3 Tidbits of Dave Ramsey Advice You May Want to Reconsider

dave ramsey mutual funds advice to reconsider

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It’s no secret that Dave Ramsey gives amazing advice on money. However, perhaps not all of his advice is something that you should follow. Sometimes building wealth looks different for each person. Read on for a few reasons you might want to reconsider some of Dave Ramsey’s advice.

 Dave Ramsey, the popular personal finance personality, has created a debt pay off revolution. Between his radio show, Financial Peace University, Dear Dave or his website, Dave’s advice has helped thousands of families become financial free. Our family is one of those that really benefitted from his expertise when it comes to saving money and reducing debt.

While this advice is only an opinion, it does give you something to think about! Dave’s investment philosophy might not be the best for you and your family’s situation. Sometimes when someone gives you advice, it can be hard to break down what is right or wrong. 

With Dave Ramsey being such a leader in the financial industry (I know so many who love his radio show), it’s sometimes good to break down the advice. Here are several chunks of advice that are related to Dave Ramsey and his money advice that you may want to reconsider. 

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Here are 3 Tidbit of Dave Ramsey Advice That You May Want to Reconsider

#1. Keeping your emergency fund in a regular checking or savings account? 

Dave Ramsey suggests that you should keep your starter emergency fund ($1,000) fully-funded emergency fund with 3-6 months worth of expenses, in a simple savings account known as a money market account. He recommends this because you shouldn’t think of your emergency savings as an investment, and it needs to stay liquid and easily accessible. While this may good advice for some, it’s not GREAT advice for everyone.

Instead, consider placing it in a high yield savings account. Why would this help? Placing your money in a high yield savings account will help you get a higher return on your money. In fact, a high yield savings account gives “20 to 25 times the national average of a standard savings account,” according to Investopedia

Traditionally, a money market account has an average national return of 0.18% for deposits under $100,000. However, by putting your emergency fund in an easily accessible high yield savings account, you can make 0.80%-2.25% on your money, just by it sitting there! That average return isn’t something to scoff at and in recent years has become a more and more popular option.

It’s wise to listen to advice, however, it’s better to make a decision that benefits you best. For example, his advice is good, but when placed when another opinion – you can get an even better return! In fact, this is a Dave Ramsey mutual funds decision that anyone would be proud of.

#2. Should you stop contributing to your 401K during debt payoff?

There is no doubt that Dave Ramsey is an all-in kind of guy. What does that mean? This means that while you are paying off debt, he doesn’t think you should be putting your hard-earned money towards anything except debt. 

While the concept means well, this move could actually COST you money in the long run. If you continue to contribute money to your 401k during your debt payoff, you are going to save money. How is this?

Let’s say that your employer contributes money to your 401k for free. HOWEVER, they only match what you add to your 401k. If you stop paying, they stop paying. DO NOT say NO to free money! 

Good financial sense says to keep on contributing to your 401k so that you get that free money from your employer. ALSO, you will bank on compound interest. When your money has more time to grow, you’re going to naturally make more money! You can even use a compound interest calculator to see how much money you can make over time by contributing to your 401k. 

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#3. Go without credit? 

This is a big one and probably not even something Dave Ramsey mutual funds can touch. Dave Ramsey is a stickler about going without credit. 

If you follow Dave Ramsey’s advice at all, then you know he says you don’t need a credit score to rent an apartment or even buy a house. Is this true?

Many financial experts would argue that you need a credit score to accomplish these things. Credit is a good tool to have when you want to buy a house or a car. You may decide you want a credit card in the future as well. If used correctly, credit can help you get further ahead in your finances! 

What else can you use credit for? You may find that you need credit to rent a house, open a credit card, or that you need an interest rate with a favorable term. A credit score is something that you may need when you least expect it. 

In fact, this is probably one of the biggest pieces of advice that A LOT of people don’t agree with Dave Ramsey on. That’s okay! 

What are Mutual Funds?

A lot of Dave Ramsey’s investment advice is around mutual funds, so let’s talk a little about the different types of mutual funds as its important to have a basic understanding of your options. But first, what even is a mutual fund? A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

In a nutshell, mutual funds allow investors to invest in many different companies at once through a team of investment professionals who select the mix of stocks, bonds, money market accounts, and more included in the mutual fund investments based on the fund’s specific objective and investment strategy.

The major benefit of mutual funds is that they allow investors to invest in many different companies at once.

Here are the four mutual fund categories Dave talks about:

Growth and Income:  These funds seek to create a stable foundation for your investment portfolio. Many times this might include big American companies that have been around for quite some time and tend to do well regardless of the economy.

These might be listed under the large-cap or large value fund category and may also be called dividend income, equity income funds or blue chip.

Growth:  This category features medium or large U.S. companies that are experiencing growth. Unlike growth and income funds, these are more tied into the economy, and as such tend to ebb and flow. Common terms for this category include growth funds, equity or mid-cap.

Aggressive Growth: This category can be all over the place. When they’re up, they’re up, and when they’re down, they’re down. Aggressive growth funds usually invest in smaller companies, but size isn’t the only consideration.  Geography can also play a role as aggressive growth can sometimes mean large companies that are based in emerging markets. 

International:  International funds (also referred to as foreign or overseas funds) allow you to spread your risk beyond the United States. Keep in mind that international investing involves special risks such as political instability and currency fluctuation, which means they aren’t necessarily a good idea for every investor.

Where do I go from here?

Investing can be confusing and sometimes feel a little boring, but is so important when it comes to building wealth for your family. When it comes to the stock market, index funds, crafting an investment portfolio and asset allocation, the best advice is to talk to a professional to find your own best investment possibilities.

With all of this advice being spewed, there are some important takeaways to consider. When it comes to financial advice, you have to do what is right for you! You’re allowed to pick and choose which final advice you follow and what you push to the curb. 

Personal finance is all about that first word: personal. You are the one who decides what works for your specific money situation and family. Pay attention to the pieces that you know will benefit your family.

It’s vital that you take a critical thinking approach to finances. Whether it’s about Dave Ramsey mutual funds or whether or not you should buy a house — always read advice from both sides and make an informed decision!

Dave Ramsey and his advice have touched so many people and helped them get out of debt and begin thinking about their financial future, freedom and independence. Take a critical approach and make the best decisions for you and your family, especially when it comes to investing advice!

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Do you follow Dave Ramsey? What piece of financial advice would you give someone else in your shoes?

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