Tuesday, December 12, 2023

Dave Ramsey (again): Some Good, Some Bad


If you have followed my blog for a while, you already know I’m not a fan of Dave Ramsey, the alleged Christian financial advisor and radio personality.  While he may advocate some solid, basic money management principles, I think he goes off the rails with some of his retirement advice (I’ll get to that momentarily) plus I think he is insulting, rude, proud, and just generally not what I would expect a genuine Christian to be.

But that doesn’t mean I won’t defend him when I think he’s right.  And this week he came under attack from another advisor who says that rather than saving money, as Ramsey advises, people should concentrate on creating and maintaining an income flow.  Savings?  That’s for chumps.  Put your money into real estate.  (You get one guess what field of investment this advisor specializes in.)

Whenever someone asks whether real estate is a good investment, I always quote Will Rogers on the topic: “Invest in land; I hear they’re not making any more.”  But I do that in jest, because I’ve known people who pinned their current and future income hopes on investing in rental properties and then lost nearly everything when the real estate market went bust.  Ditto for people who were buying fix-up properties to flip them for a profit.  Dave Ramsey himself fell victim to a real estate crash and went bankrupt.  It’s what launched him on his career advising others on how to avoid his mistakes.  So now he advises people to have at least three months’ income saved for an emergency, eliminate debt, save aggressively, and invest in stock index funds.

Not this most recent real estate-oriented critic of his.  He dismisses the concerns about sudden turns in the real estate market and just says not to get over-leveraged (owe too much money on the properties you’ve bought).  Your savings will lose value, but an income stream—if properly structured—will last as long as you need it.

Forgive me for being a skeptic.  I’m sure some folks have managed to make money in real estate.  But even pros can get it wrong.  Can you think of someone famous who has lost money in real estate?  Hmmm.

One recent criticism of Dave Ramsey does have merit, however.   Against all evidence to the contrary, he still contends that an annual withdrawal rate of 8% from one’s investments during retirement is sustainable.  No reasonable financial model supports this.  Running thousands of scenarios in what are called Monte Carlo simulations (a mathematical technique that predicts possible outcomes of an uncertain event) of the stock market, an 8% withdrawal rate did not work.  The usual 4% recommendation** was even found to fall short sometimes (i.e. the investor ran out of money before he died).  Some financial advisors had started recommending a 3% withdrawal rate but most have reverted to the 4% rule.

It can be hard to sort through all the conflicting advice from the talking heads.  But you can always pick and choose from their advice.  No one advisor is likely to be right 100% of the time.  And you can mix up your own approach.  Invest in the stock market and maybe even put some money in a real estate investment trust (REIT) if you want to venture into real estate without being a landlord.  Just don’t stop saving. 

Until next time,


**The rule works like this: In your first year of retirement, withdraw 4% of your balance for your living expenses.  In the second year, withdraw that same amount of money PLUS an amount to account for inflation.  So if your starting balance was $100,000 then you would withdraw $4000 the first year.  If inflation the second year is 3%, then that year withdraw $4120, etc.


“Be sensible and store up precious treasures—don’t waste them like a fool.”  Proverbs 21:20 CEV