Does Dave Ramsey’s 12 percent growth stock fund exist?

Dave Ramsey, the nationally-syndicated radio talk show host, has done a great deal of good for a great number of people. His core message – that the only reliable way to obtain financial peace is to consistently live within your means so that you can pay off your debts and accumulate savings – makes perfect sense.

I cringe, however, whenever he mentions that people should put their savings into — in his words — a good growth stock mutual fund because it will earn 12 percent annually.

Whether it is on his radio show, his website, his books or his educational programs, Dave Ramsey quotes that 12 percent figure again and again. He uses the 12 percent figure to tout the superiority of stock mutual funds over nearly every possible alternative, such as annuities and cash value life insurance products.

I investigated whether the 12 percent return that he quotes is realistic, and I found some surprising facts.

I started my research with Dave’s explanation, which is found on his website. He says, “The current average annual return from 1926, the year of the S&P’s inception, through 2010 is 11.84 percent. From 1986–2010, it’s 11.28 percent.”

These return figures include the value of reinvested dividends.

You think that would settle the issue, but let’s look deeper at three questions.a) Is that truly the S&P 500’s average return?
b) Has the average person actually achieved that return?
c) Is the past return a good indication of the future expected return?
Shockingly, the answer to each of these three questions is a resounding no.

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11 Reason's to Consider Whole Life for Retirement Vehicle

Continuing on my Infinite Banking theme as of late, I wanted to give a more complete benefits list why to choose a Participating Whole Life policy rather that the meager 401k or mutual fund.  The benefits seem to keep adding up as 401k's are going the route of the dinosaur.

1.  It builds liquid cash reserve of safe money.  Generally, it can be accessed within 5-10 business days.
2.  Cash Value Life Insurance guarantees your investment principle.
3.  You can put as much money as you want -- limited only by the size of the whole life policy -- which you can make as large as you need.  Not so with qualified plans.
4.  All of the money you put into the cash value life insurance policy builds tax deferred.  You avoid paying income taxes every year, so your money grows faster.
5.  You can borrow the money from the policy tax free, without having to qualify for the loan and without contractual withdrawal penalties.
6.  There are no early withdrawal penalties from the federal government.  Not so with qualified plans or annuities.
7.  Loans against the policy come from the general assets of the insurance company, and not from the policy cash value!  In many cases, you can actually earn more on your money than the loan is costing you.
8.  The policy is self-completing, because you have a disability waiver of premium rider that will continue to put the money in for you if you ever become disabled.  Only life insurance offers this unique benefit.
9.  Life insurance provides a death benefit that gives your family the money you intended to save in the event you can't be there.
10.  In most states, life insurance is not attachable by creditors.
11.  Life insurance cash values don't count as an asset when applying for college financial aid.

Saving vs. Investing

I am an avid supporter of the IBC (Infinite Banking Concept) and have been studying these principles since 2005.  There is a huge misconception between savings and investing.  You will see in many publications, particularly ones that support 401k's and mutual funds, use the term saving instead of investing.

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This article by Dwayne Burnell, is an enlightening appeal to the financial thought process.  A whole life insurance products that supports the IBC concept can provide for steady gains and extremely limit loss while still providing for retirement.