Dave Ramsey on mutual fund investment fees

“Everybody gets ****** off and twisted up about paying [investment fees on stocks/mutual funds]. But the fees on investments are not very large compared to fees we do on other things. And there is no data that says people don’t get rich because of fees. The data says people don’t get rich because they don’t invest… The rate of return is a much bigger deal than the fee… I don’t operate on myself, I don’t pull my own teeth and I don’t work on my own cars…I probably could do about all of that, but I am not going to. I am going to get a professional involved…”


[ Dave Ramsey, yesterday’s podcast, starting about the 6:35 mark ]

I am generally quite aligned with the broader philosophy of Dave Ramsey (and also Scott Pape, who sings from the same hymn sheet but in a voice more palatable to Australian audiences.). But Dave has previously been exposed to either misunderstand or misconstrue the long term performance of the stock market and what a realistically achievable CAGR might be. And he also may be running close to the wind with his quote above. The numerical example he gives in the podcast, comparing a DIY return of 6% against a mutual fund returning 12%, before fees, indicates he is looking only at the shorter term. But over a long time frame, say 20-30-40 years of investment, it is quite unlikely that the CAGR of most mutual funds will exceed that of a simple buy-and-hold index tracker by an amount which exceeds the annual fees.

Fertile ground for differing opinions. And I guess the hinge point is the actual quantum of the fees. I think if you are paying away more than 1% annually, then outperformance over a buy-and-hold index, across a long horizon, is going to be tough - certainly in developed (= transparent and liquid) equity markets.