Dave Ramsey Doesn’t Care for People Questioning Him

This is a video from 2014 in which Dave Ramsey addresses yet another question about his use of 12% as a benchmark rate of return.

Looking at the 30-year rolling return spreadsheet I put together, we can see that 12% or greater returns are possible. They occurred 19 out of 60 times.

When we take the average of all 60 of those 30-year annualized returns, we get 11.21%. You might think 11.21% is close enough, but over 30-years it’s a big difference. A person who received an 11.21% annualized return over 30 years would end up with a portfolio about 80% of the size of the person who achieved a 12% return.

What’s even more important to note is that these are index returns, NOT what a person could get in the real world. After fees (and don’t forget about inflation), the actual returns would most certainly be lower than published index returns.

I would respect Dave a lot more if he would come out and admit the error of his ways, but as you can tell from the above video, that’s not going to happen.

7 thoughts on “Dave Ramsey Doesn’t Care for People Questioning Him”

  1. I’m not sure you got his point. It doesn’t matter that the person that got 11.21% instead of 12% has 80% of the portfolio that he “should” have had.

    What matters is that 12% returns on $0 is still $0.

    What he’s trying to do is help talk people into investing. Discussing 0.79% differences glazes over a majority of the eyes you’ll find. If you don’t believe me, you’re not paying attention to your surroundings. I enjoy a good math battle, but I’d say I can seriously talk about details like that with about 10-15% of the people. Maybe 12%. Maybe 11.21%.

    I’m not really sure why I’m posting this as I’m fairly certain it won’t make it to your site. Maybe I’m hoping you read it and take it to heart? No idea.

    1. Doug,

      Thanks for your comment. I ALWAYS approve legitimate comments (even if they may not agree with my position). What’s the point of a blog that doesn’t allow discussion?

      I did understand Dave’s point. But, when you are talking about investing for 30-40 years, being too optimistic is going to give people a false sense of security. Bring the number down to a much more reasonable 9-10% and I’m good. Plan on that. If you get that, great. If you get more than that, it’ll be gravy.

      Thanks for your comment and have a good day.

  2. In Dave Ramsey’s mind, a 20% loss followed by a 20% gain is a wash: average return is 0%.

    In the real world, a 20% loss and 20% gain is actually a 2% loss — which is what we call the “geometric mean”.

    Dave Ramsey is great at psychology and genuinely helping people (I think), but he is bad at math.

    1. Uh – If you calculate that out, it is actually a 4% loss……..
      100000-20000 = 80000 + 16000 = 96000 = 4% loss on original investment

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