What Are Dave Ramsey’s Views on Investing?

Dave Ramsey is a well-known radio show host and bestselling author. Many investors use his guidance on personal finance and investments. What are Dave Ramsey’s views on investing?

Ramsey is against debt and advises paying off debt before you start investing, and does not advocate investing in debt instruments. He favors active investment strategies such as mutual funds over ETFs and direct stock picking, and advises investors to work with financial advisors instead of managing their money themselves.

Ramsey has a six-step investment philosophy:

1. Have an emergency fund and pay off debt.
2. Invest 15 percent of your income in tax-favored retirement accounts.
3. Invest in a portfolio of growth mutual funds.
4. Have a long-term perspective on investments and follow a buy-and-hold approach.
5. Keep track of investment fees.
6. Use the help of a financial advisor.

Ramsey believes investors are better off with actively managed mutual funds. However, active investment strategies have underperformed passive strategies over the last decade.

Like Warren Buffett, Ramsey advises against taking debt. Neither is a big fan of investing in debt instruments—they instead advise investing in stock markets.

However, while Ramsey advises using an active investing style and prefers mutual funds over ETFs, Buffett thinks ETFs are better, especially for investors lacking expertise or time. Unlike Ramsey, Buffett doesn't think highly of financial advisors.

On his website, Ramsey offers an investment calculator that helps you plan for your retirement. You just need to enter your age, expected retirement age, current retirement savings, expected savings per month, and average rate of return to get your calculation.

It's worth noting that while Ramsey has set the S&P 500's average rate of returns at 12 percent, that figure is debatable. Between 1965 and 2019, the S&P 500, with dividends, gave an annual return of 10 percent. This discrepancy is important because even a one percent annual difference in returns can make a massive difference in your retirement portfolio.

Ramsey advises investing in real estate. He suggests owning your home, which would avoid rent payments and add a valuable asset to your net worth. He also advises investing in rental properties but warns of their challenges, including issues with renters, vacant periods, and the time and money needed for home maintenance. Ramsey stresses buying a rental house with cash, not debt. 

Ramsey advises putting 15 percent of your household income into Roth IRAs and tax-advantaged accounts such as 401(k) plans. Active mutual funds that have a track record of over a decade are good bets. Ramsey also thinks putting your money into a mix of growth, income, and international funds is a good idea. 

When it comes to personal finance and investing, there's no one-size-fits-all approach. Always consider your circumstances before proceeding, and if in doubt, seek the advice of a credible financial advisor.