Recently, I was on an episode of #EvenMoreNews and talked WAY too much about Gamestop/securities/market stuff and, at the end, I hastily dropped a quick "fuck Dave Ramsey".

I've gotten a lot of questions why and I want explain that as a public service. https://twitter.com/SomeMoreNews/status/1355208383285104640

In the context of this thread, I'm an economist and financial advisor. I work as a fiduciary and, I want to be clear, this is not financial advice specific to you reading this, this is broad information from a place of my own education and experience you can use to learn more.

Two things about that.

One, I'm a fiduciary. That means I get paid to work in the best interests of my clients, the people who pay me money to work for them.

Dave Ramsey is not a fiduciary. He works for his advertisers.

Just like the people on CNBC, he sells commercials.

Two, just like Dave Ramsey actually, I can only give very broad information. Even if someone calls in to Dave Ramsey's show and he talks with him, he can't do the kind of deep dive necessary to really understand someone's financial information.

A book certainly can't do that.

Broad information can be useful, for sure, but misrepresenting it as something other than that is literally malfeasance. It's one thing for Dave Ramsey to do that because he's not a financial advisor, but advisors have incredibly strict rules about providing suitable advice.

Obviously, that's easy as saying broad advice should be taken with a grain of salt that it can't be applied to you specifically.

That doesn't just apply to financial advice.

That's good life advice, but it goes deeper than that.

A lot of his core advice is actually very bad.

First, he stresses a lot his "rice and beans, beans and rice" stuff and, at its core, the idea of sitting down and figuring out where your wasted costs and are controlling them in a concise way is a good idea.

Doing that as strictly and harshly as possible is not sustainable.

Both as a financial advisor and a behavioral economist.

If you are fortunate enough your biggest issue is not a pure lack of income and nothing else, then yes, getting your finances in order is a matter of changing habits. It's a diet!

Crash diets don't work either.

Moreover, Ramsey has a very weird approach to debt.

It's Boomer stuff.

Yes, you should reduce consumer (i.e. credit card) debt whenever you can. Sometimes you have to take that hit, but it's high interest. It's spending money to spend money. Don't carry unnecessary balances.

All over Ramsey's website, there are articles nay-saying the idea of educational debt or carrying debt alongside having investments that may be growing while outstripping especially low interest rates.

That's bonkers.

That's just now you do things.

Without going too deep into moralizing about Ramsey, which one can do a lot of because his brand is steeped in a particular brand of Christianity, Ramsey places a weird moral burden on carrying debt which as a Jew I find very unpleasant when it's grantors who are the problem.

So Ramsey has a whole thing called the Total Money Makeover and part of that is the Debt Snowball.

Basically, systematized debt repayment is a good idea. You should have a strategy for how you repay your debt.

The problem is this is not something you can apply broadly.

At all.

If you're in debt, you know owing it isn't the problem, it's interest.

Being in debt costs money.

The snowball only works if your biggest problem with debt is you're making plenty of money and just need to spend less OR your smallest debts are also your highest-interest debts.

A systematized approach to paying of debts doesn't look at the total number of debts you owe, it looks at the individual interest rates of those debts and their ability to increase over time and your ability to reduce what is called the time value of those debts.

Now, to be fair, there's a lot of math that goes into that.

It's something I won't break down in a Twitter thread because, again, math and honestly it's sort of the reason I have other people I work with. It's why you hire a fiduciary and not some asshole with a radio show.

So there's another thing Dave Ramsey does that, for me, would be borderline illegal and would definitely get me fired and it involves one of my favorite points of friction.

Mutual funds and how he recommends them.

Terribly, horribly, unethically.

First, his website is full of articles just blanket advising (also unethical) telling people to dump money into mutual funds.

Are mutual funds a bad idea? It depends.

They can be a good idea. It depends on the fund, your needs, and ESPECIALLY how much you have to invest.

If you are regular person who doesn't have many tens of thousands of dollars to invest, there is study after study to show a balanced portfolio (which means not just equity) that includes index funds instead of mutual funds produces better returns at the same risk.

Alternatively, if you do have those many tens of thousands to invest either because of a retirement account or whatever else, then a mutual fund may be right for you because of what's called a breakpoint sale--basically you get a discount because you're giving them extra money.

What Ramsey's website is just COVERED IN however is a thing that would be massively problematic for a financial advisor and that is the claim past performance indicates future performance and it is a performance has claimed will beat the market.

That, in particular, is nuts.

Mutual funds consistently do not beat the market and do not even try to. They are a means to reduce risk.

The same is true of index funds, I would argue, and I will break my own rule and give blanket advice, if you're reading this thread, you should likely avoid leveraged funds.

The way Ramsey sells mutual funds is atrocious.

I will note, an ETF is an index fund and you can just buy and hold an ETF. There's nothing stopping you from doing that.

They also don't charge the fees and commissions of a mutual fund.

This is just a lie.

Bonds and annuities are tricky, bonds especially now with interest rates being what they are and I have some takes about that, HOWEVER both can be structured in a such a way they are a potentially excellent option for older people and certain disabled people who need stability.

It's true whole life insurance can be pretty spendy, but telling people wholesale to write off an entire class of life insurance--especially when you're writing to an audience for whom investing 15% of their income into mutual funds is an option--is monstrous.

Okay, MORE BULLSHIT, Dave Ramsey claims you can EXPECT a 12% return on investments based on that increase in the S&P 500.

That doesn't make sense.

To get that number, he has to cherry-pick before WWII WITHOUT ADJUSTING FOR INFLATION. It's nonsense.

In actuality? It's about 7%.

Mind you, that's without talking about the importance of risk management in a portfolio which is actually a pretty good way to think about decision-making in general and can be sort of exported to broader ideas in decision theory.

But that's a different thread.