# Is Dave Ramsey Making Up Stuff About The Stock Market? The Simple Dollar Cracks The Numbers

I’ve heard many times that Dave Ramsey makes some very broad generalizations about the broad stock market when convincing listeners of his radio show to invest their money in a broad index fund. I never really paid much attention to this, mostly because if you don’t speak in some degree of generalization, it’s very difficult to actually make a point when it comes to financial data.

Dave Ramsey often says on his show that the stock market is up over every ten year period. Do you have anything that validates if that is really true? I am skeptical of it, especially around the 1929 crash time frame.

Since I don’t have access to Dave’s show, I had to turn to one of his books to find out exactly what Dave is saying. I turned to page 148 of his book Financial Peace Revisited and found the following:

By leaving your investment alone in any possible ten year period in the last sixty nine years, you would have made money 97% of the time and would have averaged over 12 percent per year.

In the footnotes, I find that this sixty nine year time frame mentioned by Ramsey thus covers the years 1924 to 1993. This means that the first ten year range is from 1924 to 1933.

I took the raw Dow Jones data and did the calculations myself over this timeframe and found that indeed Ramsey’s statement is true. Using the year-end numbers of the Dow, there are only two ten year spans in the 1924 to 1993 timeframe that show a loss over that span, and both of those are related to the huge run-up in the stock market at the end of the 1920s. There were a few ranges in the 1970s that were very narrow gains. Even if you carry those numbers out through 2006, there are no new ten year spans of losses.

In short, Dave’s exact statement from his book is true. If you take that specific timespan of the market, then there is a 97% likelihood of gains over a ten year span. However, making an esoteric statement like that makes it very, very easy to generalize from that and make a broad statement that the stock market is up over every ten year period. That general statement is false, and demonstrably so.

Dave is walking a fine line here with such statements. If he prefaces them correctly, he is speaking the truth, but with only a slight bit of generalization, the statement becomes provably false.

So what’s the point? Broad-based index funds, on average, have returned over 12% annually over any given ten year period since the Depression. For example, the Vanguard 500 has returned 12.15% annually on average since its inception. However, it’s easy to find smaller periods where the gains aren’t nearly as good, and even where such investments see a loss (compare the close at the end of 1999 to the close at the end of 2002, for example). That’s because stocks, as an investment, involve risk – they are not a guaranteed gain.

Also, Dave likes to make things simple, and sometimes too much simplicity lets the heart of the message be right while the specifics aren’t quite as true. In print, however, he’s both accurate and precise.