Finance guru Dave Ramsey gets heated argument with caller about actively managed mutual funds

Referring to Dave Ramsey as a finance guru would be like referring to you as a running guru.

Dave kept his cool. The other guy was trying to heat it up and pick a fight.

I invest more similarly to the caller, but I certainly wouldn't advise treating people like he does.

Film Rep wrote:

Referring to Dave Ramsey as a finance guru would be like referring to you as a running guru.

"Don't take on debt except a mortgage"

"Pay off any existing non-mortgage debts"

People pay to listen to this

Is this an indirect way for you to start a debate: mutual funds v. indices?

For the sake of the nation and other large nations, good thing wealthy individuals for the most part purchase mutual funds or buy equity shares of companies. If everyone who participates in financial markets bought indices, the entire system would collapse. The large investment firms, many are partners with the large commercial banks have analysts going over details of all companies in S & P 1500 plus many more companies. S & P reads & reviews research done by analysts at big banks/large investment firms, S & P pick the winners after large investment firms do all the work. Large investment firms need individuals to purchase their mutual funds. How else do we expect large investment firms to keep the lights on?

The real question is, does Dave get commissions to advertise and recommend actively managed funds to his followers?

applied economics wrote:

Is this an indirect way for you to start a debate: mutual funds v. indices?

For the sake of the nation and other large nations, good thing wealthy individuals for the most part purchase mutual funds or buy equity shares of companies. If everyone who participates in financial markets bought indices, the entire system would collapse. The large investment firms, many are partners with the large commercial banks have analysts going over details of all companies in S & P 1500 plus many more companies. S & P reads & reviews research done by analysts at big banks/large investment firms, S & P pick the winners after large investment firms do all the work. Large investment firms need individuals to purchase their mutual funds. How else do we expect large investment firms to keep the lights on?

You assume that the "large investment firms" actually add value to the market. Yet the evidence shows they take more away from investors in fees then added benefit they provide, so they are actually an inefficiency in the market. The markets are fully capable of pricing securities without them.

All I can say is that I dont know of too many people that have become multi millionaires multiple times and then helped so many others get control of their own financial freedom, many also becoming millionaires.

Like Ramsey says... the critics are typically the ones that dont have anything to back up their point (referring to some of the responses here). There's definitely more than one path to financial freedom so its ok to disagree.

For most posters on LR....

If you dont think there's any weird people in your family, its you!

Walk in and sit down with someone at a full-service N.Y.S.E. firm please before you assume you know all what they do.

* Only full service firms underwrite private corporations and turn them into publicly traded corporations. If discount brokers offer this service it is because some discount brokers are subsidiaries of large banks who partner with investment firms or same large bank that owns discount broker, owns large investment bank.

* Primary offerings. See above.

* If you read and understood my original post, large N.Y.S.E. investment firms have teams of investment analysts. You seem to believe investment analyst are worthless. Above I stated N.Y.S.E. firms with their analysts determine which corporations may go public. Same or different analysts at same large firms continue to review data. Separate companies review bonds but investment firms review bonds also. Discount brokers themselves do not do this.

* Fees and cost of doing business: Large full-service investment firms do make their services expensive for clients with less than $100,000. Some large full-service investment firms will not take clients with less than $100,000. As there are with mutual funds, there are break points in regard to assets at full service investment firms. The more money, lower the fee structure. Large full-service investment firms can make their fees as low as discount services at 100 million dollar level if they want the business.

In summary: No full-service investment firms then no Initial Public Offerings. No I.P.O.s, then what? If no I.P.O.s, we are now having a comparative economics discussion.

RichardRider wrote:

All I can say is that I dont know of too many people that have become multi millionaires multiple times and then helped so many others get control of their own financial freedom, many also becoming millionaires.

Like Ramsey says... the critics are typically the ones that dont have anything to back up their point (referring to some of the responses here). There's definitely more than one path to financial freedom so its ok to disagree.

For most posters on LR....

If you dont think there's any weird people in your family, its you!

That you Dave? How's business these days? I saw they were trying to cancel you. Hope all is well and you are selling a ton of books to poor people in the south (the real America).

A computer at Vanguard can do all that better and way cheaper. Unless you need a family office, minimum $50 million, you don't need any of that.

Vanguard just free rides off of S & P. Standard & Poor's free rides off of full service investment firm analysts. You don't know any of this do you? It is no shame if you don't know Initial Public Offers. I didn't either until I took accounting in high school my junior year. But if you do not understand I.P.O.s, you do not know what goes on at full service firms.

Vanguard just free rides off of S & P. Standard & Poor's free rides off of full service investment firm analysts. You don't know any of this do you? It is no shame if you don't know Initial Public Offers. I didn't either until I took accounting in high school my junior year. But if you do not understand I.P.O.s, you do not know what goes on at full service firms.

You think asset management firms price and market IPOs?... You sound like the kind of person who could actually benefit from Ramsey's advice.

Film Rep wrote:

Referring to Dave Ramsey as a finance guru would be like referring to you as a running guru.

LOL! Good thing I wasn't drinking a glass of milk when reading this.

It’s 2021… we can just direct list or SPAC. All the underwriting is a scam. Larges have failed to stay competitive.

Is Dave Ramsey a finance guru? Not in terms of investments. But he is a personal finance force to be reckoned with. I don't agree with some of what he says, and indeed manage my own investments (and while I have index funds I manage to beat the indexes, not by a lot, but by an appreciable amount). But his focus on avoiding debt is so helpful for millions of middle class people. In a culture conditioned to the easy use of credit, he really helps people get things under control for so many. And his rants against student loans are to be heeded. They are absolutely deadly in terms of their terms and their capacity to keep the middle class down.

applied economics wrote:

Is this an indirect way for you to start a debate: mutual funds v. indices?

For the sake of the nation and other large nations, good thing wealthy individuals for the most part purchase mutual funds or buy equity shares of companies. If everyone who participates in financial markets bought indices, the entire system would collapse. The large investment firms, many are partners with the large commercial banks have analysts going over details of all companies in S & P 1500 plus many more companies. S & P reads & reviews research done by analysts at big banks/large investment firms, S & P pick the winners after large investment firms do all the work. Large investment firms need individuals to purchase their mutual funds. How else do we expect large investment firms to keep the lights on?

If everyone put money into index funds, market inefficiencies and arbitrage opportunities would increase, causing some of people to become active investors again. The system wouldn't collapse unless people were forced to keep all their money into index funds; it is self-correcting.

Thus if a person thinks that the point in time has come whereby there is too much money in index funds, then they should start actively investing and they will make more money that way. If they don't, they should put their money in an index fund and save on fees (and likely taxes) and let other people who think they can beat the market try to do it.

People act as if putting money in an index fund is somehow working against the system. It is a function of the system. By putting money in an index fund, you are saying that the market is efficient enough whereby you don't think you can beat it and you don't think professional managers can beat it relative to the fees they charge. The market will react to your decision and adjust accordingly. It helps keep the active investment industry more efficient in the way that active investors keep public companies more efficient.

rogermortimer wrote:

Is Dave Ramsey a finance guru? Not in terms of investments. But he is a personal finance force to be reckoned with. I don't agree with some of what he says, and indeed manage my own investments (and while I have index funds I manage to beat the indexes, not by a lot, but by an appreciable amount). But his focus on avoiding debt is so helpful for millions of middle class people. In a culture conditioned to the easy use of credit, he really helps people get things under control for so many. And his rants against student loans are to be heeded. They are absolutely deadly in terms of their terms and their capacity to keep the middle class down.

You are a lucky one because a big majority of index funds beat the returns of actively managed funds.

This was not a heated argument. Ramsey was calm, cool and collected the entire time. The caller was a bit of a arrogant jerk. Like many who post of internet message boards.

As for active vs index. It's an old and never ending debate. There are some active funds which have beat the market over time, but in general it is the fee's the eat up the performance. After all, the sum of all active trading are the indexes.

To invest in active funds, you either need to be skilled enough to find the superior funds and stick with them. Or find really good, low cost ones. Vanguard active funds, for instance, are very cheap and many have beaten the index over time.

I personally use both. The active funds I have are, for the most part, low cost. There is one moderate cost one which has killed the market, but that an anomaly. I will likely get out of it over time as the manager has retired.

Aside from the fee gap, the other thing will kills people who invest in active funds (or stocks) is performance chasing. The average investor far under-performs the funds they invest in. By a lot.