Dave Ramsey Naive on Business Debt, Lousy on Investing, and a Loudmouth Bully

[Rael]

How Dave Ramsey Made $55 Million by Being Good on Personal Debt, Naive on Business Debt, Lousy on Investing, and a Loudmouth Bully.
Gary North

Sept. 3, 2011

I have kept my mouth closed on Dave Ramsey for years, but no longer. I have finally had enough.

In a January 23, 2008 phone call, he excoriated Peter Schiff's book, Crash Proof, after telling the caller that he had never heard of the book or Schiff.

This was unconscionable. The rule is simple: if you attack a book, read it first.

The caller, a young woman, said that her father was worried about a coming stock market crash. He was buying gold and foreign currencies. Ramsey said this advice was "absolutely ludicrous."

On that day, the Dow was at 12,270. Gold was at $880.25.

Yesterday, the Dow closed at 11,240. Gold closed $1,884.50.

You tell me: Ramsey or Schiff?

But it gets worse. Ramsey's off-microphone research man told Ramsey that Peter Schiff is Irwin Schiff's son. Ramsey then went into a tirade over the father's tax protest advice. He then said this: "This kid's dad is a nutburger, which probably means the kid is a nutburger."

No, it means that Dave Ramsey is a disgrace. He verbally tarred and feathered Peter Schiff for a position Schiff personally opposes: the tax revolt.

The "kid" is three years younger than Ramsey. He runs a business. And, just for the record, he has never declared bankruptcy. Ramsey did -- and has become a multimillionaire by parleying that act of contract breaking into an anti-debt career. He is like the reformed alcoholic who says no one should take a drink. For the record, I hope he has long since repaid all of his former creditors with interest. "The wicked borroweth and payeth not again." (Psalm 37:21a).

On Irwin Schiff, I have been clear: http://www.garynorth.com/public/692.cfm. I was clear in the mid-1970s, when Schiff began his crusade against paying income taxes. I published R. J. Rushdoony's 1975 article, "Jesus and the Tax Revolt," in the Winter 1975/76 issue of The Journal of Christian Reconstruction, which I edited. The article was a refutation of the tax protesters. This was when Schiff had just begun his crusade. I knew who he was, and I joined with Rushdoony to oppose what he and others like him were doing.

In 1975, Dave Ramsey was 15 years old.

Watch the video. Then I will comment on Ramsey's pathetic track record as a financial adviser.



http://www.youtube.com/watch?v=S98_eMax9xo

[Rael]

He bullied that young woman. He was contemptuous of her father's advice. He made it appear as though her father was a gullible victim of a charlatan.

Charlatan is as charlatan does.

The phone call came in January 2008. Remember what happened next -- an event that Schiff had called perfectly? There was the worst stock market meltdown in modern times. The entire financial structure was changed. The government nationalized Fannie Mae and Freddy Mac. The Federal Reserve gave secret loans of $1.2 trillion to big banks.

Was the advice that the woman's father received from Schiff accurate? Yes. Was the advice from Ramsey accurate? No. Yet he came on like a know-it-all expert. He showed her!

Then the stock market showed him: the worst crash since 1932. Unemployment remains above 9%.

In Texas, they would say that Dave Ramsey is all hat and no cattle. They would be wrong. He is all hat and diseased cattle.

He tells people to buy no-load stock mutual funds.

The longer your money stays invested, the more it can grow. Over the last 30 years, the S&P 500, a standard measurement of stock market performance, has averaged a 12% growth rate.

Conclusion:

Put your retirement money in growth stock mutual funds with a track record of at least five years of consistent returns (12% average). Divide your portfolio equally among growth, growth and income, international and aggressive growth funds.

He posted this on March 22, 2010. On that day, the S&P 500 closed at 1166. Ten years earlier -- March 22, 2000 -- the index was at exactly 1500.

Let's see: that's a loss of 22%.

But wait! There's more!

Using the inflation calculator of the U.S. Bureau of Labor Statistics, we learn that the dollar lost over 21% of its purchasing power, 2000 to 2010: http://bit.ly/BLScalc.

So, combining these figures, the investor who bought a no-load index fund of the S&P 500 and held it for a decade lost almost 40% of this investment.

Ramsey never discusses the retirement-destroying rate of return that American stocks have produced since early 2000. It has been 11 years of false hopes.

Dave Ramsey is a purveyor of false hope. He never changes. He never learns.

For the record, I warned my Remnant Review subscribers in February 2000 and again in March that the price/earnings ratio was too high, and that a market decline was imminent. It began in mid-March. In terms of purchasing power, it has never recovered.

COGNITIVE DISSONANCE

He offers his desperate listeners the dream of riches. But they must do it Dave's way. We read on his site:

A research study conducted by Dr. Thomas Stanley and Dr. William Danko revealed this fact in their book, The Millionaire Next Door. The findings by the two researchers support what Dave has said for years: your biggest wealth-building tool is your income. It almost sounds too simple, but it's absolutely true!

Right now you might be saying to yourself, I work hard and have a steady income. Why am I not a millionaire? The answer might be that you spend more than you make. If that's true, you're essentially giving your money to someone else so they can become rich while you live paycheck to paycheck. If you want to be a millionaire, you need to change your lifestyle to mimic most millionaires.

Did you take special notice that most millionaires invest their money? It's not enough to live below your means and save money; you must invest that money. Dave recommends you invest in mutual funds because they offer several advantages over individual stocks. Here's a quick breakdown of his suggested investments:

* 25% in a growth mutual fund
* 25% in a growth and income mutual fund
* 25% in an aggressive growth mutual fund
* 25% in an international mutual fund

http://www.daveramsey.com/article/millionaire-secrets/lifeandmoney_investing

What's wrong with this rosy picture? This: the book describes self-made rich men, and almost all of them made it by starting a business. What's more, most of them declared bankruptcy once. Some did it repeatedly. They lived in terms of debt. They stiffed their investors, their bankers, and their relatives. Starting a business is risky. They passed to others as much of this risk as they could.

In the book, we learn that 85% of them had started businesses. To start a business, you must adopt one or more of these options to fund it: (1) borrow money from friends and relatives; (2) borrow money from a bank; (3) borrow money from customers (e.g., cash up front for a subscription); (4) put up your own money for a cash-only business (exceedingly rare the first time you start one); sell shares in your firm (even more rare). Once the business is profitable, you borrow money more to grow it. This is "the millionaire mind." the authors' title for their other book.

These men invested wisely in a diversified portfolio only after they got rich by using debt.

In short, a bunch of them got rich exactly the way Dave Ramsey did. They borrowed money, declared bankruptcy, started over, and got rich. Most of them are not worth $55 million. According to this site, he is. (If he wants to prove me wrong, he can post his CPA's signed statement of another figure.)

The words "cognitive dissonance" come to mind. Dave Ramsey lives in terms of these two words. He has gotten rich with them.

He keeps telling listeners to do what has produced major losses for anyone who has done it for the last 11 years. Furthermore, they have lost time. They have less time to get back to what they had before they listened to him, after taxes and inflation take their toll.

He promotes this nonsense in the name of a safe and secure retirement.

He will have a safe and secure retirement. They won't.

He helps people get out of debt. This is admirable. Then he gives them wrong-headed but conventional advice that loses money. He is like a man who sobers up people by getting them to start smoking two packs of cigarettes a day.

RAMSEY'S WAR ON GOLD

He hates gold. No other word better describes his attitude.

This is from his website, written by some staffer, but clearly endorsed by Ramsey.

From 1833 to 2001, the compound annual growth rate of gold was only 1.54%. That's pretty rotten. Since September 11, the value of gold has definitely increased. It's looking better right now. But you can't deny nearly two centuries of consistently poor performance.

Notice what he has done. He uses the era of America's gold coin standard, 1833-1933, to show that gold made a poor return. That was the point of the gold standard: stable money, with gold at a fixed price. People owned gold coins, not to get rich, but to keep from getting poor. They bought coins rather than deposit them in a local bank. Gold preserved purchasing power.

Then he included the era of the gold-exchange standard, 1933-71, when the U.S. government sold gold at $35 an ounce to governments and central banks. Again, gold's price was rigged by the U.S. government: fixed. Of course gold's did not rise. Only after 1968 did the system of gold price rigging begin to break down. Only those people who thought the U.S. government would cheat the central bank holders of dollars and abandon the gold standard bought legal gold coins. I was one of them, and I made a lot of money on this assumption.

In 1970, gold was at $40 per ounce. You could legally buy British gold sovereigns for $10. I did. I still own them. I have made 45 to one, before taxes. But Ramsey dismisses all this.

In 1970, he was ten years old. In 1970, I had written multiple articles on gold. Here is one of them. But Ramsey is the expert on gold. Just ask him. Or his staffer.

He stopped at 2001 -- the bottom for gold at $256. That was the year I begged my subscribers to start buying gold.

This man is either intellectually dishonest or just not too bright. He talks a good line -- confident enough to fool the walking wounded.

Gold is the new Snuggie. You buy it off late-night cable and end up looking stupid. Everyone is talking about it, and everyone wants to get involved. But think about it. If you were going to invest in gold at all, would you really want to buy it at its 176-year high? Absolutely not!

So what's gold good for--other than wearing it around your neck or wrist? Well, if you're in debt--or if you just need a little extra cash--sell it!

Selling jewelry is a great way to build traction on your starter emergency fund, to knock out debt, and to clean up clutter around your house. If you've become gazelle intense, but you're not quite ready to sell the kids, then peek inside the jewelry box. Do you really need everything in there--the trinkets, bracelets, rings and old watches?

Clever! Sell that jewelry!

When did this appear? On October 13, 2009. On that day (using Kitco's data), gold was at $1,057.50.

It is up by almost 80%.

Now, Dave isn't endorsing gold as an investment. He never has, and he never will. Companies like GoldStash.com offer an outlet for you to make some money on your unwanted or unneeded jewelry. Dave will only endorse companies that he trusts, and Gold Stash is reputable, honest and absolutely trustworthy.

It could not be clearer. Dave Ramsey will not endorse owning gold for any reason, ever.

Listen to this audio clip. He makes his position clear, "Gold is horrible. Never invest in gold. Never invest in gold. Never invest in gold."

http://dl.dropbox.com/u/4888190/DaveRamseyonGold-May-2011.mp3

He was as confident as he was dead wrong.

Then there is this nagging question: "Why is GoldStash buying gold?" As a favor? As a charity? Or as a way to buy low and . . . oh, no! . . . sell high? Yes, my friends, GoldStash is buying gold in order to sell it. It is buying from people who do what Dave advises and selling to those who don't.

Dave Ramsey is the company's go-between. He is a broker. A middleman. He is getting his followers to turn in their gold. What about the people who buy gold from GoldStash? What does Dave think about them?

1. Nail 'em, the schmucks! (They didn't take my advice.)
2. Pretty smart. (They didn't take my advice.)

Dave Ramsey is not an investment expert. He is an economic fool. Anyone who tells a staffer that he will never recommend an investment, other than for a moral reason, such as pornography or gambling, and then has the staffer post it on his site, is an economic fool. He is saying, "Conditions mean nothing to me. I will not buy gold." This is not investment advice. This is a religion -- an anti-gold, pro-fiat money religion. This is what Isaiah preached against (Isaiah 1:22).

We know what Ramsey thinks of Isaiah. "Nutburger."

If you want to know why Ramsey does not know what he is talking about on the gold issue, read my report: The Gold Wars.

http://www.garynorth.com/GoldWars.pdf

SELLING ADVICE TO TRAPPED, DESPERATE PEOPLE

The reason I set up my free site on getting out of debt, www.DeliveranceFromDebt.com, was simple. I did not want to go to my grave knowing that I did nothing to help desperate people get out of debt. But I decided not to sell them advice in their hour of need, the way Ramsey does.

I did not want to refer people to Dave Ramsey, who gives such terrible investment advice, year after year.

My site is free. He sells his information on getting out of debt.

We have different philosophies on what to charge, whom to charge, and when not to charge.

I do not charge desperate people for my advice. He does.

I do not call a man a nutburger in public, merely because his father was given a prison sentence. There is a biblical principle of ethics here:

The fathers shall not be put to death for the children, neither shall the children be put to death for the fathers: every man shall be put to death for his own sin. (Deuteronomy 24:16)

That ethical principle did not restrain Ramsey, who was not about to pass up a chance to vilify an investment adviser who recommends gold. The man is ethically untrustworthy.

He presents himself as a debt-free Christian, and recommends that we all be just like him. That, too, irks me. Why? Because he has only one claim to fame. Dave Ramsey stiffed his creditors legally, got back on his feet, and is now making a financial killing by selling rotten investment advice to poor people who do not know enough about investing to recognize that he has been faking his non-existent financial expertise for a decade.

Dave Ramsey is not to be trusted.

Pass it on.

[Note: If you lose track of this article and wish to find it on the Web, search for "Dave Ramsey," "$55 million," and "nutburger."]

[Kludge]

Some off-the-top-of-my-head counter-points from personal finance class.

Ramsey entered into a large amount of debt when he began over-purchasing real estate without diversifying. At the time, he was just a young real estate trader and hadn't thought as broadly about issues as he does now. I think it's unfair to lambast Ramsey for taking on too much debt as he learned from it and no longer advocates what bankrupted him. Had the author watched or read Ramsey's lessons, he would have known how hostile Ramsey now is toward debt. Despite the author's claims, Ramsey has a remarkable amount of information listed on his web page for free. Ramsey supports 401(k) plans for their ability to evade taxes. Withdrawing from a 401(k) plan early will result in stiff penalties otherwise avoidable assuming stocks gained. As for mutual funds, it's rare for them to actually take on large losses due to how diversified and well-kept they are. If you go to an investment firm and ask to see a selection of mutual funds, you'll probably see a slow, steady growth over the past decade, or slight decline. The reason for wanting that stability, of course, is that the money is specifically for a retirement account where you'd probably not be interested in a market as volatile as PMs. While Ramsey does favor minimizing taxes paid, he appears to view outspoken tax evasion as stupid for easy-to-deduce reasons.

... Not that I'd ever try to defend Ramsey after judging Peter based on his dad. That's just fucking stupid.

[Danke]

As for mutual funds, it's rare for them to actually take on large losses due to how diversified and well-kept they are. If you go to an investment firm and ask to see a selection of mutual funds, you'll probably see a slow, steady growth over the past decade, or slight decline.


The problem is the fees they charge and the declining value of the dollar. Including those factors, most mutual funds won't look so good.

[Koz]

I am a Financial Advisor, and I concur, Ramsey is a total idiot. He has no business advising people on anything except paying off debt.

[Rael]

I am a Financial Advisor, and I concur, Ramsey is a total idiot. He has no business advising people on anything except paying off debt.
His advice on paying off debt is essentially: get a second job and get rid of your cable tv subscription.

[frodus24]

In defense of Dave, he did instill into my mind to save money and have an emergency fund. The next issue is the debt snowball and I am currently going through that at this moment and it is working. I am sick of credit card debt and being a slave to the banks. I have listened to his speeches and he makes sense in that area. I also budget my money and I can tell you that my life is a hell of a lot less stressed.

HOWEVER, Dave's investing advice stinks. My friend who got me into Dave and I disagree on many of his investment strategies. Once I am truly debt free, I will thank Dave for that, but for everything else, I am taking a much different path.

[Sola_Fide]

Frodus was a great band. ^^^ I got into them, En Masse, Hoover, Fugazi, etc. when I was younger.

[frodus24]

Oh, still love Frodus. Most folks ask, "What is a frodus", lol. Alot of this music keeps me sane even though I am 36 years old.

[libertarian4321]

I think both Ramsey and Schiff have major flaws when it comes to investing.

Ramsey's "personal finance" advice, as far as getting out of debt and saving, is generally good, but he is an extremist on some things (e.g. advising people to never use credit).

Just like with any "guru," you have to be careful with blindly following their advice.

[Anti Federalist]

Notice what he has done. He uses the era of America's gold coin standard, 1833-1933, to show that gold made a poor return. That was the point of the gold standard: stable money, with gold at a fixed price. People owned gold coins, not to get rich, but to keep from getting poor. They bought coins rather than deposit them in a local bank. Gold preserved purchasing power.

There it is.

[jmdrake]

And to this, Dave Ramsey is a petty jerk who does search and destroy missions on fellow employees who dare tweet that he knows nothing about foreign policy.

http://www.ronpaulforums.com/showthread.php?291958-Dave-Ramsey-gets-Ron-Paul-supporter-FIRED-for-his-political-views-%28Matt-Collins%29&highlight=Dave+Ramsey

[Rael]

And to this, Dave Ramsey is a petty jerk who does search and destroy missions on fellow employees who dare tweet that he knows nothing about foreign policy.

http://www.ronpaulforums.com/showthread.php?291958-Dave-Ramsey-gets-Ron-Paul-supporter-FIRED-for-his-political-views-%28Matt-Collins%29&highlight=Dave+Ramsey

Cliff notes version of the story?

[Sola_Fide]

Dave Ramsey got owned by Schiff.

[jmdrake]

Cliff notes version of the story?

Dave Ramsey departed on air from his economics advice to praise Obama's foreign policy, especially with regards to the raid to get OBL. "The Collins" tweeted that Dave should stick to what he's good at and not delve into foreign policy. Dave and Matt worked at the same radio station. (D.R. is syndicated, but Nashville is his home base). Dave leaned on the the station owners to get Matt fired.

[Sola_Fide]

Oh, still love Frodus. Most folks ask, "What is a frodus", lol. Alot of this music keeps me sane even though I am 36 years old.

Nice! The Earth Isn't Humming is one of my favorite songs from that era/genre.