Dave Ramsey Shows His Ugly Side

Americans put a lot of faith in the biggest names of the financial advice industry – probably no one more than Dave Ramsey.

Truth be told, Ramsey can merely utter a few words and his followers will save or spend millions of dollars in the matter of hours.Such an influence should be taken seriously. But Ramsey’s loose lips are misleading his flock of followers into a set of unreasonable expectations.

Ramsey has stated repeatedly that investors should expect a 12% annual return on investments.

This sparked a Twitter war between Ramsey and several fee-based financial advisors, who took Ramsey to task for his misguided advice.

I’m not going to get into the tit-for-tat exchanges, who zinged who, and that stuff. I think it’s more important to stay above the fray and focus on the most important takeaway of this.

A 12% ROI is an unrealistic and highly dangerous target for any investor. To make that happen, one would have to be nearly fully invested in the stock market.

Even worse, Ramsey’s suggestions made no distinctions about how investors should change their ROI expectations and risk thresholds as they get older – especially if they are heavily invested in the stock market.

In early 2008, millions of people were just a few years away from retirement… then the stock market imploded.

From January 1, 2008 to December 31, 2008, the Dow Jones Industrial Average lost 33.8% of its value.

If you had $1 million saved for retirement fully invested in the stock market (in order get that 12%) at the beginning of 2008, you would have been left with $662,000 by the end of the year. I don’t know about you, but losing $338,000 by year’s end sounds like one of the worst Christmas presents ever.

Can you imagine how betrayed you would have felt if you lost more than one-third of your retirement by following Ramsey’s advice to hunt down a 12% ROI no matter when, no matter how and no matter what?

Can you imagine what’s it like to dramatically change your retirement plans? To decide you have to work longer than you initially planned? To make major cuts to your planned monthly budget?

Yet, this happened to millions of people that year. And as long as Dave Ramsey takes credit for helping so many people out, he needs to man up and shoulder the blame for the millions of people who lost billions taking his advice.

And as long as people like Dave Ramsey float vague and dangerous financial advice such as his 12% remark, you will have two difficult tasks with your prospects and clients.

First is trying to walk them away from expecting a 12% annual ROI.

Second is more long term – providing personalized financial advice to them for their specific situation. And that is done through honest, frank discussions about their personal finances, savings and debt – not about what other people in their tax bracket and their situation typically do.

The better you do those two tasks, the less toxic influence the Dave Ramseys of the world will have.

Be valuable.

John McCarthy
Managing Editor, Leads4Insurance.com

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