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NYT Blogs On Dave Ramsey’s 12% Solution

A post by Ann Carrins and Ron Lieber on the New York Times “Bucks” blog references my recent article regarding the fallacy of Dave Ramsey’s assertion that anyone can earn 12% annually by putting all their funds in “good growth mutual funds.”

The Times phoned Ramsey for clarification as to why he maintains this position in light of facts that suggest “it just ain’t so.”  According to the Times, “He did not make himself available to explain. “Dave is currently working on the completion of his new book and unfortunately is not able to add anything to his schedule, at this time,” a Lampo Group public relations assistant said in an e-mail. “He would like to apologize and thank you for requesting an interview.”

I sure hope he corrects his math in his new book. To read the whole article, click here.

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4 Responses to NYT Blogs On Dave Ramsey’s 12% Solution

  1. Bobbie Munroe May 14, 2011 at 7:03 pm #

    Of course he was too busy to comment as the only logical reply is “maybe I was mistaken.”

  2. Karl Weiss July 21, 2011 at 3:23 am #

    Great work. Very informative

  3. Matthew Johnson October 5, 2012 at 12:19 pm #

    There are no tricks in percentages like most of these idiots are thinking. If you invest $10,000 in an ETF for the S&P 500, you will probably average around a 12% increase each year. Let me walk through an example with made up numbers.

    Year 1: S&P returns -30%
    You now have $7,000

    Year 2: S&P returns 20%
    You now have $7,000 + (.2 * $7,000) = $8,400

    Year 3: S&P returns %40
    You now have $8,400 + (.4 * $8,400) = $11,760

    The average gain of the S&P 500 is not [ (-.30) + (.20) + (.40) ] / 3
    The average gain is [ (11,760 – 10,000) / 10,000 ] / 3
    = (1,760 / 10,00) / 3
    = .0587
    = 5.87% Avg Gain

  4. Tom November 6, 2012 at 12:33 pm #

    Actually, Matthew, that’s not how the math works. The annualized rate of return in your example would be 5.55%, not 5.87%.
    To verify, take $10,000 x 1.0555 x 1.0555 x 1.0555. You’ll notice the result is $11,760.
    Because the annualized rate of return is a compounded number, you cannot get the answer by simply dividing by the number of years (N).