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Dave's Investing Philosophy

Knowing how to deal with debt is pretty easy—just pay it off! But investing, on the other hand, isn’t so simple. Most people have questions about when and how to invest their money, and that’s totally okay! So let’s break it all down with an inside look at Dave Ramsey’s investing philosophy.

Build a Strong Financial Foundation 

Any successful investment strategy needs a firm financial foundation, so it’s really important to lay the groundwork for financial success by working through the Baby Steps.

Plain and simple, here’s Dave’s investing philosophy:

  • Get out of debt and save up a fully funded emergency fund.
  • Invest 15% of your income in tax-favored retirement accounts.
  • Invest in good growth stock mutual funds.
  • Keep a long-term perspective.
  • Know your fees.
  • Work with a financial advisor.

If you haven’t paid off all your debt or saved up three to six months of expenses, stop investing—for now. After all, paying off debt and dodging a money crisis with a fully funded emergency fund are fantastic investments that pay off for you in the long run! And you need to take care of all of that before you start investing.

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Your income is your most important wealth-building tool. As long as it’s tied up in monthly debt payments, you can’t build wealth. That’s like trying to run a marathon with your legs tied together!

And if you start investing before you’ve built up your emergency fund, you could end up tapping into your retirement investments when an emergency does come along, totally ruining your financial future in the process.

A Simple Investing Plan 

Once you’ve completed the first three Baby Steps, you’re ready for Baby Step 4—investing 15% of your household income in retirement. This is where things get really exciting! You’ll get the most bang for your buck by using tax-advantaged investment accounts (where you don’t have to pay taxes at all, or have them reduced) like these:

Pre-Tax Investment Accounts

  • 401(k)
  • Traditional IRA
  • 403(b)
  • Thrift Savings Plan (TSP)

Tax-Free Investment Accounts

  • Roth 401(k)
  • Roth IRA

If your employer matches your contributions to your 401(k), 403(b) or TSP, you can reach your 15% goal by following these three steps:

  1. Invest up to the match in your 401(k), 403(b) or TSP—that’s free money!
  2. Fully fund a Roth IRA for you (and your spouse if you’re married).
  3. If you still haven’t reached your 15% goal with the first two steps and have good mutual fund options available, keep bumping up your contribution to your 401(k), 403(b) or TSP until you hit that 15%.

Does your workplace offer a Roth 401(k)? Even better! You can invest your entire 15% there—if you want to. Just be sure the plan offers plenty of good mutual fund options so you can make the most of your investments.

Not sure how much you’ll need to retire? Plug your numbers into our investing calculator and find out.

What Dave Ramsey Does (and Doesn’t) Invest In 

You have lots of investment options to choose from, and making sense of them all sure isn’t easy. That’s why we’ve included a quick guide to help you understand what Dave recommends investing in—and what he doesn’t.  

Of course, it’s your money, and you should always understand what you’re investing in before you invest a single dime. Don’t copy Dave’s plan just because that’s what Dave does. That’s just silly. Work with an investment professional to compare all your options before choosing your investments

Want to know more of the specifics? Here’s a breakdown of some pretty common investment options and Dave’s thoughts on them—good and bad.

Mutual Funds

Mutual funds let you invest in a lot of companies at once, from the largest and most stable to the newest and fastest growing. They have teams of managers who choose companies for the fund to invest in based on the fund type.

Okay, so why is this the only investment option Dave recommends? Well, Dave likes mutual funds because spreading your investment across many companies helps you avoid the risks that come with investing in single stocks—like Dogecoin. Since mutual funds are actively managed by pros trying to pick stocks that will outperform the stock market, they’re a great option for long-term investing.

Exchange-Traded Funds 

ETFs are groups of single stocks designed to be traded on the stock market exchanges. ETFs don’t use teams of managers to choose companies for the ETF to invest in, and that usually keeps their fees low. 

ETFs allow you to trade investments easily and often, so a lot of people try to time the market by buying low and selling high—but that gets really messy. Dave likes a buy-and-hold style—meaning you hang on to those investments over time and keep a long-term view, instead of selling on a whim if the market dips.

Single Stocks

With single stock investing, your investment depends on the performance of an individual company.

Dave doesn’t recommend single stocks because investing in a single company is like putting all your eggs in one basket—a big risk to take with money you’re counting on for your future. If that company goes down the tubes, your nest egg goes with it. No thanks!

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a type of savings account that lets you save money at a fixed interest rate for a set amount of time. Banks charge a penalty for withdrawing money from a CD before it reaches its maturity date.

Like money market accounts and savings accounts, CDs have low interest rates that don’t keep up with inflation, which is why Dave doesn’t recommend them. While CDs can be useful for setting aside money for a short-term goal, they aren’t good for long-term money goals that take more than five years to reach.


Bonds let companies or governments borrow money from you. You earn a fixed rate of interest on your investment, and the company or government repays the debt when the bond reaches maturity (aka the date when they have to pay it back to you). Even though bonds’ values rise and fall like stocks and mutual funds, they have a reputation for being “safe” investments because they experience less market instability.

But when you compare investments over time, the bond market doesn’t perform as well as the stock market. Earning a fixed interest rate might protect you in really bad years, but it also means you won’t profit from the really good years. As interest rates go up, the value of your bond goes down.

Fixed Annuities

Fixed annuities are complex accounts sold by insurance companies and designed to deliver a guaranteed income for a set number of years in retirement.

Dave doesn’t recommend annuities because they’re often expensive and charge penalties if you need to get to your money during a defined surrender period. What’s a defined surrender period, you ask? That’s just the amount of time an investor has to wait until they can take out money without being slapped with a penalty.

Variable Annuities (VAs)

VAs are insurance products that can provide a guaranteed income stream and death benefit (money paid to the beneficiary when the owner of the annuity passes away).

While VAs do give you an additional option for tax-deferred retirement savings if an investor has already maxed out their 401(k) and IRA savings accounts, you lose a lot of the growth potential that comes from investing in the stock market through mutual funds. Plus, fees can be expensive, and VAs also have surrender charges (that’s a penalty fee you have to pay if you take out money during the surrender period).

Real Estate Investment Trusts (REITs)

REITs are companies that own or finance real estate. Sort of like mutual funds, REITs sell shares to investors who are able to get their hands on some of the income from the company’s real estate investments.

Dave loves real estate investing, but he recommends investing in paid-for real estate bought with cash and not REITs.

Cash Value or Whole Life Insurance

Cash value or whole life insurance costs more than term life insurance and lasts your whole life. It’s a type of life insurance product that’s often sold as a way to build up your savings. That’s because it’s insurance trying to double up as an investment account too. Basically, when you have whole life insurance, some of that “investment” is put into a savings account within the insurance policy.

Sure, it might sound like a good idea at first, but it’s definitely not. Here’s the kicker—when the insured person dies, the beneficiary only receives the face value of the policy and loses the money saved within it (yeah, it’s pretty dumb).

That’s why Dave only recommends term life insurance (life insurance that only covers you for a set period of time like 15–20 years), with coverage that equals 10–12 times your income. That way, your salary will be replaced for your family if something happens to you. Not sure how much coverage you’ll need? You can run the numbers with our term life calculator.

Separate Account Managers (SAMs)

Separate Account Managers (SAMs) are third-party investment professionals who buy and sell stocks or mutual funds on your behalf.

Go ahead and say “No thanks, Sam” on this option. Dave prefers to invest in mutual funds with their own teams of experienced fund managers who have long track records of above-average performance.

How Do You Choose the Right Mutual Funds? 

Great question. Your employer-sponsored retirement plan will most likely offer a pretty good selection of mutual funds, and there are thousands of mutual funds to choose from as you pick investments for your IRAs. Dave divides his mutual fund investments equally between each of these four types of funds:

  • Growth
  • Growth and Income
  • Aggressive Growth
  • International

Choosing the right mutual funds can go a long way in helping you reach your retirement goals and stay away from risk. That’s why it’s important to compare all your options before making your final picks. Here are a few questions to think about as you figure out which mutual funds are the right fit for you:

  • How much experience does the fund manager have?
  • Does this fund cover multiple business sectors, like financial services, technology or health care?
  • Has the fund outperformed other funds in its category over the past 10 years or more?
  • What costs come along with the fund?
  • How often are investments bought and sold within the fund?

If you can’t find answers to these questions on your own, reach out to your financial advisor for help. It’s worth the extra time if it means you can make a better and more thought-out decision about your investments. They’re kind of a big deal, after all.

Understanding Investing Fees 

The fees that come along with investing are pretty confusing, but they’re a part of investing for retirement. Fees will also have a pretty big impact on your savings, so it’s important to understand how much you’re paying and why.

Most investing professionals are paid one of two ways:

  • fee-based pro gets paid continually based on a percentage of the investments they manage for you. Their pay rises and falls with the value of your assets. 
  • commission-based investing pro is paid up front based on a percentage of the money you invest. That amount changes from one investment to another.

Each option has its pros and cons, and you can find trustworthy, client-focused professionals who use either way. But if your investment professional doesn’t take the time to explain the costs of their services or the fees that come along with your investments, that’s a huge red flag. Never invest in anything until you understand how it works, how much it will cost, and how that cost will affect your savings long term.

How Does Saving for College Fit Into Dave’s Investing Philosophy? 

Once you’re investing 15% of your income for retirement, you can start saving for your kids’ college fund too. Just remember, your retirement saving comes first! Your kids will have options to pay for college: scholarships, grants, part-time jobs—anything but student loans. But you’ll only have your retirement savings to get you through your golden years, so don’t put saving for the kids’ college above your own retirement needs.

There are some tax-advantaged college savings options out there that are similar to your retirement accounts. Education Savings Accounts (ESAs or Coverdell Savings Accounts) are simple and work like an IRA. You can also save for college through a 529 plan (which can change from state to state).

Remember, you can absolutely save for both college and retirement at the same time. Just don’t skip out on saving for retirement because Junior wants to go to private school.

Working With an Investment Professional

Just remember, investing is personal. Someone else’s plan might look a lot different than the one that’s right for you. And enlisting a financial advisor or investment pro can help you create a customized retirement plan that works for your life.

Even though Dave has a really good understanding of how retirement investing works, he still teams up with a financial advisor. It’s a pro’s job to stay on top of investing news and trends, but their most valuable role is keeping you on track to meet your retirement goals.

A good financial advisor or investment professional should give insight and direction based on their years of experience, but at the end of the day, they know you’re the decision-making boss. Look for a pro who takes time to answer your questions and gives you all the information you need to make good investing choices. You want to find someone with the heart of a teacher who can help you understand what you’re investing in. And that will make you a more empowered (and smart) investor in the long run.

Ready to find a solid investment pro who’s committed to helping you make good decisions with your money? Then try SmartVestor. It’s a free and easy way to find investing advisors in your area. Find a SmartVestor Pro today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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