How to Retire Early by Tuning Out Financial Entertainers

Financial entertainers offer a service people want; they do, in fact, entertain. Beyond that, they are often very effective at inspiring people to save money, get out of debt, make investments and plan for the future – and certainly, that’s no easy task.

But when financial entertainers become larger-than-life and their advice is considered untouchable, it poses a danger to people who don’t know better – people who simply want the guidance to begin investing, and don’t know whether the information they’re getting is realistic. Plus, it affects the thousands of financial advisors nationwide who can help people learn sound financial strategies – including how to retire early – but don’t have the same kind of name recognition. In short, it makes the jobs of even the best financial advisors much more difficult, and it’s hardly fair.

The consummate example is the Dave Ramsey claim that people can expect a 12 percent annual return on their investments, specifically when the investment is mutual funds. His reasoning is that the average annual return of the stock market since 1926 is “very near” 12 percent annually when adjusted for inflation. Actually, it’s at 11.6 percent; you don’t just round up to 12 percent! That’s ridiculous. But regardless, Dave Ramsey has declared the figure to be 12 percent, so we may draw the logical conclusion that we can achieve this rate of return for ourselves when investing. His millions of followers take the advice and run with it, and then they expect any financial advisor they speak with to tell them the same thing. But when they speak with a financial advisor who tells them that 12 percent is not accurate, they are left with this dilemma: Do they believe the entertainer, or do they believe the financial advisor? All too often, people want to be swayed to believe the entertainer because 12 percent sounds more appealing.

Of course, we’re not going to tell them the same thing Dave Ramsey will – because we know his information may be flawed, and it may not help them in their quest to build up a retirement account (much less learn how to retire early). For one thing, Dave Ramsey is not telling people about fees. Even if you did earn a 12 percent return on your mutual fund investments, you have to pay fees on that return. By the time those fees are subtracted out, the average return is more like eight or nine percent. That is the more realistic, conservative estimate that financial advisors give because they take into consideration the costs associated with investing.

Furthermore, the Dave Ramsey 12 percent return principle doesn’t take into consideration the fact that most people don’t invest $1 million and let it sit. Instead, they invest in increments. For that reason, using the average annual return of the stock market as the rate investors can expect to get back is just foolish. Whether you invest once a month or once a year, you’re not going to get the full stock market rate of return because you didn’t have all your money in there. Everyone’s return will vary depending on how much is being saved, and when the money goes in.

People who have listened to Dave Ramsey get upset with all these realities, because they have been told by their radio mentor that they can and should expect 12 percent. What do you think happens, then, when they see that their return was much lower than that? Many times, they accuse their financial advisor of leading them astray. The average couple who goes to a conference to learn how to retire early – or, listens to Dave Ramsey on the radio – is so motivated by his plan that they opt to meet with a financial advisor. When the advisor tells them a much more conservative estimate, they reject it because “Dave told them to.” That’s truly a shame.

Giving people false hope is never a good idea in this business. In fact, it’s one of the most important reasons why licensed financial advisors are regulated by multiple state and federal government agencies. We are expected to tell people realistic rates of return, and we face severe penalties if we don’t. Naturally, people are going to gravitate toward the advisor who promises the higher rate of return, which is why Dave Ramsey has such an enormous following (that, and the fact that his message is so motivating). As financial advisors, we wish he would stick to the motivating, and let us do the advising. We are the ones who can tell people what they can expect as a realistic return on their investments, and we can – if they listen carefully and invest wisely – help them understand how to retire early on a comfortable income. To learn more, contact a financial advisor at (888) 994-6424 today!