How To Invest With Very Little Money

Dave Ramsey knows how to capture your attention. Normally he uses that skill in the service of doling out financial advice to the more than 7. 7 million people who tune in to his radio show every week, which makes him the third-most-popular radio personality in the country, behind Rush Limbaugh and Sean Hannity and ahead of Glenn Beck. Or to the thousands more who throng to his live events, like his planned appearance at a 3,000-seat arena in New Jersey in November. In June, however, Ramsey took how To Invest With Very Little Money Twitter and engaged a very different audience: financial advisers.

I help more people in 10 min. Ramsey tweeted at a group of advisers in response to a discussion they had kicked off about him. Strong words, but so were those of the advisers. Ramsey’s tweet sparked more debate online, in barbed blog posts from other advisers and investment writers. Which goes to show that Ramsey is one of the most compelling figures in the world of financial advice, as well as a polarizing one. When MONEY readers were asked in a recent survey whom they would most want to read more about, Ramsey ranked near the top.

It makes sense: He’s an eloquent, relentless preacher for habits any reader of this magazine would embrace, like saving a lot, staying out of debt, and planning for the long run. Yet he gives investment advice that drives many financial advisers crazy, and with some cause. In Ramseyland, you can let everything ride on equities, and the bull market of the 1980s and ’90s goes on forever. Ramsey’s scrap with advisers is also over who are best qualified to give investment advice — and how they should be paid. The radio star has aligned himself, and part of his business, with brokers who earn commissions selling mutual funds with front-end sales charges. Ramsey’s origin story of collapse and rebuilding, told again and again on his radio show and at live events, has become the cornerstone of his popular appeal. By the time Ramsey was 26, he has written, he had become a real estate millionaire, but the leverage inherent in the business caught up with him.

Ultimately, Ramsey has said, he had to declare bankruptcy. Ramsey, who declined to be interviewed for this story, attaches a simple lesson to this: Debt is corrosive, almost to the point of being a moral failure. Ramsey, 53, got his start in radio with a show in Nashville in 1992. By the time he came to the attention of the coastal elites in the mid-2000s, his show was already a national force, with 2 million listeners. Ramsey tells people that no matter the state of their financial lives, there is hope for recovery if they will just take responsibility and start to take action. Michael Harrison, the publisher of Talkers, a radio-industry trade magazine, and someone who has followed Ramsey for years. His core message is of culture: We are a society that is drowning in debt.

The radio stations that carry his show are in debt. The government that provides the airwaves for the radio show is in debt. Ramsey’s credibility is a valuable commodity. Zander Insurance Group, a Nashville-based company that sells term life insurance, has Ramsey’s face and warm endorsement plastered all over its website. Ramsey also lends his name to a mortgage company, a business that buys gold, and family web-filtering software. Rich-people problems What’s notable about the war of words between Ramsey and the financial planners is that they are largely talking past one another.

Top financial advisers counsel the affluent about the fine points of how to invest their money, maybe along with estate planning and sanding down tax bills. Ramsey focuses his advice mainly on people struggling to get out of costly consumer debt. Step two is to pay off all your debts besides your mortgage, and step three is to build up an emergency fund that has six months’ worth of expenses in it. Only then can you move on to investing. It’s likely that many of Ramsey’s listeners are on step three or earlier, dreaming of the day when they might start investing. According to the Census Bureau, half of U. That’s not counting mortgages and car loans.

Under Ramsey’s plan, you budget carefully, cut up all your credit cards, and use only cash, distributed into different envelopes dedicated to different types of expenses. As Ramsey points out, it makes more sense mathematically to target high-rate debt, but the idea is to quickly see evidence that you are on your way to being debt-free. You don’t have to be living on the financial edge to find such advice helpful. I have never before felt like I had total control over my money. Planning like it’s 1999 For many in Ramsey’s audience, being able to invest is the brass ring.

How To Invest With Very Little Money

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How To Invest With Very Little Money

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How To Invest With Very Little Money Generally this…

How To Invest With Very Little Money

Where you actually stash your extra money after you’ve slain the debt and built up your bank account is a luxurious detail. But it’s worth saying this forthrightly: Ramsey’s investing advice is weak and could get you into trouble if you follow it too closely. Some of Ramsey’s message is solid: He’s pointedly skeptical of often high-cost products like variable and index annuities. Other tips, though, are strangely vague.

More consequentially, Ramsey advocates a portfolio of only stock funds, with no bonds. He does say that those with low risk tolerance might add a balanced fund, which includes some bonds as well as stocks. Given the volatility of stocks, that’s aggressive advice, to say the least. Christine Benz, director of personal finance at the fund research group Morningstar. Ramsey seems to be so dismissive of bonds because he’s bullish on stocks.

In fact, this is unhinged from the reality of the investing world. Goetzmann, professor of finance at Yale. That’s because, he says, people need a pro to help them stick to their plan and not jump out when an investment underperforms. While some periods, like the 1980s and ’90s, do deliver double-digit returns, investors know they can also see long stretches — perhaps in their peak saving or retirement years — earning a lot less. Stoffel obviously couldn’t do on a live radio show. But here are the numbers, using data from Morningstar. If someone invested equally in four mutual funds corresponding to Ramsey’s plan, using the kind of load-charging funds he recommends, over the past 20 years the annualized return would have been 7.

That’s why planners often recommend half that rate. In fairness, Ramsey says you should get your real investment advice from a qualified pro — such as one of his endorsed local providers. Since ELPs are independent, there’s no way to judge their overall advice, but to get a feel for what they do, I set up an appointment. Do you have the heart of a teacher? After I typed my contact details into the form on Ramsey’s website, it was Scott Smiler who picked up the phone and gave me a ring. Berkey in Manhattan, whose main practice is real estate law.

He’s also a financial adviser who makes extra money investing the funds of Ramsey fans — at least those who live in New York. Smiler pays to be an ELP. There’s no way to know the money this generates overall for Ramsey. ELPs had been added to their area in recent years. Instead, he would be paid on commission, by selling A shares of mutual funds — the ones with the high front-end loads. Later, Smiler acknowledged that he extends this courtesy to pretty much all his clients, nearly all of whom come through Ramsey.

How To Invest With Very Little Money

Smiler, who knew I was working on a story about Ramsey. He explained that ELPs have certain philosophies and techniques in common — what Smiler called a framework. They believe in the importance of building up an emergency fund, for instance, in meeting face to face, and generally in the Dave Ramsey worldview, which means, for example, mutual funds rather than individual stocks. That said, Ramsey doesn’t seem to push a specific investment plan on ELPs.

Other advisers told MONEY that Ramsey expects them to earn high scores in an online customer rating system and that they had to clear an extensive phone interview with a Ramsey staffer before joining. There are differences that come with serving people mainly referred through Ramsey. One is that clients tend to be religious Christians. Smiler told me that once, talking to a new client on the phone, she flat-out asked him what his religion was. There was a pause, and then they kept on talking. Smiler says he keeps his approach strictly secular.

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