Dylan from New Mexico recently asked financial guru Dave Ramsey why he would pick four individual small-, mid-, large-cap, and international mutual funds and invest in them equally instead of simply investing in the S&P 500 index, especially when mimicking the S&P 500 index is the key metric.
Ramsey often references the S&P 500’s returns over the decades on the Dave Ramsey Show, but he himself recommends four mutual funds covering industries of all sizes. He described Dylan’s query as a very good one and explained that 50% of the mutual funds in the growth sector do not outperform the S&P 500 index.
‘It kinda means there’s 60% chance of rain. There’s 40% chance of sunshine,’ Ramsey said, adding that he picked four mutual funds from small- to large-cap as well as international funds that have outperformed their respective indexes. For instance, the small-cap mutual fund would be referenced to the Russell 2000 index.
‘What I want to do is pick a fund that outperforms the no-brain way of doing it. The passive way of doing it,’ Ramsey said, adding that he would bet on a growth stock mutual fund that has outperformed the S&P 500 for 35 years, which, combined with mutual funds covering diverse market caps, is much more likely to outperform the S&P over time.
Core Point is Investing, Not Mutual Vs Index Funds
While highlighting that his investment portfolio has outperformed the S&P 500 consistently, but not by a huge margin, Ramsey stressed that people who invest in slightly sub-standard mutual funds outperform those who do not invest at all.
‘A 100% of the people who invest end up with more money than who don’t, every time,’ according to Ramsey.
Most investors who invested over the decades did so because ‘the guy in the next cubicle was investing,’ Ramsey said, adding that they were not sophisticated traders, but ended up becoming millionaires because they simply stayed invested.
About picking mutual funds that would outperform market indexes, Ramsey said it is not as difficult as it looks, and his SmartVestor Pro platform can do the job for investors.
If you don’t want to invest in mutual funds and go for the S&P 500, ‘you are going to end up with a lot of money’ as well, and ‘we will be happy for you, not mad at you,’ Ramsey stated.
Ramsey Shuts Up Critiques
About people saying online that Ramsey made people poor, he retorted that he got people to invest while ‘you are sitting with your thumb in your ear’ and discussing theory, because theory does not matter until it’s applied.
‘We’ve talked more people into putting money in 401(k) and Roth IRAs than anyone in America because we helped them get out of debt first,’ the financial expert commented.
There are a lot of people with opinions but no money. ‘So guys, just invest. Even if you do it wrong, you are doing it better than the moron who talks about it but does not do it,’ Ramsey concluded.
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