Investment Advice From Dave Ramsey

Dave Ramsey’s investment advice is, as you’d expect, straightforward and practical. The bestselling author and podcast host is known for his no-nonsense approach to money management. Ramsey emphasizes the importance of debt elimination and emergency funds as a first step before venturing into investments. He advocates for mutual funds with a long-term perspective and for building a diversified portfolio. Ramsey’s investment advice is rooted in disciplined, consistent investing, paired with a clear financial strategy aimed at substantial wealth accumulation over time.

A financial advisor can provide you with personalized investment strategies tailored to your unique financial situation.

1. Create a Plan for Your Money

This is the most fundamental investment advice from Dave Ramsey: create a budget for your money. Ramsey emphasizes that without a plan, it’s easy for money to slip through the cracks, leading to unnecessary expenses and financial stress. A well-crafted budget serves as a roadmap, guiding individuals on how to allocate their income towards essentials, savings, debt repayment and investments.

Ramsey advises his audience to prioritize spending.Individuals can avoid overspending by distinguishing between needs and wants through categorizing expenses and setting limits. Ramsey advocates for using a zero-based budget, where every dollar is assigned a purpose, leaving no room for untracked spending.

Ramsey advises individuals to consider future needs such as retirement alongside immediate expenses. This might include mutual funds, contributing to retirement savings accounts and consistently investing a portion of their income. Life circumstances also change, and so should your budget. Ramsey advocates for regular reviews of your financial strategy to stay aligned with your goals and needs. Being proactive and adaptable lets individuals maintain control over their financial objectives.

2. Invest in Things You Understand

Another important piece of investment advice from Dave Ramsey is to put your money into assets you fully understand. Your asset allocation should be guided by familiarity and intent so that you are better equipped to make informed decisions and avoid being swayed by misinformation or market hype.

Ramsey advises against investments based solely on popularity or reputation. Instead, he encourages investors to thoroughly research the factors that influence its value. This means understanding the basics of stocks, bonds, mutual funds, or real estate before committing any capital. By doing so, investors can assess whether a particular asset aligns with their financial goals, risk tolerance, and investment strategy.

Another lesson from Ramsey: avoid overly complex investments. Complex financial products can be difficult to understand, even for seasoned investors, and often carry hidden risks and fees. Ramsey suggests straightforward, transparent investments where the potential benefits and drawbacks are clear like index funds or well-known stocks. Simplifying your investment portfolio can lead to better decision-making and less stress.

3. Invest for Retirement

Financial statements, a calculator, and a piggy bank.

Dave Ramsey’s investment advice for retirement is to plan early and stay consistent so you can take full advantage of compound interest. This means setting aside a portion of your income regularly into retirement accounts like 401(k)s and Roth IRAs. By beginning early, even modest contributions can grow significantly over time, providing a substantial nest egg for retirement.

If your employer offers a matching contribution to your 401(k), it’s crucial to take full advantage of this benefit. Employer matches are essentially free money that can significantly boost your retirement savings. Ramsey recommends you should contribute to your 401k at least enough to get the full match, as it accelerates your savings growth without additional cost to you.

Another key aspect of Ramsey’s retirement strategy is diversification. He advises spreading investments across a variety of assets to mitigate risk and enhance returns. A diversified portfolio typically includes a mix of stocks, bonds, and mutual funds, balancing growth and stability. Ramsey often recommends allocating investments into four types of mutual funds: growth, growth and income, aggressive growth, and cross-border investment strategies. This diversification strategy helps protect against market volatility and ensures a balanced approach to retirement savings.

4. Invest Consistently

Dave Ramsey’s investment advice touts consistency, a strategy that can significantly enhance long-term wealth accumulation. Consistency in investing means making regular contributions to your investment accounts, regardless of market conditions. This approach leverages the power of dollar-cost averaging, where investing a fixed amount at regular intervals lowers the average cost per share over time. By staying consistent, investors can avoid the pitfalls of trying to time the market and instead benefit from sustained growth.

Ramsey advocates for treating routine investment as a non-negotiable part of your financial plan. This could involve setting up automatic contributions to your retirement accounts or other investment vehicles. By making investing consistently, individuals can ensure steady progress toward their financial goals.

Investing consistently aligns with maintaining a long-term perspective, a key tenet of Ramsey’s investment advice. Investing should be aimed at achieving future financial security, whether for retirement, education, or other long-term goals. Over time, even modest, consistent investments can grow substantially, thanks to the power of compound interest

Before You Invest

When putting money into investments, you should consider getting out of debt and building a three-to-six month emergency fund first. High-interest debt can make it harder to grow your savings because the interest you pay often outweighs potential investment returns. Paying down credit cards, personal loans, and other high-rate balances helps free up your income for future goals and gives you a stronger starting point for investing.

Once debt is under control, focus on saving enough cash to handle emergencies. This money can help you manage unexpected costs, such as medical bills, home repairs, or job loss, without needing to dip into investments or take on new debt.

Having both debt paid off and a solid cash reserve gives you stability and flexibility. It allows your investments to grow undisturbed and keeps your long-term goals on track, even when short-term challenges arise.

Building this foundation first helps reduce financial stress and improves your ability to stay consistent once you start investing. With savings in place and no high-interest debt holding you back, your money can work harder toward long-term growth and financial independence.

Bottom Line

Dave Ramsey’s investment advice is defined by simplicity, knowledge, and consistency. His straightforward, no-nonsense approach empowers individuals to take control of their finances or work with a financial advisor toward a secure and prosperous future. By adhering to Ramsey’s principles, investors can navigate the complexities of the financial world with confidence and clarity, ensuring a well-planned and rewarding financial journey.

An advisor and client reviewing performance.

Tips for Investing

A financial advisor can help you find the right balance of investments for your portfolio that can help you reach your long-term financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Consider using an investment calculator in order to estimate how your investment choices could evolve over time.