funny how people criticize Dave for his investing advice and go as far as calling it "dangerous".  Now I don't have the time or resources to run an analysis on all the mutual funds that have existed over the last 100 years which would eliminate things like survivor bias; I can however, run a quick sample that should give us some general idea if Dave advice is "dangerous".

I pulled the returns since inception for several American funds from their website. American funds are a family of mutual funds that are often sold by investment advisers. I then compared these returns for the return from an S&P 500 index fund with a expense ratio equal to that of VTSAX. Even including the high expense ratios the American funds out performed the index on average.

AMCPX  from 1967 - 11.31% - exp 0.67% =10.64% net vs 10.13% (market) = 0.51%
AEPGX  from 1984 - 10.48% - exp 0.83% = 9.65% net vs 10.88% (market) = (1.23%)
AGTHX from 1973 - 13.37% - exp 0.66% = 12.71% net vs 10.14% (market) = 2.57%
ANEFX from 1983 - 10.91% - exp 0.81% = 10.10% net vs 11.22% (market) = (1.12%)
ANWPX from 1973 - 11.99% - exp 0.77% = 11.22% net vs 10.14% (market) = 1.08%
AMRMX from 1950 - 11.73% - exp 0.59% = 11.14% net vs 11.22% (market) = (0.08%)

Average out-performance of 1.73%

Now, I am not recommending American funds or suggesting that actively managed mutual funds are a better tool to invest capital. I would argue though that the statement that Dave's investing advice is "dangerous" is rooted in ignorance.

Additionally, how does he not disclose his relationship with the investment advisers? This is right on the landing page for the Smartvestor section of his website.

multi hosting

https://www.americanfunds.com/individual/investments/allfunds
http://www.moneychimp.com/features/market_cagr.htm

Assumed an expense ratio of 0.05% for market returns based on VTSAX

#### Travis

• Handlebar Stache
• Posts: 2236
• Location: Arizona
##### Re: Distancing myself from Ramseyism.
« Reply #147 on: April 25, 2017, 11:35:57 AM »
I don't think there would be much to complain over.  Where he starts to fall apart is his investing advice.  In the best case it's poorly optimized math (but better than nothing). In the worst it's handing financially illiterate and vulnerable people who he's gained their trust to financial managers who he could certainly do a better job of disclosing his interests with.  He has a personal history with some of these companies or just likes their services.  That's fine. It's the part where these companies pay him for exposure I don't see him mention much and that bothers me given his target audience.

Its funny how people criticize Dave for his investing advice and go as far as calling it "dangerous".  Now I don't have the time or resources to run an analysis on all the mutual funds that have existed over the last 100 years which would eliminate things like survivor bias; I can however, run a quick sample that should give us some general idea if Dave advice is "dangerous".

I pulled the returns since inception for several American funds from their website. American funds are a family of mutual funds that are often sold by investment advisers. I then compared these returns for the return from an S&P 500 index fund with a expense ratio equal to that of VTSAX. Even including the high expense ratios the American funds out performed the index on average.

AMCPX  from 1967 - 11.31% - exp 0.67% =10.64% net vs 10.13% (market) = 0.51%
AEPGX  from 1984 - 10.48% - exp 0.83% = 9.65% net vs 10.88% (market) = (1.23%)
AGTHX from 1973 - 13.37% - exp 0.66% = 12.71% net vs 10.14% (market) = 2.57%
ANEFX from 1983 - 10.91% - exp 0.81% = 10.10% net vs 11.22% (market) = (1.12%)
ANWPX from 1973 - 11.99% - exp 0.77% = 11.22% net vs 10.14% (market) = 1.08%
AMRMX from 1950 - 11.73% - exp 0.59% = 11.14% net vs 11.22% (market) = (0.08%)

Average out-performance of 1.73%

Now, I am not recommending American funds or suggesting that actively managed mutual funds are a better tool to invest capital. I would argue though that the statement that Dave's investing advice is "dangerous" is rooted in ignorance.

Additionally, how does he not disclose his relationship with the investment advisers? This is right on the landing page for the Smartvestor section of his website.

multi hosting

https://www.americanfunds.com/individual/investments/allfunds
http://www.moneychimp.com/features/market_cagr.htm

Assumed an expense ratio of 0.05% for market returns based on VTSAX

I never used the word "dangerous," though you chose to use it a couple times.  As far as his business relationships, the one you posted is the only one I've found that flat out says "we pay Dave Ramsey." The rest are Ramsey saying "we like these guys."  In my opinion, a reasonable person would assume anybody he recommends is paying him an advertising or affiliation fee; however, a good chunk of the folks who need his help probably don't know how that system works.
My Journal: http://forum.mrmoneymustache.com/journals/will-i-or-won't-i-a-home-run-or-a-base-hit/

Unlike some other tech companies or skilled-labor industries, we're always hiring.

www.goarmy.com

#### ReadySetMillionaire

• Pencil Stache
• Posts: 781
• Location: The Buckeye State
##### Re: Distancing myself from Ramseyism.
« Reply #148 on: April 25, 2017, 11:47:35 AM »
MMM is about optimization and speaks to people who already have either advanced interest or knowledge about personal finance. Dave Ramsey is about psychology and speaks to people who are personal financial beginners.

I found MMM after reading 5-6 personal finance books (including Ramsey's "Personal Money Makeover") and constantly reading stuff online. This website has pointed me in a lot of interesting directions and has made me change a couple things that have saved quite a bit per month.

Conversely, my brother and his wife (who I've posted about before) live paycheck to paycheck. I can (and have) showed them the math over and over, but their immediate financial needs are so significant that they simply do not care about the long term. Seriously, why would they care about their 401k balance when they turn 60 when they aren't sure whether they are going to be able to afford groceries this week?  And that example is true--they've texted me asking if I could spot them \$5 to buy pasta and butter.

The best they've ever done in their life is when I gave them a copy of Dave Ramsey's "Total Money Makeover." They got rid of their cars, they paid down debt, and they were about to be on their way.  Then she got pregnant, lost her job, and now it's all a mess again.

When they get back on track, I think they will certainly be better off reading Dave Ramsey before I can tell them about optimization and matches and backdoor Roths and safe withdrawal rates and on and on and on. And that's because his advice is psychological, not mathematical, and when people are in a shitstorm, the psychology is significantly more important than the math.

If you're past that, then his advice is not for you. But if you're like me, his book started me on a path about caring about money, which eventually lead me here.
No more zero days. Promise yourself that you will do one thing every day that takes you one step closer to your goal.

#### Telecaster

• Handlebar Stache
• Posts: 1182
• Location: Seattle, WA
##### Re: Distancing myself from Ramseyism.
« Reply #149 on: April 25, 2017, 12:36:50 PM »

Its funny how people criticize Dave for his investing advice and go as far as calling it "dangerous".  Now I don't have the time or resources to run an analysis on all the mutual funds that have existed over the last 100 years which would eliminate things like survivor bias; I can however, run a quick sample that should give us some general idea if Dave advice is "dangerous".

I wouldn't use the term "dangerous."  More like "an expensive example of ignorance."   Survivorship bias in active mutual funds is huge.  It is a serious and fundamental mistake to ignore it.   And you're right, it is fairly hard to study, because you need access to the CRSP database.  But others have done those studies, for example, this one from Vanguard:

https://personal.vanguard.com/pdf/s362.pdf

Bottom line, over the last 20 years, the vast majority of actively managed funds (79%) either died, were merged into other funds, and then underpeformed, or just flat underperformed.

So, is it "dangerous" advice to recommend something that almost always underperforms?  No, just an expensive lesson in ignorance.