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Dave Ramsey has a message for Americans who spend hours debating mutual funds versus index funds online: stop talking and start investing.
The personal finance personality shared his thoughts on what he sees as one of the biggest mistakes would-be investors make during a recent episode of The Ramsey Show. (1) A caller questioned his long-standing recommendation to split retirement savings across four types of mutual funds rather than simply buying an S&P 500 index fund.
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The caller, Dylan, claimed that Ramsey has referenced the strong long-term returns of the S&P 500, so why not recommend investors simply buy the index and call it a day?
Ramsey acknowledged that fewer than half of individual mutual funds in the growth mutual fund sector outperform the market, but argued that people should “shut up and invest” since people who invest end up with more money than those who don’t.
In Ramsey’s view, some people are stuck in analysis mode while their wealth-building years slip away. “You got a lot of people that have an opinion out there that have no stinking money,” he said.
‘100% of people that invest end up with more money’
Ramsey cited Vanguard founder John Bogle as saying that long-term market outperformance by active fund managers is the exception and not the rule. Still, he added that investors can still find mutual funds that outperform the market, with his preferred strategy being to own a mix of growth-oriented large-cap, mid-cap, small-cap and international funds that have demonstrated long-term success relative to their benchmarks.
And while he believes that approach can generate slightly better returns than the S&P 500, he emphasized that the real wealth gap isn’t between active and passive investors. It’s between those that do and don’t invest.
“100% of the people that invest end up with more money than those that don’t every time,” Ramsey said. That’s why he has little patience for endless debates over whether a portfolio earns 12% annually instead of 13%.
According to Ramsey, those discussions become irrelevant if someone never gets money into the market in the first place. Based on the National Study of Millionaires (2) done by Ramsey Solutions, he says a lot of millionaires are just regular people who “picked out their mutual fund based on what the guy in the cubicle next to them was doing.” The key was they were investing and not just talking about investing.
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For beginners, getting started can feel intimidating. There’s endless financial news, market predictions and stock recommendations competing for attention.
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Is it time to forget the ‘perfect’ portfolio?
If you’re ready to put your money where your mouth is, here are some strategies for getting started.
Start with your workplace retirement plan if you have one
A 401(k) can be one of the easiest entry points into the market for new investors, especially if an employer offers matching contributions. Workplace retirement plans often provide tax advantages and can help investors build the habit of regular investing.
You can also open an individual retirement account to supplement your workplace plan or in lieu of one if it’s not offered. Both traditional and Roth IRAs come with different tax advantages you should consider before opening an account.
Automate your contributions
One of the biggest hurdles for new investors isn’t choosing the right stock — it’s getting started in the first place.
Setting up automatic contributions can take the emotion and guesswork out of investing by allowing your money to work in the background.
Low-cost index ETFs tracking the S&P 500 could be an option worth considering, as they provide exposure to hundreds of companies without the higher fees often charged by actively managed funds. This is also a favorite strategy for legendary investor Warren Buffett, who has repeatedly encouraged retail investors to set it and forget it over his storied career.
And you don’t need a six-figure portfolio to get going. Even small, consistent contributions can grow significantly over decades thanks to compound growth.
Apps like Acorns make it even easier by allowing users to invest spare change from everyday purchases, turning small habits into long-term investing opportunities.
Signing up for Acorns takes just minutes: All you have to do is link your cards and Acorns will round up each purchase to the nearest dollar, investing the difference — your spare change — into a diversified portfolio managed by experts at leading investment firms like Vanguard and BlackRock.
With Acorns, you can invest in a S&P 500 ETF with as little as $5 — and, if you sign up today and set up a recurring investment, Acorns will add a $20 bonus to help you begin your investment journey.
Focus on diversification
Most financial experts recommend spreading investments across different asset classes and sectors instead of concentrating everything in a single investment. This can help reduce the impact if one investment or part of the market takes a hit.
Diversifying your portfolio with precious metals like gold could be worth considering, as it has historically been viewed as a lower-risk asset during periods of economic uncertainty and geopolitical tensions. It also can’t be printed by central banks, unlike fiat currency such as the U.S. dollar.
One way to invest in gold that also provides significant tax advantages is to open a gold IRA through Goldco.
With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.
Goldco also offers a buyback guarantee — meaning the company will buy back your gold assets guaranteed at the best available rate if you ever wish to sell.
If you’re on the fence about where gold fits into your financial plan, you can download their free gold and silver information guide today to better understand the potential benefits and any risks.
Consider your retirement age
Someone investing for retirement 30 years away is more capable of tolerating market volatility than someone planning to retire in a few years. You can start off with an aggressive portfolio that becomes more conservative over time.
Whether you prefer actively managed mutual funds, index funds or a target-date fund, if you understand the risk and stay diversified, it could be worth your while to get your money invested instead of searching for the “perfect” portfolio. As Ramsey says, “Theory doesn’t matter until it’s applied,” adding, “I really don’t care what you think about swinging a baseball bat until you swing one, honey.”
A financial advisor can help you build that strategy based on your timeline, financial goals, and comfort with risk. They can help you determine the right mix of investments and create a plan that fits your needs — and adjust it as your life changes.
Consulting a financial advisor can pay off. Research from Envestnet shows that those who consult financial advisors see 3% higher returns on average compared to those who don’t (4).
Platforms like Advisor.com can help you find a FINRA/SEC-registered expert near you for free.
Just enter a few details about your finances and goals, and Advisor.com’s AI-powered matching tool will connect you with a qualified expert best-suited for your needs based on your unique financial goals and preferences.
Advisor.com does the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.
Finding the right advisor isn’t always easy — there’s no one-size-fits-all solution. That’s why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they’re the right fit for you.
— With files from Jessica Wong
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
The Ramsey Show Highlights/ YouTube (1); Ramsey Solutions (2); CNBC (3); Envestnet (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.