Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Finance guru Dave Ramsey wants you to defy the conventional wisdom on investing for a secure retirement.
Ramsey offered a stern warning on Sept. 9 about the standard investing approach after speaking with a caller (1) whose fiduciary advisor told her to put her money in a mix of stocks and bonds. The advisor recommended this as a safe asset allocation since the caller was 61 — but it turned out not to be so safe after all, as she lost $8,000 after investing.
Top Picks
Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one
A single line on your car insurance policy could be inflating your premium by up to 30% — here's what to change
A record 45% of central banks plan to grow gold reserves — and many investors are following suit. Get your free gold IRA guide from Priority Gold
After telling her to fire her advisor, Ramsey offered a warning that goes beyond just her situation. It's one retirees should pay attention to, but make their own choices about whether to heed.
Why standard asset allocation is "bull crap" according to Ramsey
Ramsey was upset with the caller's advisor because he believes that the standard asset allocation theory is bad advice.
"Conventional wisdom in the financial planning world says that… you're supposed to move your investments to something less risky," he said. But he believes this conventional wisdom "isn't wise" because the ROI you can get from things like bonds and CDs won't keep pace with inflation. These investments will also earn a far lower ROI than mutual funds.
"As you move your money from good growth stock mutual funds into bonds, they underperform dramatically," Ramsey warned. "Year-to-date, my growth stock mutual fund in an S&P has averaged 12.2%. You know what the bond market has averaged since the beginning of the year? Less than 1%. (2)"
Of course, Ramsey acknowledged that growth stock mutual funds can be riskier than fixed-income investments, but he also argues that reducing your potential returns by moving money to conservative investments comes with its own risks.
"The idea that you need to move all of your investments to a safe haven of bonds and cash where you make no money as you get older is absolute bull crap. It's mathematically stupid because there are two kinds of risk with money, boys and girls. There's a risk of actually losing it because it goes down in value."
Story Continues