Author Topic: dave ramsey: Ignorant or just lying?  (Read 9924 times)

themagicman

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dave ramsey: Ignorant or just lying?
« on: February 07, 2015, 09:19:25 PM »
I listen to Dave Ramsey's podcasts every once in a while on my way to work and I often wonder if he is just ignorant or blatantly lying to get his point across to people (Which sometimes his points are correct)? I assume he is just lying because I would be completely shocked if, with him being in personal finance, was not aware of some of these things.
A few things that I remember hearing him say that I was very confused about if he actually knew the truth.

-Many, many times callers have called in and asked about early withdrawals from 401k's. He has asked how much they make and usually him and his wife make about 80k a year. Dave then goes on to say that there would be a 45% (Federal plus 10% penalty) hit on the withdrawal plus their state tax. A married couple making 80k a year is nowhere near a 35% tax rate. They would have to be making about $430k a year (Even more if they have kids). Dave throws most couples making on 50k on his show into the 35% bracket in his show.

- He also has said that their is no situation that a roth is better than traditional for anyone because "Who wants to get hit with a million dollar tax bill when you retire"?

-He also says index funds will never outperform actively managed funds and that you should expect to get a 12% return on your money after inflation in the stock market.

So what do you all think? Ignorant or lying to make his point?
« Last Edit: February 07, 2015, 09:24:10 PM by themagicman »

darkadams00

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Re: dave ramsey: Ignorant or just lying?
« Reply #1 on: February 07, 2015, 10:28:43 PM »
I wouldn't call him ignorant (self-made multi-millionaire who gives away more than I'll probably make in my lifetime) or a liar (implying intent to mislead which I doubt he is doing). I would say that the common knowledge about Ramsey is this--the majority of Americans need everything he gives them about stopping the stupid spending, buying cars one can afford with cash, buying a house within one's means, and grabbing the reins for personal finances. All of the points you mentioned are related to investing. That's the other side of Ramsey--his investing advice is weak at best, bad in most cases. So without the derogatory name calling, I would just say one should find investing advice elsewhere after the budget/debt/spending issues are in hand.

Zikoris

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Re: dave ramsey: Ignorant or just lying?
« Reply #2 on: February 07, 2015, 11:25:49 PM »
One of my general life philosophies is Hanlon's Razor: Never attribute to malice that which is adequately explained by stupidity.

innerscorecard

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Re: dave ramsey: Ignorant or just lying?
« Reply #3 on: February 08, 2015, 02:07:59 AM »
As for investment, when you are as rich as he apparently is, there are investment options that normal non-rich people can't consider, and some of them probably do have better risk-adjusted returns than index funds. Ramsey might just forget what it's like not to be rich.

It's a myth that rich people have access to magical investments that consistently beat publicly available investments. Especially with the rise of ETFs, where any person can now get access to a lot of asset classes that were only available to the rich before.

surfhb

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Re: dave ramsey: Ignorant or just lying?
« Reply #4 on: February 08, 2015, 03:54:24 AM »
Well he's close about the 45% hit on an early withdrawal.   30+10% give or take

Never hear him say managed funds beat the indexes....do you know which show?     If he did then I've lost what little respect I have for him

sd85

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Re: dave ramsey: Ignorant or just lying?
« Reply #5 on: February 08, 2015, 04:44:27 AM »
You would hit a 45% rate if you were in the 25% bracket, paid the 10% penalty and had a 10% state tax.

I've heard his stuff a lot, but I don't think I've ever heard him say actively managed funds will always outperform indexed. I've actually heard him suggest a S&P 500 index on a couple of occasions (although not a lot).
« Last Edit: February 08, 2015, 04:46:30 AM by sd85 »

lakemom

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Re: dave ramsey: Ignorant or just lying?
« Reply #6 on: February 08, 2015, 05:36:34 AM »
You have to remember that you'll pay your max rate on withdraw because all the credits etc. come at tax time so if you take an early withdraw they tax you like you're not even getting the "standard" deduction and YES it does come out to be close to 50% (but if you are really lower income a lot of that comes back at tax time).  Please don't ask how we know this (hanging head in shame)!

And while I don't generally agree with all of his investing advice, he's spot on for his main focus which is teaching people how to live within their means, pay off their debts, stay out of new debt, and save for the future. 

hunniebun

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Re: dave ramsey: Ignorant or just lying?
« Reply #7 on: February 08, 2015, 06:30:39 AM »
One of my general life philosophies is Hanlon's Razor: Never attribute to malice that which is adequately explained by stupidity.

I love this!!!

 I think perhaps exaggerating might be a better word than lying? Perhaps he wants to deter people with limited financial knowledge from doing things...so makes it seems worse than it is? By exaggerating the amount of tax you would pay to deter someone who wants to use their 401 money to buy a boat? 

themagicman

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Re: dave ramsey: Ignorant or just lying?
« Reply #8 on: February 08, 2015, 06:44:48 AM »
Never hear him say managed funds beat the indexes....do you know which show?     If he did then I've lost what little respect I have for him
No, I do not know which show but I have heard him mention a couple of times that you should not use index funds. I found this on bad money advice website

5. Apparently discussing an investment in an S&P 500 index fund:

I recommend mutual funds because they always beat the SNP.  You can own several funds that beat the SNP whether in an up-market or a down-market.  It’s alright to own some SNP, but none of your retirement savings should be in that.  If you do a little bit of looking you can find tax-protected Roth IRAs and 401-Ks that give much better returns than the SNP.

For example, take a mutual fund with a 25-year track record.  Over the course of those 25 years if you can see that the mutual fund almost always beats the SNP, then that mutual fund contains stocks that are winning more than the overall market is winning.

One of my general life philosophies is Hanlon's Razor: Never attribute to malice that which is adequately explained by stupidity.

I love this!!!

 I think perhaps exaggerating might be a better word than lying? Perhaps he wants to deter people with limited financial knowledge from doing things...so makes it seems worse than it is? By exaggerating the amount of tax you would pay to deter someone who wants to use their 401 money to buy a boat? 


Yes, exaggerating might have been a better term. I do not doubt that he is doing it to help people make the right decision, just curious if he actually knew the tax rates.

I am married and make about 90k. We are in the 15% bracket without any IRA or 401k deductions. It appears that he regular quotes people in this 50-100k range as being in the 35% federal bracket

Mommyof2

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Re: dave ramsey: Ignorant or just lying?
« Reply #9 on: February 08, 2015, 07:39:33 AM »
My h and I make in the 200's together and between state and federal pay over 35% and have two kids. 

themagicman

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Re: dave ramsey: Ignorant or just lying?
« Reply #10 on: February 08, 2015, 07:50:35 AM »
My h and I make in the 200's together and between state and federal pay over 35% and have two kids.
Yes but he continually says people making 80k will be in the 35% federal bracket pluswhatever the state rate is

desk_jockey

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Re: dave ramsey: Ignorant or just lying?
« Reply #11 on: February 08, 2015, 07:58:45 AM »
Ramsey is not stupid.  I think he has his MBA, and certainly understands interest rates and financial instruments.   You shouldn’t attribute malice either. 

I think many of his statements are oversimplifications of the issues, but done intentionally as he knows his audience.   If he were to speak about the Trinity study or anything by Bengen then he would just confuse and lose the people that need him.   Ramsey does his best work helping people that are clueless about debts & budgets and who are fearful of taking ownership of their own finances.   His simple repetition is great to get people through his steps 1 – 3.   By the time people are in step 4 or 5, hopefully they are ready to graduate and go find better advice for their new situation.

“Mutual funds earn over 10% on average long term, so you need to save until you can live on 10% of your investments” [my paraphrasing] is a gross oversimplification, but certainly motivates highly indebted people more than explaining the probabilities of a 4% SWR.

His statements on tax rates are often wrong, but they are politically driven and equivalent to unrepresentative statements made by any other talking head that sits to far right or left of center.  Unfortunately Ramsey’s ego has grown with his following so now he chooses to use his show to express his politics. 

The net is that he’s still a very good tool for those that need a face punch, but you shouldn’t take everything that he says as 'gospel'. 
 

frugaliknowit

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Re: dave ramsey: Ignorant or just lying?
« Reply #12 on: February 08, 2015, 08:03:23 AM »
I doubt Dave said exactly what you quote.  I do know he generally says something like "...good growth mutual funds with a long term track record..."  Vanguard Total Market is a fit...  As for taxation on pre-tax retirement savings, it depends on marginal tax rates plus the 10% penalty.  35% + 10% is possible.  He may have been using an example of a high income individual...?

No, he is not a liar, but as with Suze Orman, I disagree with some of their assertions:
1.  Dave:  Pay off the credit card with the lowest balance first (he's appealing to the masses and says behavior is 90% of the equation and math is minimally important).
2.  Dave:  3 to 6 month emergency fund (not enough for a single person household in most job markets).
3.  Suze:  Car loans 3 year term or less (me:  NO car loans).
4.  Dave:  Only use debit card (no way I use a debit card for online purchases are you nuts?).
5.  MMM:  Stocks as Emergency fund/no emergency fund (maybe if you have an extremely secure job and a partner/spouse to back you up...)
6.  Suze:  Only pre-pay your mortgage if you do not plan to ever sell the house (...so you can foreclose....?).

So, we won't agree with everything the gurus say, but we can learn from all of them.

rmendpara

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Re: dave ramsey: Ignorant or just lying?
« Reply #13 on: February 08, 2015, 06:54:58 PM »
I don't think he's trying to mislead anyone. He probably exaggerated for effect in this situation.

It's easy to forget that the majority of people really have very little to no grasp of finances and budgeting... let alone investing. There is a market, not everyone, for very plain and simple advice for people who want to keep things simple. I think Ramsey is trying to address this market. Once people get a handle on how to budget and spend wisely and match their living standards to their income prospects, they'll move on to more advanced investment and financial planning.

libertarian4321

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Re: dave ramsey: Ignorant or just lying?
« Reply #14 on: February 12, 2015, 05:43:58 AM »
Dave Ramsey, Susie Orman, and their ilk are good for those who's financial lives are completely out of control.

Their simplistic advice will give those drowning in debt some basic steps toward turning the ship around.

For those who are good with money or sophisticated investors, Orman and Ramsey are, at best, entertainment.  Think of Orman/Ramsey as giving you GED level financial information.  That's fine if you are a D-student about to drop out of HS.  But it isn't very helpful to someone with advanced degrees/skills/certifications in financial management.

So while I do occasionally listen to Ramsey, I find some of his ideas ridiculous (e.g. his Jihad against any and all uses of credit cards).

Retire-Canada

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Re: dave ramsey: Ignorant or just lying?
« Reply #15 on: February 12, 2015, 12:07:10 PM »
5.  MMM:  Stocks as Emergency fund/no emergency fund (maybe if you have an extremely secure job and a partner/spouse to back you up...)


As I recall the MMM line is low interest line of credit for emergencies. If you are a frugal high savings rate person you can replace your base cost of living easily since it's a fraction of what your normal market salary is. The line of credit cushions you between losing a good job and starting to generate the minimal income needed to cover your base costs.

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jms493

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Re: dave ramsey: Ignorant or just lying?
« Reply #16 on: February 12, 2015, 01:08:27 PM »
He says you can FIND mutual funds that beat the market.  He is fine with index funds but don't tell him you cant funds that dont outperform the market.  his investment advice is very simple because he is talking to people who dont even know what the work "invest" means.

I research else where concerning investments.  I like his show and his plan to get your financial life in order.  It works and it helps millions of people.  Nobody is 100% right nor is everyone going to agree with everything he says.