Why does Dave Ramsey only recommend Mutual Fund?

Discussion in 'Stock Market Education' started by eagletal88, Jan 19, 2015.

  1. eagletal88

    eagletal88 Guest

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    I never understood why he only recommends Mutual Funds. Maybe because it requires less maintenance than single stocks?

    What are your thoughts on his investment advice?

    I know learning his debt free tactics have worked for me, and now I am at a point financially where I can invest. I really like his books covering a lot of subjects, but am not sure on his investment advice.
     
  2. crimsonghost747

    crimsonghost747 Senior Investor

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    A lot of people like mutual funds because they are easy and, in most cases, quite well diversified. This makes it easy for new people to get into investing and they provide a solid base for the portfolio. I also started with mutual funds but sold all of them a couple of years ago as I started to get more interested about the markets and decided that I would rather invest that money directly.
     
  3. eagletal88

    eagletal88 Guest

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    That makes sense, and would definitely help a new investor, "set it and forget it". I have most of my retirement in Mutual Funds, but my personal investments are done through mostly single stocks. I enjoy the process, and the excitement that comes from single stocks.
     
  4. mithra

    mithra Guest

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    The ease is one, yeah. And I think for those that are just starting, what they'll most likely look at is where the profit is. Education - actual stock market education - is a far, far second in their priority because they'll want to try but at the same time, the research is daunting so they'll choose one that doesn't require much education but gives profit. Basically, the least risk (because it's not being handled by newbies) for the most returns.

    When they do get to educating themselves though, they'll realize the fees involved, the total lack of control. The possibility of dilution and how many costs it actually has might make them want to try individual stocks. That would entail educating one's self though and not everyone has an interest or time for that.
     
  5. crimsonghost747

    crimsonghost747 Senior Investor

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    mithra makes a very good point about people not having the interest to do more selected stock picking. A LOT of people simply do not enjoy it like we do, and I can understand why. For these people it's a matter of making an automatic monthly transfer into mutual funds and voila! It's ready and the only thing they need to do is sit together with their financial advisor once in a while and see what's going on. Easy and fast.

    It's not the ideal way to do it, but I think that is how most people want it done. I also know that a lot of people consider "the professionals" to be amazing and don't even hope to have a chance at getting similar returns.
     
  6. mithra

    mithra Guest

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    Yes, this. Also, for some people, interest in something plays a huge factor in them developing adequate enough skills at it. So even if someone wanted to try their hand at individual stocks, if it's simply not something they're interested in or something that they don't have the time to develop a skill in, I think it's actually more profitable for them to just pay the fees and hidden costs and risk the other possibilities than trying their hand at it. If you can't handle something, pay someone else to do it for you. Adequate expertise in something takes a while after all and individual stocks isn't for everyone, which is okay.
     
  7. gracer

    gracer Senior Investor

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    I haven't started investing in anything yet because I'm still contemplating on whether to invest in stocks, bonds or mutual funds. An experienced friend told me to invest first in bonds or mutual funds since I'm still a beginner. They don't require as much time and effort as compared to stocks. What are your thoughts on this?
     
  8. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Better managed mutual funds are a very good way to build wealth over time without a whole lot of risk in general. They are ideal for those who don't have the time or inclination to pick their own stocks. I have long had quite a bit of money in a handful of several of the better no-load mutual funds in my retirement accounts.

    In general, I'd say avoid mutual funds that only offer "share classes" with big upfront 5-6+ percent commissions - commonly called "A shares". Some may disagree, but I prefer to stay away from that. If I decide to liquidate shares or get out of a fund entirely after a year or two or even a few years down the road for whatever reason, I don't want to have to think about blowing money previously on that big upfront commission.

    Bonds in general tend to be less volatile than stocks or commodities, but the upside tends to be limited. They pay interest and guarantee a return of original principal at maturity. But they tend to fluctuate in value between their original issue date and their future maturity date. Some fluctuate very little, others quite a bit. And there is always at least a theoretical risk of default - the issuer not being able to make interest payments, or even not being able to repay the principal. This can happen when a company, government, or municipality gets into financial trouble and finds itself having difficulty paying its debts and operating expenses.
     
  9. User911

    User911 Well-Known Member

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    I'm surprised he doesn't recommend ETFs over mutual funds. As far as I know, ETFs generally have less fees and that seem like a pretty attractive plus. Personally, I prefer to buy individual stocks. My nephew thinks I'm crazy, but in the past I've purchased mutual funds and although there may be some in the fund that are doing well, there are others in the mutual fund that seem to be pulling it down so I never get the returns I really want. By buying individuals stocks, I can focus in on the things that are important to me. I doubt if I will ever buy a mutual fund again. I would look into ETFs over mutual funds any day.
     
  10. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I do also use ETFs as part of my portfolio - mainly for commodities exposure. They can be a good part of a diversified portfolio.

    Things to watch with the relatively new ETFs concern how much (if any) leverage they're using, and who is managing the fund.

    I generally avoid investing in things that are heavily leveraged. And one thing I like about investing a few bucks with certain fund managers such as Bruce, Yacktman, Romick, and McClennan is that they have long track records of success and relative stability even in bad times.
     

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