Dave Ramsey’s Investment Recommendations: A Simple Guide to Building Wealth

Hey there! I’m thrilled to share with you the investment strategies that Dave Ramsey, one of America’s most trusted financial advisors, recommends. I’ve been following Dave’s advice for years, and his straightforward approach has helped millions of Americans get out of debt and build wealth through what he calls the “Baby Steps.”

The cool thing about Dave’s investing philosophy is that it’s not complicated at all. It’s practical, tested, and has created thousands of “Baby Steps Millionaires” – regular folks who followed his principles and built seven-figure net worths.

So, let’s dive into what Dave Ramsey actually recommends when it comes to investing!

Dave Ramsey’s Core Investment Philosophy

Before I share specific investments it’s important to understand that Dave’s investing approach is built on these key principles

1. Get out of debt and save an emergency fund first
2. Invest 15% of your income in tax-advantaged retirement accounts
3. Invest in good growth stock mutual funds
4. Keep a long-term perspective and invest consistently
5. Work with a financial advisor

Let me break these down for ya…

First Things First: Follow the Baby Steps

Dave is adamant that you shouldn’t start investing until you’ve

• Paid off all debt except your house (Baby Step 2)
• Built a fully funded emergency fund of 3-6 months of expenses (Baby Step 3)

Why? Because your income is your most important wealth-building tool! If your money is tied up in monthly debt payments, you can’t build wealth effectively. Dave compares this to trying to run a marathon with your legs tied together – not gonna work so well!

Also, without an emergency fund, you might end up tapping into retirement investments when unexpected expenses come up, totally wrecking your financial future

Invest 15% in Retirement Accounts (Baby Step 4)

Once you’ve knocked out debt and saved your emergency fund, Dave recommends investing 15% of your household income for retirement. This is where the fun begins!

Dave suggests using tax-advantaged accounts in this specific order:

The Order of Operations for Retirement Investing

Dave uses this simple formula: Match beats Roth beats Traditional

1. First: Contribute enough to get the full employer match in your 401(k), 403(b), or TSP. That’s free money!
2. Second: Max out Roth options – either a Roth 401(k) at work or a Roth IRA
3. Third: If you haven’t hit 15% yet, go back to your traditional 401(k)/403(b)/TSP

A little interesting fact: According to Dave, about 8 out of 10 millionaires invested in their company’s 401(k), and 3 out of 4 also invested outside company plans. So don’t underestimate those “boring” workplace retirement plans!

What Specific Investments Dave Recommends

Now for the million-dollar question (literally): What exactly does Dave Ramsey recommend investing in?

The answer is simple: growth stock mutual funds.

Dave recommends spreading your investments equally across these four types of mutual funds:

1. Growth and Income Funds (25%)

• Also called large-cap or blue-chip funds
• Invest in big, established American companies
• Create a stable foundation for your portfolio
• Lower risk, moderate returns

2. Growth Funds (25%)

• Sometimes called mid-cap or equity funds
• Focus on medium-sized U.S. companies with growth potential
• Moderate risk and returns
• Performance tends to follow overall market trends

3. Aggressive Growth Funds (25%)

• Invest in smaller companies with high growth potential
• Higher risk but possibility of higher returns
• More volatile than the other categories
• The “wild child” of your investment portfolio

4. International Funds (25%)

• Invest in large companies outside the U.S.
• Provides geographical diversification
• Different from global funds (which include U.S. stocks)
• Helps spread risk beyond American markets

Why Dave Only Recommends Mutual Funds

You might wonder why Dave doesn’t recommend individual stocks, bonds, real estate investment trusts (REITs), cryptocurrency, or other investments. Here’s why:

1. Diversification: Mutual funds instantly spread your money across many companies
2. Professional management: Fund managers do the research and decision-making
3. Reduced risk: Not putting all your eggs in one basket
4. Proven track record: Long-term returns of around 10-12% historically for the stock market
5. Simplicity: Easy to understand compared to more complex investments

Dave specifically avoids recommending single stocks because they carry too much risk. If one company tanks, so does your investment.

How to Choose Good Mutual Funds

When picking mutual funds, Dave suggests looking for these characteristics:

• Long-term track record: At least 10 years of strong returns
• Consistent performance: Funds that outperform the S&P 500
• Experienced management: Fund managers with proven expertise
• Sector diversity: Coverage across multiple business sectors
• Reasonable fees: While fees matter, don’t get overly fixated on them

Some questions to ask when evaluating a fund:

• How much experience does the fund manager have?
• Does the fund cover multiple business sectors?
• Has it outperformed similar funds over the past decade?
• What are the associated costs?
• How frequently are investments bought and sold within the fund?

The Importance of Long-Term Perspective

Dave is a huge proponent of the buy-and-hold strategy. He compares the stock market to a roller coaster – there will be ups and downs, but only people who jump off before the ride ends get hurt.

Remember that the historical average annual return of 10-12% is just that – an average. Some years will be great, others not so much. The key is to:

• Stay invested during market downturns
• Don’t panic sell when things look bad
• Keep investing consistently regardless of market conditions
• Focus on your savings rate rather than chasing returns

Dave emphasizes that your savings rate (how much and how often you save) is the top indicator of investment success – even more important than picking the perfect funds.

Work with a Financial Advisor

Dave strongly recommends working with a good financial advisor or investment professional. While many people think they can DIY their investments, having a pro in your corner brings several benefits:

• Expert guidance based on years of experience
• Help staying the course during market volatility
• Assistance in selecting appropriate funds
• Support in meeting your retirement goals

Dave offers a service called SmartVestor to help people find investment pros in their area who share his philosophy.

What Dave Ramsey Does NOT Recommend

Just as important as knowing what Dave recommends is understanding what he advises against:

❌ Individual stocks
❌ Day trading or market timing
❌ Cryptocurrency
❌ Gold, silver, and precious metals
❌ Whole life insurance as an investment
❌ Variable annuities
❌ Real Estate Investment Trusts (REITs)
❌ Bonds (as a primary investment strategy)
❌ Target date funds (he prefers his four-fund approach)

Final Thoughts on Dave Ramsey’s Investment Recommendations

I think what makes Dave’s investment approach so powerful is its simplicity and consistency. It’s not about getting rich quick or making complex moves – it’s about steady progress over time.

To summarize Dave Ramsey’s investment recommendations:

1. Get your financial house in order first (debt-free with emergency fund)
2. Invest 15% of income for retirement
3. Use tax-advantaged accounts (401(k), Roth IRA)
4. Invest in a mix of growth stock mutual funds
5. Stay in it for the long haul
6. Work with a trusted professional

If you follow these principles consistently over time, you’ve got a solid shot at joining those “Baby Steps Millionaires” Dave talks about. As he often says, building wealth isn’t complicated – it just takes discipline and patience.

Have you started following Dave’s investment strategy yet? I’d love to hear about your experience in the comments!

Dave Ramsey’s 8% rule is a controversial retirement strategy that suggests retirees invest 100% of their assets in stocks and withdraw 8% of the initial portfolio value each year, adjusting the withdrawal amount for inflation. This strategy is based on the assumption that the stock market will average a 12% return annually, which would allow the principal to grow by about 4% each year to outpace the 8% withdrawal plus inflation. Critics argue this approach is very risky due to the high probability of running out of money, especially given market volatility, and the lack of diversification.