Dave Ramsey is Right About Bonds, but Not for the Reasons He Thinks

David McKnight addresses something Dave Ramsey has been saying for years: “You should NEVER own bonds in retirement!”

David points out that the tool that actually solves the problem Ramsey has been trying to avoid is the same one he spent years mocking on his call-in show: the Fixed-Indexed Annuity.

Ramsey’s argument is that stocks outperform bonds over time – hence, bonds should be avoided as they’re “slow, underperforming, and risky.”

David indicates what Ramsey is half right about, as well as something he’s missing the mark on…

David discusses how bonds can act as a sort of volatility buffer, despite what Ramsey preaches. 

The irony is that the best alternative to bonds is something that Ramsey has derided for years (the Fixed-Indexed Annuity).

David goes through the key differences between a Fixed-Indexed Annuity and a bond.

In years when your stock portfolio is down, you can draw from your annuity – this gives your stock time to recover before you start taking further distributions.

That act alone can increase your sustainable withdrawal rate on the stock portion of your portfolio from 4% to as high as 8% with a 95% success rate. 

David’s disagreement with Dave Ramsey isn’t so much with the suggestion of getting rid of bonds, something David actually agrees with, but it’s missing the most important part: what you replace bonds with matters.

Remember: there’s no better bond alternative in the retirement space than the Fixed-Indexed Annuity.

 

 

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Dave Ramsey