Should You Follow Dave Ramsey's Investment Strategies?

Dave Ramsey's Baby Steps, And Our Take

Ramsey's plan, published by Ramsey Solutions, has seven steps done in order.

Source: Ramsey Solutions. Cult of Money.

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Should You Pay Off Debt Before You Start Investing?

You don't have to choose. Paying down high-interest credit card debt fast makes sense, but stopping 401(k) contributions entirely during Baby Step 2 can mean giving up an employer match, which is an instant return on your money.

Here's the math for a worker earning $60,000 a year whose employer matches 100% of contributions up to 3% of pay.

Source: Cult of Money calculation, monthly compounding.

Half of each deposit is the employer's money. Waiting seven years doesn't just cost seven years of savings. It costs seven years of growth on every dollar that follows. For 2026, you can defer up to $24,500 into a 401(k), plus $8,000 if you're 50 or older, according to the IRS.

Is A 12% Average Return Realistic?

Ramsey Solutions says the stock market's average annual return has historically ranged from 10% to 12%, according to Dave's investing philosophy page. The S&P 500's simple (arithmetic) average return from 1928 through 2025 was about 11.9%, but the compound annual growth rate, which is what your balance earns, was about 10.0%, according to data from NYU Stern's Aswath Damodaran. Inflation averaged about 3% a year over the same period, based on the Bureau of Labor Statistics consumer price index, so the real return is closer to 7%.

The difference compounds. Take the same $60,000 earner following Baby Step 4 and investing 15% of income, $750 a month, for 30 years.

Source: Cult of Money calculation, monthly compounding.

A plan built on 12% shows $2.6 million. In today's purchasing power, the realistic figure is closer to $900,000, still a strong outcome, but one that supports a far smaller retirement income. Plan with 6% to 7% after inflation and treat anything above it as a bonus. Our retirement number calculator methods show how to turn that balance into an income target.

What Does Ramsey Recommend Investing In?

Ramsey recommends splitting retirement money evenly across four kinds of mutual funds: growth and income, growth, aggressive growth, and international. He favors actively managed funds with long track records, and his recommended mix doesn't include bonds.

Two issues stand out. Actively managed funds charge more, and most don't beat the market over time. S&P Dow Jones Indices' SPIVA scorecards have found year after year that most actively managed US large-cap funds trail the S&P 500 over 15-year periods. Many of the funds sold through advisers also carry front-end sales loads, which can take up to 5.75% of each deposit before it's invested.

The other issue is diversification. Four stock fund categories spread money across companies and countries, but they're all stocks. Bonds and cash cushion a portfolio as you near retirement, and Ramsey's plan doesn't include them.

The Account Ramsey Leaves Out: The HSA

Ramsey covers 401(k)s, IRAs, Roth accounts and the federal Thrift Savings Plan, but the health savings account gets little attention. If you have an HSA-eligible health plan, contributions are deductible, growth is tax-free and withdrawals for medical costs are tax-free. For 2026, the limits are $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 at 55 and older, according to IRS Revenue Procedure 2025-19.

After 65, HSA money can be withdrawn for any reason without a penalty, taxed like a traditional IRA withdrawal. Starting in 2026, bronze and catastrophic marketplace plans count as HSA-eligible, which opens the account to more people.

What Does Dave Ramsey Say About Crypto?

Ramsey tells people not to invest in cryptocurrency. Ramsey Solutions calls it risky and volatile and says it isn't a good way to build wealth for the future. That's consistent with his rule of investing only in things you understand.

A neutral middle ground for people who hold crypto anyway is to follow the Baby Steps first, then cap crypto at an amount you could lose entirely without changing your retirement date. Bitcoin fell about 77% from its November 2021 high to its November 2022 low, which shows why sizing matters. Our page on crypto in a portfolio shows how to think about allocation, and you can hold spot bitcoin ETFs inside a retirement account.

Using The Baby Steps Outside The US

The Baby Steps work in any country, but the accounts and the "15%" math change.

• United Kingdom: Workplace pensions under auto-enrolment require at least 8% of qualifying earnings, with 3% from your employer. A Stocks and Shares ISA plays the role of a Roth IRA.
• Canada: RRSPs work like a traditional 401(k) or IRA, and TFSAs like a Roth. Many employers match RRSP contributions.
• Australia: Employers must pay 12% of ordinary earnings into super under the Super Guarantee, so most workers already hit Ramsey's 15% with modest personal top-ups.

Skipping an employer pension match while paying debt costs money in every one of these countries, just as it does with a 401(k).

What To Watch Out For

• SmartVestor pros. Advisers in Ramsey's SmartVestor program pay to be listed, according to Ramsey Solutions. Ask any adviser how they're paid and whether they charge a sales load.
• Load fees. A 5.75% front-end load on a $10,000 deposit takes $575 before anything is invested. Compare expense ratios and loads before you buy.
• Overly high return assumptions. Planning on 12% can lead you to save too little.
• All-stock portfolios near retirement. A large drop just before or after you retire does more damage than one early in your career.

FAQ

What Are Dave Ramsey's Baby Steps?

The seven Baby Steps are: save $1,000, pay off all non-mortgage debt, save three to six months of expenses, invest 15% for retirement, save for college, pay off your home and build wealth and give.

Is Dave Ramsey Right About 12% Returns?

The S&P 500's simple average return has been near 12%, but compound growth has been about 10% before inflation and about 7% after. Planning with 6% to 7% after inflation gives a more realistic picture.

Should I Stop My 401(k) Match While Paying Off Debt?

Ramsey says to pause all investing in Baby Step 2. Many planners disagree when there's an employer match, because the match is an immediate 100% or 50% return that's hard to recover later.

Does Dave Ramsey Recommend Index Funds?

Ramsey's main recommendation is actively managed growth mutual funds, not index funds. Most actively managed large-cap funds have trailed the S&P 500 over 15-year periods, according to S&P Dow Jones Indices.

What Does Dave Ramsey Think About Bitcoin?

He says not to invest in it. If you choose to hold bitcoin, keeping it to an amount you could lose without derailing your plan, after the earlier Baby Steps are done, is a cautious approach.