Dave Ramsey:  Does he sometimes shoot himself in the foot?  From a Crocodile Hunter comment, to an Oprah blunder to recent Tweets, if not shooting himself in the foot it’s a big ol’ foot in the mouth at times.

Money magazine published an article called, “Save Like Dave, Just Don’t Invest Like Him,” in its October 2013 issue.

The first part of the article pointed out some entertaining online comments from Ramsey, who was reacting to negative statements from critics.  I was a little surprised that Dave would stoop to Tweeting, “I help more people in 10 min. than all of you combined in your ENTIRE lives.”  And then there’s the, “Don’t want to get bit by the big dog, stay off the porch.”  Whoa, Dave.  Sounds a little more like “Dog the Bounty Hunter” type of comments to me.  And although Dave has helped a lot of people, including my wife and me, humility is always good.

But why the authors of the Money article brought these online comments up, I don’t really know other than for the entertainment factor.  Or was it to try to attack Dave’s character?  Granted, it is generally just good advice to not respond via the internet to internet attacks.  This should be “Author 101” or “Public Figure 101” kind of stuff.  Regardless, bringing all this up in the magazine article really reveals nothing about Dave’s true credibility as an effective personal finances councilor.  It seems that maybe the authors were fishing for something or someone to string up.

After discussing the online comments, the article attacks Dave’s investment advice.  Admittedly, the authors do point out that Dave’s advice is more geared towards getting people out of debt and not giving them specific investment advice, citing the fact that, “His bestselling book, The Total Money Makeover has about two pages describing which mutual fund to invest in.  There’s an entire chapter on how to save $1,000.”  So why, then, do the authors of this article move ahead to criticize his investment advice?

The first big criticism in the article has to do with Dave’s advice in investment recommendations, some vague and some now out of date.  “Ramsey’s investing advice is weak…,” they state.  Why the authors felt the need to go here is unclear.  More fishing?  After all, The Total Money Makeover, like many other of Dave’s books, was written in pre-2004.  Dave even recommends that you get real investment advice from a qualified professional.  These few paragraphs in the article really should have been left out, because they only muddy the water.  The main focus of Dave’s books is clearly to help people struggling with debt.  Beyond that he does touch on the type of investments to be thinking about once out of debt, but it’s not meant to be an end-all guide for the investments themselves.

The Money article made a big deal about Dave’s claim of 12% stock market returns.  According to the authors, most experts tend to agree that the actual average stock market return since 1926 has been closer to 10%.  Stock market returns can be calculated several different ways, showing the same average return, yet differing in actual returns.  For this reason the article says that, “Returns should be calculated as annualized, or compound, returns.”

Here’s an example of mine to help illustrate this point. What if you invested a bunch of money in the stock market and by the end of your first year your investments went down 50%.  Suppose the next year your investments double in value (100% increase by end of the second year).  The “average” return over this two year period is (-50% + 100%)/2 = 25%!  Sounds fabulous, right?  The actual net two year return is 0% (you’re only back where you started).  This is not to say that Dave made such a boneheaded math error.  I doubt he did.

But the authors spend a skewed amount of text talking about this 12% thing, perhaps making a mountain out of a molehill, considering that Dave’s main point in his investment advice is that you need to be invested in the stock market somehow to see the most appreciable gains in your investments over the long haul.  Most investors would agree with this.  Are the authors just looking to split hairs (which Dave is missing anyway)?  Nevertheless, it is curious that according to this article, Dave was still adamantly defending his 12% return number with a critic during one of his radio programs.  If the mainstream pencil geeks are saying 10%, why is Dave still holding onto 12%?

The next justified reaming is over Dave’s statement that you should draw off 8% of your money in retirement.  Many experts believe you greatly increase your chances of running out of money in your old age if you do this.  Instead, it is recommended that people only draw off 4% or less from their investments in retirement to guarantee that their money will last indefinitely.  Okay, Dave, maybe that one was coming.

Then the article made a surprise shot, not against Ramsey necessarily, but more towards those “religious Christians.”  Why any attempt to tie Dave’s nature, or bizarre comments of clients referred through Dave, to any religion?  It really makes no sense.  I got the feeling that the authors wanted to take a poke at that religion and reinforce a read-between-the-lines notion that, “See, just a bunch of radical, out of touch, lunatics so how could they be smart with money, too.“

Here’s what the article should have been mostly about, though the authors only spent the last third of the article discussing.  It has to do with the part of Ramsey’s business that recommends Endorsed Local Providers (ELPs) to people who may want professional investment advice.  Its sounds like a good service.  But those ELPs generally have to jump through some hoops with Ramsey and apparently, as hinted to in the article, provide a kickback to Dave for referrals.

If that’s true then here’s the main kicker.  The ELPs generally sell front-load mutual funds, meaning that these funds have to outperform non-managed funds (like the S&P 500) in order for you to come out ahead.  I’ve read so many articles over the years that discuss how non-managed mutual funds (like Index Funds) generally outperform many or most managed funds.  So, bottom line, you don’t want to take financial advice to buy a product from someone who stands to gain financially from that product.  Of course, Dave isn’t getting a commission on the front-load mutual funds.  But he steers you to the salesman of that product and perhaps receives a little reward for doing so.

Aside from the Money magazine article, we have a few bones to pick with Dave on other matters.

I am reminded about the Financial Peace University (FPU) course that Dave offers.  It’s a great course and worth every penny of the hundred dollars or so it costs per person for thirteen weeks of video (Dave is excellent in the videos) and class discussions.  We’ve taken it and facilitated it at our church several times.  It’s a lot of effort by church and community volunteers, setting it up, getting recruits (Ramsey does help with advertising flyers), collecting course money, ordering materials, securing a facility to show the videos and hold classes, prep time, presenting the videos, and time leading the class discussions.  Depending on the size of the class, several or many small discussion group “leaders” are needed too, all volunteers.  It’s a huge commitment for about three months. The only thing that has ever bugged me about this whole process is that no one makes any money from it, except Dave.  Granted, in the end, it does help a lot of people.

And then there was the “Oprah incident,” as my wife and I like to call it.  We were excited when, several years ago, we heard that our then hero, Dave Ramsey, was going to be on the Oprah Winfrey show.  We made a point to watch – and were disappointed.  At the critical moment of giving his wisdom-packed advice after hearing the plight of one struggling couple – Dave blew it.  I think he thought it would be a shocking surprise of an answer that would nail his reputation as a wise rebel personal finance counselor, but he spoke too soon.  He blamed the man for not knowing his wife had racked up a bunch of debt.  It was obvious to us, Oprah, and everyone else watching that clearly this man was not at fault.  Even Oprah said something like, “Oh, Dave, I don’t think so.”  Dave tried to pull his foot from his mouth after the commercial break, but unsuccessfully in our minds.

Speaking of foot in the mouth:  In one of his FPU videos, he made a comment about taking risk and getting burned and said something like, “If you play with crocodiles…”  He was referring to crocodile hunter Steve Irwin and that was long before Steve got killed.  I’ll never forget the time hosting an FPU class soon after Steve died.  That particular video had not been updated yet.  When it got to that part where Dave was putting his foot in his mouth talking about the Crocodile Hunter, there was a gasp from the audience.  I cringed in embarrassment.

Then, our personal beef with Dave.  Who knew there is a right way to get out of debt?!

We were always huge fans of Dave Ramsey, yet along the way we noticed that he could be as rigid as a square with his seemingly unbending, black and white approaches.  Sure, for people who are in debt up to their eye sockets he has to take a hard line, recommending they cut up credit cards to stop out-of-control behavior.  But like a drug counselor, Dave assumes that everyone in debt is a debt addict and must avoid it at all times.  Maybe it’s because he gets tired of giving good advice, only to watch people not follow it.  While that is often true, we have found that many people just need to start paying attention to why they are negatively charged!  Once smart folks start paying attention, they figure out the right things to do.  People change.  Hello hero, goodbye zero.

If you’ve read any of Dave’s books or taken his Financial Peace University course, you’ve learned that because of his personal experience with creditors (who insulted him and his wife, among other things) that he has a strong disdain for credit card companies or getting a car loan of any type.

So Dave has his reasons for being rigid on things.  But that hard ass black or white approach ended up knocking the wind from our victory sail when we wanted to call in to the Dave Ramsey show and brag about our being debt free.  Let me back up just a hair first, though.

We did something Dave would not like at all.  We got a loan for a three year old car.  At that time, we owed about as much on our house as we did for that car.  Not long after, we decided to pull money from savings to pay off the mortgage instead of the car.  Why did we do it in that order?  So my wife could reduce her work hours without fear of a looming mortgage.  A large mortgage payment scared her more than a small car payment.  It wasn’t really about the amount of money owed or the interest rate.  It was about a life choice.  You see, working full-time while someone else got to spend most waking hours with our daughter bugged my wife.  She just wanted to cut back on her work hours. Weird, huh?!  So for us it was a no brainer:  Get rid of the highest risk debt first.

Talk about the irony.  Getting that car loan kept us off the Dave Ramsey show.  We were scheduled to shout, with a big ol’ southern drawl, “we’re debt free” on Dave’s radio show.  Then the producer declined to have us on the air because “Dave wouldn’t like” how we had gotten a taboo car loan.  We wanted to say “Hey, but we’re debt free – does it really matter how we got there?”  Who knew that we were debt free losers?

Enough of the criticisms, though.  If you’ve ever heard Dave talk about giving, and how so much more good could be done on this earth if, being out of debt, we could easily give more to good causes, then you understand where his heart is.  I believe Dave’s heart is truly to help others “get it” with money, so that the world is a better place for them and for others they can help as a result.  And he’s living that dream.

So this is for Dave Ramsey:  Despite all the criticisms, we still love ya, Dave.  You’re doing the world much more good than not, and that’s about the best legacy any of us can really hope for.  Just don’t be too proud to tweak your stances on a few things, if needed, as this crazy world continues to change.