Deep Dive on Dave Ramsey's Investment Advice! (Financial Advisors React)

you asked for it a deep dive into dave ramsey's investment advice it's brian preston the money guy yeah brian so this one is going to be kind of interesting we sort of asked the audience out there hey you know we've talked about dave ramsey's investment advice in the past would you be interested if we did a bit of a deeper dive what are some things that are good what are some things that maybe aren't so good and what's our take on it and there was a resounding yes from the audience that they wanted to hear it so here we are to share our thoughts i feel like we need to lay out some ground rules though i mean we do live in franklin tennessee and we're kind of in the backyard of the big dog himself dave ramsey and here's the thing you can't live in our parts and not have neighbors people you go to church with you know there's a lot of you know of ramsey solutions that are all in the community and by the way if you were here thinking you're gonna see a show where ramsay solutions or dave ramsey is trashed you're in the wrong place we have tremendous respect for dave and i think if you even as we poke holes in some things that i think that dave is going to stray on and you can improve upon there is no doubt that dave has done more good to the financial world than anything else yeah if we just wanted to kind of look at some of his quick accomplishments uh he has over 14 million listeners to his weekly radio show he sold over 11 million books he has this says this is from the website over 800 uh team members i know that just because i have some friends who are there it's like 950 employees so you think about like how many lives has impact and this one i thought was just absolutely remarkable more than five million folks have gone through financial peace university so if you you did this exercise a while back bo i can't remember you saw a speaker somebody and you you named out some big brands and you had to come up with one word to describe them and so if you throw out ramsey solutions what's the one word that that comes up in my mind it's debt yeah so i think dave there is nobody that gets you out of debt better than dave ramsey so what i'm trying to figure out though is we know dave does so much good with getting people out of debt he talks about the 80 percent that's behavior the 20 that's in your head what does that mean towards investments though because it is is there space to know that there maybe is some additional things that you ought to consider yeah so a lot one of the things that i think is amazing is i will have family members or relatives who i tell them all the time about hey here are the things that you want to do to like get out of credit card debt or to pay this off and no matter what i say how i communicate somehow it doesn't doesn't sit with them but then all of a sudden their church offers like financial peace universe they go through it and they come and tell me hey you won't believe what i just learned they're on fire for the concert and i'm like i've been telling you this for like months and years but then what ends up happening is they kind of get through that iteration and they do say okay now i'm ready to start building wealth and this is what dave said about investing and that's where i always have to kind of say oh well maybe that's not exactly perfect so let's i want to go a little deeper in this because dave does talk about the 80 this behavior 20 that's head space well there's also i think it goes beyond that is that we know that the lion's share of americans struggle with basic things what i consider common sense of they can't get out of debt they don't have the discipline to understand it and we've often said there is and you just mentioned it there will come a graduation or a jump off point where you need to go beyond common sense and i think that's where we fit in we are not the 80 percent or the the portion of the public that struggles with basic behavioral stuff we know that our audience are maximizing yes they're kind of the money masters we know that if this doesn't hit you it's just you're not there yet we are focusing on the 20 that wants to make sure every dollar in your army of dollars has a purpose and knows what they're doing and you want to maximize it so that's what we're going to focus on and that's what we're going to look at through that lens to see how does dave's investment strategies how do they fit into what we know as financial advisors about wealth creation so if we're going to talk about areas where possibly he misses or possibly hits it one of the questions you might be asking well what is dave ramsey's investment advice so we actually went out to ramsey solutions and i think this is on chris hogan's website and he basically lays out how to diversify your portfolio if you're structuring investment portfolio dave likes using mutual funds he likes using active mutual funds and he thinks that an investment strategy should look something like this 25 international 25 percent in growth in income 25 aggressive growth and 25 percent in growth that certainly sounds easy doesn't sound like that's a hard thing to put together well it sounds very broad and it sounds very growth oriented but i do like because i think this is something that got fine-tuned as chris came in as part of ramsey solutions is he goes a step further he actually tells you what are those broad descriptions like aggressive growth growth in income is there uh you know large cap mid cap international so what's what's the deeper dive on that so if you look at the details growth and income these are the big companies these are the ones that have a market cap above 10 billion well if you were to ask us at the money guy show of bound wealth what that is that's really large cap holdings large cap u.s companies well then they said there's this growth asset class and that generally tends to be companies that are somewhere between 2 billion to 10 billion well we would just call those mid-sized or mid-cap companies and then there's this aggressive growth these high risk high returns these are companies that are smaller they're less than two billion so we would just call that small cap now all three of these are u.s these are all domestic u.s large cap u.s mid cap us small cap and then lastly there's this international bucket companies that are outside of the united states so this is dave's portfolio it doesn't matter if you're 20 65 i didn't see anything about bonds in there nope it's all equities 25 25 25 25. so that leads to now let's kind of pivot and i want to talk about what are where are the areas that we think dave goes astray and then how do you fix it if you are at that graduation point that you want to go beyond common sense and so we were trying to think about the best way to lay this out and we said you know there really if we if we break this down in its basis form we think there are probably three problems with dave's investment strategy and we think that those three problems are number one dave does not like index investing we're going to talk about while we fall on the other side of that number two is dave doesn't balance risk in return in our opinion we think if you're going to be an investor there's a better way to do that than what dave recommends and then dave has a one-size-fits-all approach to investing no matter where you are in your life cycle or life stage this investment portfolio makes sense for you so we want to kind of go deep dive into all three of these and then even tell you i think it goes a step further how do you fix it i think that's important i don't like people just to sit in the cheap seats start throwing popcorn without giving you solutions so we're actually going to deeper dive into every one of these so let's kind of jump into the first one yep dave dislikes index investing yeah you know i i think there's a quote and you pulled this from this is a blog on on dave's website right on chris hogan on chris's website i recommend front load funds with this type of fund you pay fees and commissions up front when you make your investment this approach allows your money to grow without being bogged down by expensive management fees also pay attention to the funds expense ratio ratio higher than one percent is considered expensive well we know i mean when you're talking about one percent internal operating expenses that hasn't been the case since the 90s it doesn't just sound expensive to me that sounds really really expensive it's a little outdated because we know index investing has revolutionized there has been a price war that's been going on and you the consumer have been the beneficiaries of this and a big driver of that is index investing so we think the solution actually is index investing is a powerful tool for wealth building yeah and that's if you look at how we manage money to bound wealth how we've been doing it for decades now we love taking advantage of index funds we in our opinion there are some clear advantages to using indexes but i don't think that we're the only ones who figured this out well i was worried because look there's no doubt you just saw it 950 employees i mean they are huge dave there's no doubt you can't the good that he's doing is awesome but i think a lot of people would say what do you guys know dave is super successful who are you to question and that's why i was like is there a third party is there a source to show that the system is changing the whole world is and here's what we found if you look at cash flows meaning how much money is inflowing into investments versus how much money is coming out of investing this graphic will blow your mind i think from 2010 all the way until 2019 there has been an outflow from actively managed funds of about 1.8 trillion dollars that has flown into indexes so when you talk about that sum of money that large something must be changing something must be shifting and you can see it's leaving the active management and it's going into the passages here's what we've been creating content since 2006 when i first started doing index investing shows i used to be able to headline and be like the best investment that only 50 percent of investors have or you know or something or 30 of investors now it's getting to where i think a lot of you guys have figured out index investing is pretty good and let us tell you the three key benefits and we'll do a deep dive on each one of these two index investing yep so the very first is it generally tends to be more tax efficient and with talk about tax efficiency inside of index investing the real thing that we're talking about is annual turnover that happens inside of the fund because as you know a mutual fund and etf is really just a bucket of holdings with a bunch of underlying stocks underneath so if you wanted to have like the s p 500 rather than having to go buy all 500 different companies you can just buy one mutual fund and inside that mutual fund is housed all of those companies well actively managed funds do the same thing they're trying to pick and choose what companies you're buying what companies you're owning inside of the fund well when they do that they are generating turnover inside of the portfolio yeah i think i mean if you think this from a human nature standpoint an active manager is going to feel like he's got to be doing something to earn is keep so you go see lots of buying and selling every time you buy and sell just like you have to pay taxes when you buy and sell individually yourself so does your institutional manager so those transactions cost money cost taxes index funds by their shared design i mean you hear about the rumor right now tesla might be joining the s p 500 they'll drop meaning that they'll drop some other old-timer type stock that's kind of become outdated you know think about it like kodak sure it used to be an s p 500 as people don't use you know that type of technology it falls off new stuff but it's only a few things change so it's very low transactions very few trades and we took it a step further we actually did a show our index show we did a while back we went a deep dive on this we really nerded out so if you like this go a deeper dive with us and that we talked about turnover ratio we talked about also just the tax efficiency and we use the largest holdings out there we use the vanguard s p 500 and we also use the growth fund of america which is american funds and then i believe we use the contract fidelity contraphy what we said is based on the turnover that's taking place in the portfolio how much performance is lost to that tax drag and that's actually called the tax cost ratio and what we found is if you look at this over a one year five year ten-year basis you can see like american funds growth fund of america actually loses about 1.9 per year to tax costs over a five-year time period that number is about 1.4 percent over the 10-year period so and you look that's a if you look at the vanguard 500 index which is the s p 500 at a minimum it's going to be half meaning it's only going to have a half it's going to be a half a percent cheaper and but it very well could be over one percent right annual performance difference so tax efficiency definitely has an impact on your performance so don't think we're saying hey manager is just a horrible it's also in just how these things are designed and you need to understand what components go into total performance it's how much you keep after taxes fees and everything else so not only are indexes in our opinion more tax efficient we found just frankly it is a cheaper way to invest if the two things that you can control inside your investment portfolio are the taxes you pay and the fees you pay and we know that they're more tax efficient we need to then point our attention to what are the fees that we're paying inside of the funds we're investing in so i had because i've shared with you guys i've been doing this long enough i've been managing money since the 90s internal operating expenses when i came out were around one and a half percent you heard in dave's advice he was talking about making sure your internal expenses are below one percent now realize dave's had this advice for a while so i'm not saying that he was wrongly designed it's just that i think things have evolved and changed to a degree the averages have been coming down naturally and i would say that has a lot to do with the pressure of all the flows coming out of active management going into index investing that the active managers have woken up and go uh-oh we've better get serious and sharpen the pencils because look at where the average internal expenses are bo yeah so if we look at three different types of funds just domestic equity here in the u.s world equity international funds and then just looking at like bond or hybrid funds you can see that the average cost internal expense of an actively managed domestic fund is about 1.12 right now but the average index fund that's domestically that's domestic equity is only about point four two percent and if you think about because we see that you're like what is what does that mean really if you were investing a thousand dollars that would be on that one point one two you can see that that quickly could add up to you know four dollars and i mean that could add up to you know ten dollar eleven dollars in 26 right um whereas on the index fund that's talking about four dollars and 20 cents out of your thousand yep here's the dirty little secret index funds have actually gotten a lot cheaper than what this is showing us because there's a lot of holding companies if you think about broker dealers and others that are trying to keep up but they just go to direct if you go to direct like vanguard fidelity the internal expenses of their index funds are .01 so we're talking about on a thousand dollars instead of it being four dollars and twenty cents it's a dime yep point point one so that's a dime so i mean there's a lot of money left on the table that these poor funds these poor active managers you kind of feel sorry for them they have to overcome all these things before they can just keep up with the sheer design and nature of index investments so you're probably saying okay i hear you right uh yeah indices may be more tax efficient and uh indices may be a cheaper way to invest but the reason that people use active managers is because they can outperform they have the magic sauce they know what is required to go out there and beat the market so what we actually found is that when you look at long-term investment performance our opinion and the facts substantiate this is that indices have better long-term performance yeah we've talked about the efficiency of the markets is pretty incredible i want you to understand this guys if there are only 500 large cap stocks us companies 500 the larger just you know who they are walmart the home depots your googles it doesn't matter what you're looking at there's only 500 of them yet you can throw rocks and hit financial advisors people are in your grocery stores they're in your banks these guys are everywhere these gals too and the thing is is that how can they with technology and information flowing so freely how does the guy down the street know any more than just how efficient the market and the information makes it out there to the public i don't think it can i think it's just impossible for it to keep up and the data supports this because guess what we have found guys if you're trying to figure out is the manager that much better because they already have to overcome the taxes they have to overcome the fees surely they're making great decisions and when we have prospects and they go hey can you beat the s p 500 i go no no that's not even my goal we're financial planners we're helped here to help you navigate the financial world and make sure risk adjusted you're getting the best rate of return possible but we're not trying to beat the markets because the data shows that's practically impossible hit them with the data so every year spiva comes out with a study and this is from the 2020 data and this is what they found over a 15-year period 87.7 percent of active managers in the u.s large cap space underperform the index underperform underperform the index if you look at mid cap 82.2 percent of active managers underperformed their stated index if you look at small cap 82.2 percent underperformed their active index and then if you look at international 87.8 percent of active managers underperform their index so the four asset class categories that dave is suggesting you utilize it is very very difficult to pick who the top manager is going to be on a consistent basis over any meaningful period of time i can already hear the whispers somebody's like wait a minute guys you're missing it that means there's a chance because there is a change there is definitely there's at least a 12 to 13 percent chance i'm going to choose that winner here's the other dirty little secret if you take the 12 or 13 percent that win in that single year versus the index they don't have a consistency meaning that if they fall off in year two year three year four meaning they might beat the the index one year but they don't consistently beat the index that's a problem guys save yourself a lot of heartache the index is going to be the way that you want to save that money save the taxes and also get the performance i don't think we can beat that drum any harder yeah what i think is beautiful is do you know how many years or how often the index matches the performance of the index every single year it's that easy why trade that guess play that guessing game trying to get into that 13 when you can just participate in the 87 percent so let's pivot now we talked about index vesting i think it is a solution to your wealth building strategies here's number two dave doesn't balance risk and return that sounds kind of harsh but yeah i feel like he doesn't uh at least in the way that he describes investment he doesn't understand the risk return trade-off so what can you do you can understand that generally speaking there is a risk and return trade-off that does exist in the financial marketplace so when you're learning like investment management 101 they talk about the efficient frontier sure they talk about that the further out the risk spectrum you go the better rate of return you're anticipating that's why if you think about when you're a young investor when you know you won't touch that money for 30 or 40 years you ought to be wild you just ought to be crazy you ought to also should celebrate the volatility that comes with that but we we know over time things change we'll talk about that in a little greater detail as well but i want to focus on first if we're going to take risk meaning if we're going to be a bear we're going to be a grizzly bear how do we get the most return for all this risk we're willing to take and this is what investopedia says they say that the risk war trade-off is an investment principle that indicates higher the risk the higher the potential reward well remember if you look at dave ramsey's investment strategy it was 25 large cap 25 mid cap 25 small cap 25 international no fixed income 100 equity portfolio and it's 100 equity portfolio that invests in more aggressive equity asset classes so if it's further out than the risk spectrum the return ought to be better so you you're thinking like a 20 year old who can really go wide open on the risk this thing's probably killing it long short term right right guys this is there's a trade-off i'm telling you we compared this to just the boring old s p 500 i love you guys wait a minute dave uses active managers what did you guys use i will tell you to do this analysis we did have to assume because we know that the four different groups that they've used we were very generous and we let dave's asset investment use the index fund because like we said between 82 to 87 percent of active managers underperformed so i felt like we were being quite generous letting dave's portfolio use the indices for this analysis so what we set up is let's see if 25 percent in the large cap index and 25 the mid cap index and 25 the small cap index and 25 the international index does it actually equate to a better risk reward trade-off than just buying the market just going out and buying the s p 500. so when we look at the raw performance we did highlight this this is from morningstar.com we put this in this is as of so you don't think we cherry picked this is as of june 30. i mean this is the most recent period that we could go grab a month end to do this analysis and you quickly see if you look at the three month if you look at the one year three year five year ten year that four prong approach that dave recommends compared straight up to the s p 500 underperforms in every one of the time periods set a little bit differently an investor over this this is a 10-year time frame that you're looking at would have been better served instead of doing dave's philosophy just going out there and buying the market just buying the s p 500. so it goes we went a little deeper because we like we said we want you to understand what is your financial advisor's job they are to make sure you're getting the best risk adjusted rate of return so it's not only absolutely how much money i can make it's how much money can i make with a certain level of risk we've already agreed this type of portfolio should be risk on type investing i mean dave is a hundred percent equity investing so this thing better be making money we can already see performance there's a little bit of lag how does it stack up when you look at risk and reward in that efficient frontier so if you're someone out there who's listening on itunes stitcher iheartradio you may want to go to youtube because there's a really interesting illustration on there this is what the illustration shows it's it's an x and y axis and the further you move on the x-axis from left to right the more risk you're taking the further you move from the y-axis bottom to top the greater your rate of return well what you'll notice is all three of the four asset classes that or two of the four asset classes that dave recommends are taking a lot more risk than the s p 500 but getting a much lower rate of return the third of those is taking less risk but also getting a much lower rate of return the only redeeming asset from a risk reward trade-off relative to the s p 500 is in fact the s p 500 it's the one that has the that's actually on the efficient frontier so for those listening are those who even are seeing this visual that we have up on the screen right now according to this because we have all four holdings and then we have the total ramsey portfolio smashed together and we put errors to draw attention dave is taking more risk but getting less historic rate of return that's not good there's four quadrants here there's the quadrant to the bottom left that means you're taking less risk but you're also getting less rate of return you kind of expect that when we're dealing with bond investments or safe risk off investments you kind of count on them to fall in that bottom left quadrant where you want your risk assets in the upper right quadrant because that means you're taking more risk but you're getting a better rate of return where two of dave's four investments fall is to the right of the s p meaning they're taking more risk but they're underperforming that's no man's land you do not want your portfolio to be in the more risk less return category historically that means that you're you're just not risk efficient it's inefficient from a risk and reward trade-off that's exactly right so one of the other things we thought we'd look at is okay what if we kind of stress test both of these what if we kind of look at how does the how do these two portfolios look in the best of times and in the worst of times it was kind of interesting because you can see we highlighted the worst is because it is is a noticeable difference these same time periods but noticeable difference performance bo i don't mind just focusing on the one year and three or the one year like dave's worst one year was lost about 18 18 it's 17.79 and it's right around april of 2019 to march of 2020 the s p 500 during that same period only lost seven percent so that's uh 10 around under performance just in really the last year because this ended in march of 2020. if you extrapolate that and look at the three years the worst three years that dave ramsey's portfolio would have would have exhibited was losing a percent and a half per year from april of 2017 to through march of 2020 the s p 500 the worst it would have performed is actually annualizing five percent per year a return not a loss yeah they were actually making five percent per year over that three year period so i mean look dave's portfolio i think for an aggressive investor yeah it's not good it's not going to destroy you i'm just saying that risk adjusted there might be a better way if you're going to be aggressive there's probably a better way to do it than implementing dave's portfolio so that leads to our third discussion because this is talking about if we're going maximize performance maybe that's not what we should be focused on we should be talking about how do your needs change over time and that leads to our third problem dave has a one size fits all type of approach towards investing you know i think this is probably the one brian that uh i think is probably the most i don't know if i say alarming or upsetting or the one that misses the most like okay there are folks that believe in active management okay that's fine there are folks that maybe don't have efficient portfolios that's fine this one really really bothers me because i have uh young friends who are just starting out in life and they want to go through financial peace universe and they get the investments like hey i've got it figured out this is what i want to do and then i have elderly folks in my life that are at retirement or nearing retirement and they just finished financial peace university they say okay i'm at the investment piece this is what i want to do and the advice is the exact same yeah and i want to give you a kind of a real world example to show you that that's just not how things work we all i was i think i shared on an earlier episode my dream car when i was between 16 to 20 was i was going on my 25th birthday i was going to go buy corvette of course because why wouldn't you go do that now i had the reason it was 25 for me by the way was because i knew i was already a smart nerdy financial guy even though i didn't have a you know i was broke as a joke i didn't have two nickels to rub together as i knew at age 25 my insurance rates might drop because we all know anybody who's 16 to 25 if you try to go buy a corvette it's gonna cost you more for the insurance than it's going to cost you to make the car payments that's right do you know the average age for uh of a corvette purchaser bo i'm gonna take a shot in the dark and say it's not 25 years old it is actually 59 years of age that is we've done that for other research we know that for a fact is that the average age for a corvette purchaser is 59 years of age guess what the cost of insurance on that same vehicle is for a 59 year old it's small yeah because guess what 59 year olds are not wild they're not crazy meanwhile that 21 year old who buys a corvette the insurance company kind of knows hey if i give this insurance for it i'm probably gonna make there's gonna be a claim on this this guy's gonna wrap this thing around something at some point it's kind of the same way with investing you change over time when you are 21 years of age go wide open i want you to be that wild person go out there and invest but when you're 65 years old or even 59 and you just bought your corvette you know that the reason you can have that corvette is because you're you're probably rewarding yourself as you quickly are approaching retirement and once you're getting closer to retirement you're thinking you know what i might need to live off this money i'm no longer i'm not as much of a saver as i might start consuming some of these resources i need to ensure this money's here so my cash reserves is no longer three to six months it's now 18 to 36 months i mean there's all kind of things that will evolve and change when you compare a 20 year old to a 65 year old that should be happening with your portfolio as well so if the problem is dave has a one-size-fits-all approach to investing we think the solution is you need to recognize that your strategy should adjust over time as your financial circumstances change as the size of your portfolio changes as all of the various factors of your financial life change so too should the investment strategy that you're implementing well and i think about it because look dave we know he was a real estate investor at one point in his life he still is a matter of fact we living here in nashville dave is a spectacular real estate investor his deals that sometimes make it across the tennessean where dave will buy property and downturns and then you'll see later where there's an article run on how much money he made he gets it unbelievable but here's the thing real estate investors cowboys they take lots of risk risk is kind of their thing and i always when i have a business owner a real estate investor when they come in as prospects i know that there's two components of risk we have to deal with there's the risk tolerance that's the cowboy section they're willing can they can they absorb the amount of risk emotionally that they're not going to freak out if things are having volatility if we're an economic downturn but the reality is i have to educate that cowboy or cowgirl and say look you're now at the point that it's not only risk tolerance it's this other concept called risk capacity and that's what i was alluding to when i was talking about your cash reserves change your needs change in the fact that you need to make sure that you have a long enough time frame that if the market goes down you can be there long enough for the recovery so you're not selling you know growth on assets that are way down in a market downturn as well as to make sure you have cash flow to pay the bills and the stakes are big obviously well you know what we just showed is if you're a 21 year old and you're being really aggressive but maybe you don't have the risk and reward trade-off you're probably still going to be okay if you're someone who is 60 and you're nearing retirement you're right there this could be a very big deal if you get it wrong so we did this we said okay well how's the way how are we going to do this we already have dave's strategy how are we going to go pull something out there so that somebody can see what somebody who's quickly approaching retirement and we just said let's go grab a target retirement fund let's use an index target retirement fund and here's what we came up with yeah so we just said let's look at the 2025 so this is someone who was in a few years of retirement you know they can see the runway that's where they're moving relative to the ramsey portfolio well again you can see if you're looking at this chart as you move down the x-axis from left to right you're taking more risk as you move up the y-axis from bottom to top you're getting a greater rate of return well what you can see is that every one of dave's holdings is taking significantly more risk three of the four are getting a lower rate of return one of the four the large cap one is getting a greater rate of return but if you smash them all together dave's portfolio is taking a lot more risk than just a indexed 2025 target retirement fund and is getting a lower rate of return so a lot of people go look at this chart or they're going to hear us talking about this chart and go all right so dave's taking more risk by the way historically he's not even getting a great rate of return above and beyond because there's been a lot of volatility in the last year or so that impacted this long-term performance but a lot of you guys are saying okay well show me real world examples of what that means for somebody who's probably 65 years old and is now probably needing to pull some money out to live off of these assets what's the impact so we we pulled up and we created from morningstar what's the best and what's the worst performance over the the best and worst of times so we can see what you might be facing if you're a retiree so if you are that person who's five years away from retirement you think about how bad you know because of the stuff that we've been going through in the past couple months how bad the last year from april 2019 to march of 2020 has been would you rather be in a portfolio that lost 17.8 percent which is what the ramsey portfolio would have lost or something with some mitigated risk that's only down about seven percent again it's a ten percent swing and then if you even stretch it out even further and you look at the three years the worst three years for the ramsey portfolio from april 2017 through march of 2020 it would have lost about one and a half percent per year for those three years if you were in a target date 2025 fund that's preparing to be more conservative preparing before you live off those assets over that same time period from april of 2017 through march of 2020 it actually made about 3.7 per year each of those three years well i think now a lot of people are going to hear that and go okay yeah i get it downturns but fortunately downturns only two out of every 10 years but guys even if you look at this as your maximization strategy of what it's going to do for you i was kind of shocked to see that the premium that you're getting because if here's the thing you worry about guys when you have won the game dude if you're watching a sport back when we had sporting events on tv do you ever ever see anybody who's up five six touchdowns in the last minute they start you get so annoyed because they're taking a knee yeah you know they they huddle around the quarterback and he just drops back and he takes a knee it's because they've won the game they don't want to start doing stupid stuff and blow it in the last minute by the way we have case study we knew somebody back when we were in georgia won the game fabulously successful wanted to help the kiddos out so invested in a business with their son lost it all lost it all i mean it was it was horrible to watch somebody who had won the game financially independent financially independent and then lose every bit of it trying to help a child out with a venture which looked like initially making a fortune then because a leveraged debt got crushed so i'm telling you this stuff that we we know this from experience of three decades is that you can take too much risk after you've won the game and that's just not appropriate that's what we're you hire somebody like us so that we can balance what are your goals what is the why for this money so that you're not pushing forward when you've already won the game and potentially run yourself really into a bad situation so you're probably sitting there thinking okay guys well now you've kind of just ruined it right so i had this investment strategy i thought that i had figured out you know 25 25 25 25 but now you're saying i can't implement that or perhaps that's not the best what should i do what are the ways that i should think about that so we thought it'd be interesting to just talk through all right what's our strategy what are some things that we think about investing what are some ways we look at portfolio well i think i look at this when we put this together this is how you make sure ensure that we're not the two old men on the muppets that are up there in the cheap seats picking on poor days without actually having some some some credibility or something to it so that's why we did want to share what is the money guy strategy for how you should look at this the first thing i want you to understand is wealth creation is surprisingly simple now don't mishear me simple does not mean easy because there are three main components to wealth creation you've got discipline yep what discipline means is that you are going to take a little bit of you are actually going to do deferred gratification you're going to live on less than what you make and that margin that excess is going to be the second component which is money that will be invested and then you're going to give it time you're going to give it the time so you have discipline money and then enough time that wealth is actually created is that simple super easy uh the second tenet is start simple and then graduate to sophistication i hear you say this all the time brian complexity will have a way of finding you you don't have to seek it out so if you're someone who's just starting out and you haven't built up the two three four five hundred thousand dollar investment portfolio there's a chance that just using target retirement funds is a great solution for you start simple get the basics down then graduate to sophistication and that leads to the next point because by the way you can even use index versions of target retirement funds because we think index investing does work if you don't believe it's just go watch the previous segment look at all the benefits there are to index investing the next thing we think is that allocation how you're spreading out your assets matters a lot more than security selection we think that 90 of the return that you achieve is caused by the allocation of your assets not over there picking which individual assets you're using so if you get that piece right you're already setting yourself up for success and that leads to and by the way dave gets this next portion i think that this is something we he's squarely on the same camp investing is only one piece of the total puzzle we've shared dave's great at getting people out of debt and making really good long-term financial decisions it's just the investment could use a little tweaking we're kind of the same way as financial advisors nobody should come to us thinking we're going to maximize and beat the s p 500 every year our goal is to take your age your goals what are your whys for what you want your money to do for you and can we make it all work and as efficiently and just make sure we're maximizing that strategy as much as possible our next ten is that there are some things that you can't control when it comes to investing there are some known unknowns but there are some things you can control so focus on those such as taxes fees and risk exposure don't try to fix what you can't fix like which direction the market's going to go do try to fix what you can fix how much you pay in taxes what you pay in fees and how much risk exposure you have in your portfolio and then the next one is understanding that in uncertain times diversification is going to be your friend there are two human components that we're always trying to balance it's the fear and the greed you know when you go through a market downturn like we had because in the first quarter this year right after the first quarter in the second quarter with the pandemic and all the things going on people are panicking this is where dave talks about all the behavioral components that people screw up the majority of people screw up because they emotionally do not have an asset allocation that matches what they can handle from a behavioral standpoint and they get in their way so a good financial advisor will help you balance out that greedy side where you're making so much money in good economies that you think you need to go even further on the risk spectrum versus the fear of oh my god i've got to sell everything because i don't like how this feels there is a balance that can make this film much easier and better for you and that's a perfect segue is we think that there is a time where maybe it makes sense to go pro if you found that perhaps the numbers are large enough and the gravity of your decisions is so great you don't want to go at it alone maybe it makes sense to seek out some help perhaps because of all of life's different circumstances and all the things pulling you in different directions there aren't enough hours in the day to put the attention on your finances or on your portfolio that you need to be putting there perhaps it makes sense to bring in someone to help you and that's and that's really the point where because i think about all the different reasons people hire us i mean there's a lot of you guys because i said we're beyond common sense we're beyond you're for whether for the 20 that are not struggling with basic behavioral debt issues and other things like that it's more maximizing well you might be different than your spouse i mean think about our relationships with our spouses i am kind of the nerdy one that focuses on things and we have people all the time come to us and say you guys think like i do you get it i want to make sure i hire you so that if some i'm not here to speak for my family that this thing keeps going and so my family members don't get ripped off and we keep this thing going we get it and that's what a lot of people i think also one day you're gonna wake up and you're gonna say wow i'm kind of the ceo of a seven figure holding company here and that's pretty powerful because we one bad decision can just screw this whole thing after you've actually won the game and that's why we do talk about take the relationship to the next level the abundance cycle we love working with clients all across the country it's truly an amazing thing now look i think it's worth saying again uh we love dave he has done wonderful things for the financial world and a lot of times we'll send folks to dave to go get out of debt figure that out but when it comes to investing we think that if you are part of the 20 you're part of the folks who can focus on optimization perhaps there's a better strategy than implementing dave's investment strategy yeah and i hope like i said we'll see how this plays out i've often wondered is this the one that's going to get us in trouble with the big guy i hope not because i did want to pay enough respect to the fact that dave has done much more good than anything else but it uh it is one he's in our territory when you start talking about investments that i felt like and look i want to go ahead and give dave the benefit of doubt he came up with this strategy a long time ago and um so in the financial world has quickly changed if you'd asked brian preston in 1996 his thoughts it would be different than it is definitely in 2020 i'm going to give dave that out you know because i think that this his strategy has been out there for a long time we just want you to know you have a partner where after you graduate where you have the discipline and the behavior and you want to go beyond and get master's level education and optimization the money guy show is here so go check us out moneyguy.com subscribe ring the bell we're trying to get to a hundred thousand by year end you can be a big part of that come join the money guy family i'm your host brian preston mr bo hansen money guy team out you

Channel: The Money Guy Show

Views: 55,382

Rating: 4.8939619 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, Deep Dive on Dave Ramsey's Investment Advice! (Financial Advisors React)

Id: Skh3pbtJeUA

Length: 43min 29sec (2609 seconds)

Published: Fri Aug 07 2020