Personal finance expert Dave Ramsey has long made the case for mutual funds as a wealth-building tool. But with thousands of funds available, the real challenge is figuring out which ones to invest in.
Sharing how he chooses mutual funds on “The Ramsey Show,” he said performance history matters more than anything else. Ramsey’s approach is simple: narrow down to funds with the longest track records and stick with those that have consistently beaten the broader market.
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“About 80% of the choice on my mutual fund, 85% is based on its rate of return, its track record,” he said. “I look for the longest track record, who’s been doing it a long time. I like neighborhoods with big oak trees when I’m buying real estate. I like a long track record, something stable. I don’t like risk.”
Ramsey’s Simple Strategy to Beat The Market
Ramsey said he prefers mutual funds over index funds because index funds simply track the market, while actively managed funds with strong records can outperform, even in downturns. He spreads his money across four categories — growth and income, growth, aggressive growth, and international — and chooses funds with at least a 10-year history of solid performance.
“Index funds, basically an S&P 500 fund mirrors the market that basically is the stock market, so you’re going to do exactly what the stock market does, good or bad,” he said. “The mutual funds that I buy outperform the S&P 500. I buy mutual funds that outperform the S&P 500 and my portfolio mix that I just outlined is pretty much always beats the market because I buy funds that outperform the market.”
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‘I Need a Broker in My Life’
While Ramsey told his audience to do the work of finding strong mutual funds by reviewing prospectuses and comparing performance with the market, he also said investors shouldn’t shy away from paying brokerage fees. Ramsey thinks having a knowledgeable adviser would save you time and keep you from selling everything based on emotions when market pessimism hits.
“You do not get wealthy by saving on fees because fees don’t keep you from getting wealthy,” he said. “I’m a multimillionaire and I pay mutual fund fees to my broker because I need a broker in my life. I need somebody that’s an adviser. I know a lot about mutual funds, but I don’t pick my own. I let them pick out four or five. I’m not going through 8,000 mutual funds. I have what’s known as a life.”
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This article Dave Ramsey Reveals How He Finds Mutual Funds To Invest In, Says His Portfolio ‘Pretty Much Always’ Beats The Market originally appeared on Benzinga.com
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