Ramsey four funds
Dave Ramsey four-fund split
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
Dave Ramsey is an American radio host, author and personal-finance commentator. His books include 'Financial Peace' (1992), 'More Than Enough' (1999), 'Financial Peace Revisited' (2002), 'The Total Money Makeover' (2003) and 'Dave Ramsey's Complete Guide to Money' (2011), per Wikipedia. His programme is built on 'Baby Steps'; step 4 is investing 15% of household income for retirement, after debts and an emergency fund.
For the investing step, Ramsey's materials tell people to spread investments equally across four types of stock mutual fund: growth and income (large-cap), growth (mid-cap), aggressive growth (small-cap) and international. The Ramsey Solutions article read does not use the figure 25% but says to divide equally, which is 25% each. The date when this four-way split first appeared in his books or radio show was not located.
He champions mutual funds, favours working with an investment professional, and (per the same article) says that if a fund has a sales charge, a front-end load share class is preferable. This stock-only approach with advisers and load funds is a central point of criticism by index-fund advocates.
The model is also known for the return assumption attached to it. Ramsey and his site cite 10-12% as the S&P 500's long-run historical average and illustrate retirement outcomes with 12% growth. A February 2013 tweet (later deleted) claimed that $100 a month from age 25 to 65 at 12% reaches about $1,176,000. The claim triggered critical analyses by DQYDJ, Motley Fool and others (see criticisms).
What is in it
| Growth and income fund (large-cap) | 25% | equal split implied by 'spread equally' |
| Growth fund (mid-cap) | 25% | |
| Aggressive growth fund (small-cap) | 25% | |
| International fund | 25% |
How we model it
| US large companies (S&P 500) | 37.5% |
| US small companies | 37.5% |
| Developed markets outside the US | 25% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 37.5% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| US small companies | 37.5% | SPDR Russell 2000 U.S. Small Cap UCITS ETF IE00BJ38QD84iShares MSCI USA Small Cap ESG Enhanced CTB UCITS ETF USD (Acc) IE00B3VWM098 |
| Developed markets outside the US (closest match) | 25% | iShares Core MSCI Europe UCITS ETF EUR (Acc) IE00B4K48X80iShares Core MSCI Japan IMI UCITS ETF IE00B4L5YX21 |
The idea
Ramsey's stated view: invest consistently in good growth-stock mutual funds over decades and let compounding work; diversification across company size and geography within equities.
How people buy it
Mutual funds in a 401(k) up to employer match, then Roth IRA, then more; often through a 'SmartVestor' pro adviser, with load funds acceptable. No specific index funds are prescribed in the article read.
Rebalancing as published
The article does not use the term; it suggests reviewing funds roughly annually or quarterly.
Variants
- Index-fund versions: S&P 500 / mid / small / international ETFs (reader adaptation, not Ramsey's wording).
Criticism
- 12% is a simple arithmetic average, not a compound rate; one critique puts the S&P 500's compound rate for 1926-2019 near 10.2% (nominal) (sources below).
- DQYDJ analysis of Shiller data, 1,224 overlapping 40-year periods from Jan 1871 to Dec 2012 (dividends reinvested, no fees/taxes): average 9.27% nominal and 6.42% real; no period had a real return above 12%, and only 68 (5.56%) had nominal above 12%.
- Fees: critics note adviser fees and load charges reduce net returns below index returns.
- No bonds or cash in the allocation - 100% equities with a heavy small-cap and international share.
- Helaine Olen (Pound Foolish) wrote that some of his advice does not work even at a basic mathematical level (as relayed by Wikipedia).
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +125.7 % | +29.3 % | −8.2 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −78.9 % | −41.3 % | −84.7 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +402.7 % | +42.2 % | −36.2 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −55.5 % | −52.7 % | −55.5 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +304.8 % | +20.5 % | −26.3 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +1256.8 % | +13.7 % | −28.7 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +449.3 % | +18.6 % | −16.6 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +67.0 % | +18.6 % | −17.7 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +117.9 % | +5.9 % | −47.8 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −45.5 % | −26.2 % | −47.8 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +74.6 % | +16.4 % | −15.8 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +1446.3 % | +17.0 % | −31.3 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −23.7 % | — | −31.3 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +1.9 % | — | −19.9 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.1 % | — | −5.5 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +7.6 % | +5.7 % | −20.3 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −32.4 % | −13.7 % | −35.9 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +138.8 % | +19.4 % | −9.1 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −47.2 % | −34.7 % | −52.7 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +339.2 % | +14.8 % | −21.8 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −17.3 % | — | −17.3 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +48.5 % | +22.9 % | −23.7 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −17.6 % | −17.6 % | −24.1 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −66.4 % | −13.7 % | +14.2 % | +38.8 % | +222.9 % |
| 3 y (1168) | −44.8 % | −3.9 % | +12.5 % | +23.2 % | +59.2 % |
| 5 y (1144) | −22.2 % | +0.4 % | +11.9 % | +20.4 % | +44.3 % |
| 10 y (1084) | −4.1 % | +5.1 % | +11.6 % | +17.0 % | +21.3 % |
| 15 y (1024) | +1.2 % | +6.9 % | +11.4 % | +15.9 % | +20.1 % |
| 20 y (964) | +3.9 % | +8.1 % | +11.5 % | +15.5 % | +17.8 % |
| 30 y (844) | +8.6 % | +9.6 % | +11.7 % | +14.0 % | +16.4 % |
How it behaved in history
- 2013. Ramsey's 12%-return tweet (12 Feb 2013) led to analyses showing 12% was above long-run compounded real stock returns. dqydj.com
Published results (by others)
- 40-year S&P 500 total returns (Shiller data): average real return (Jan 1871 - Dec 2012 rolling 40-year periods): 9.27% nominal, 6.42% real; max real 10.29% dqydj.com
- The 12% figure is a simple average; compound ~10.2% for 1926-2019 (1926-2019): ~12.1% vs 10.2% fool.com
- Ramsey cites 10-12% as the S&P 500's 30-year historical average, with projections at 12% (n/a): 10-12% www.ramseysolutions.com
What we could not verify
- When the four-equal-parts advice first appeared; page checked is current Ramsey Solutions content.
- Whether Ramsey's growth-and-income funds are value-tilted; mapped to blend.
- Exact numeric source for the 10.2% compound figure (Motley Fool snippet; page itself not fetched).
- Ramsey's radio show start year not verified.
Sources
- www.ramseysolutions.com
https://www.ramseysolutions.com/retirement/how-to-invest-in-mutual-funds - dqydj.com
https://dqydj.com/dave-ramseys-investment-advice/ - en.wikipedia.org
https://en.wikipedia.org/wiki/Dave_Ramsey - fool.com
https://fool.com/the-ascent/personal-finance/articles/4-things-dave-ramsey-is-dead-wrong-about/ - seekingalpha.com
https://seekingalpha.com/article/3101496-dave-ramseys-12-percent-return-strategy-is-replicable
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.