Dave Ramsey has a message for Americans who spend hours debating mutual funds versus index funds online: stop talking and start investing.<\/p>\n
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.<\/p>\n
Must Read <\/p>\n
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?<\/p>\n
Ramsey acknowledged that fewer than half of individual mutual funds in the growth mutual fund sector outperform the market, but argued that people should \u201cshut up and invest\u201d since people who invest end up with more money than those who don\u2019t.<\/p>\n
In Ramsey\u2019s view, some people are stuck in analysis mode while their wealth-building years slip away. \u201cYou got a lot of people that have an opinion out there that have no stinking money,\u201d he said.<\/p>\n
\u2018100% of people that invest end up with more money\u2019 <\/p>\n
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.<\/p>\n
And while he believes that approach can generate slightly better returns than the S&P 500, he emphasized that the real wealth gap isn\u2019t between active and passive investors. It\u2019s between those that do and don\u2019t invest.<\/p>\n
\u201c100% of the people that invest end up with more money than those that don\u2019t every time,\u201d Ramsey said. That\u2019s why he has little patience for endless debates over whether a portfolio earns 12% annually instead of 13%.<\/p>\n
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 \u201cpicked out their mutual fund based on what the guy in the cubicle next to them was doing\u201d, but the key was they were investing and not just talking about investing.<\/p>\n
Read More: About 1 in 5 Americans over 50 has zero retirement savings \u2014 here’s the catch-up plan you can actually use<\/a><\/p>\n Is it time to forget the \u2018perfect\u2019 portfolio? <\/p>\n If you\u2019re ready to put your money where your mouth is, here are some strategies for getting started.<\/p>\n Start with your workplace retirement plan if you have one <\/p>\n 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.<\/p>\n You can also open an individual retirement account to supplement your workplace plan or in lieu of one if it\u2019s not offered. Both traditional and Roth IRAs<\/a> come with different tax advantages you should consider before opening an account.<\/p>\n Automate your contributions <\/p>\n One barrier to investing is simply just getting started. Setting up automatic contributions removes the need to make repeated decisions and helps investors stay consistent through market ups and downs.<\/p>\n Focus on diversification <\/p>\n Most financial experts recommend spreading investments across different asset classes and sectors instead of concentrating everything in a single investment. Whether that\u2019s done through mutual funds, index funds or target-date funds, diversification can help manage risk.<\/p>\n Consider your retirement age <\/p>\n Someone investing for retirement 30 years away is able to tolerate more market volatility than someone who is planning to retire in a few years. You can start off with an aggressive portfolio that becomes more conservative over time.<\/p>\n 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 \u201cperfect\u201d portfolio. As Ramsey says, \u201cTheory doesn\u2019t matter until it\u2019s applied,\u201d adding, \u201cI really don\u2019t care what you think about swinging a baseball bat until you swing one, honey.\u201d<\/p>\n You May Also Like <\/p>\n Join 250,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n Article Sources <\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines<\/a>.<\/p>\n YouTube (1<\/a>); Ramsey Solutions (2<\/a>)<\/p>\n This article originally appeared on Moneywise.com<\/a> under the title: Dave Ramsey says most millionaires just copied the guy in the next cubicle \u2014 not debating the perfect portfolio<\/a><\/p>\n This article provides information only and should not be construed as advice. It is provided without warranty of any kind.<\/p>\n","protected":false},"excerpt":{"rendered":"Dave Ramsey has a message for Americans who spend hours debating mutual funds versus index funds online: stop…\n","protected":false},"author":2,"featured_media":638440,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,8374,4176,136416,5632,4517,4174,4175,53978,13593,56,54,55],"class_list":["post-638439","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-dave-ramsey","tag-finance","tag-index-funds","tag-millionaires","tag-mutual-funds","tag-personal-finance","tag-personalfinance","tag-ramsey-solutions","tag-retirement-savings","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/638439","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=638439"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/638439\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/638440"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=638439"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=638439"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=638439"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}