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Ramsey’s Wrong, and it Could Hurt You More than You Think – Part I

Come on Dave, we know you are a well publicized personal financial self proclaimed guru, and your basic mantra of spend less, pay off debt, be happy is marvelous. However, it would be ideal if you stopped giving investment advice and leave that to those other self proclaimed guru’s. Why should Dave stop offering specific financial investment advice? Because it is very unlikely that anyone now or in the foreseeable future will earn almost 12% annually in the stock market. Yet this is the return the Ramsey method and his website promote.

One size rarely fits all in dealing with personal investment advice. For example, the old school, 1980 -2000 philosophy of “buy and hold” hasn’t worked in the past eleven years and won’t work again until a Teutonic shift in the economy, national debt level and consumer confidence reverse their past eleven year direction.

What works in one type of economy (cycle) often doesn’t work in a different type of cycle. Using history is a great teacher because it can repeat itself. In fact, history and the general stock markets are repeating a cycle the nation went through between 1965 and 1982. It took seventeen years for the buy and hold method to break even back then.

Granted over a very long time the general idea of owning stock in great companies that pay dividends is ideal. But the first rule of getting out of debt and moving forward is NEVER GO BACKWARDS financially. And the risk of doing exactly that today is too great, even with companies that pay a sweet, relatively fat dividend. Don’t be a fool! Anyone who implies, or worse (in Ramsey’s case on his website) that you should expect to earn 12% on average every year on your stock market investments are terribly misleading you. It is a fact that if you invested in the stock market back in 1926 and were still invested today, then yes Virginia, you would have earned an average of nearly 12% each year (including dividends reinvested).

But we are not in the 1920’s and it is a very different world now in the investment markets. The most recent 20-year period is vastly different than the previous 20 years before that. Nobody can tell you a great mix for your investments without a very involved and detailed look into many facets of your finances. And possibly the most important thing to know about “you” when charting your money plan is not financially related at all – it is how you deal with money, its rewards and setbacks, emotionally. Generally, it is emotions and not cerebral activity controlling most investment decisions. People tend to buy and sell investments when it feels good and thus typically do so at precisely the wrong time.

What’s your next step? Ask your friends – people who seem to be happy and content in their life – how they manage their money. Seek out a professional you can relate to and see yourself working with on your own personal plan. Forget labels, certifications, degrees and pompous education credentials. That entire minutia is meaningless if you cannot communicate and trust completely in the advisor you select. Seek experience, someone who has survived crashes and financial tumult. Look for a personality fit as well as open, solid communication skills.

In the end, it’s your money and you get to decide how you want to manage it.