I follow the FIRE community.  That stands for Financial Independence, Retire Early.  I am more into following FI than FIRE actually.  If you had asked me when I was younger, I would have said that I wanted to retire early.  I wouldn’t say that now.

I want financial independence for the flexibility.  I want to be able to work on the things that I want to work on.  Maybe you could call that retirement, but I don’t think most would.  I like going to the beach, but I don’t want to do it all the time.  I still want to be productive.

I like following the FIRE movement because it is entertaining to me, and I get some good ideas.  You can learn different ways that people make more money, save more money, and are more efficient with their time and resources.

The one area where I tend to disagree with the typical FIRE person is when it comes to investing. A large portion of the FIRE community advocates investing most or all of your money in low-cost mutual funds. They will say that stocks historically always go up in the long run.

I have pointed out the example of stocks in Japan, which peaked in 1989.  Over 30 years later, they are still down by nearly 50% from the peak.  Nobody has given me a good explanation on why that can’t happen here, meaning the United States.

I don’t predict it will happen here, but it shows it’s possible.  And Japan is a first-world country, so it isn’t an unrealistic example.

To be sure, there are some FIRE people who are more in my camp.  I have seen gold mentioned as a possible hedge against inflation by a few people.  There may even be a few people who like the permanent portfolio concept.  But it is safe to say that a vocal majority favors mostly stocks for an investment portfolio.  They also tend to be more positive about retirement accounts.  I’ll say that most people should probably take an employer match for a 401k, but that’s it. Many FIRE people will say to max out a 401k.

Aside from the concept of investing mostly in stocks, it also bugs me when I hear people downplay the benefits of paying off a home mortgage.  There is the classic argument of whether to invest or pay down a mortgage.  And I get that there are good arguments for either one.  But I disagree with those who are adamant about not paying down a mortgage. And the only reason for this is because they assume that you should be able to get a greater rate of return from investing than the interest rate on your loan.

Dave Ramsey on Mortgages

I recently saw a clip of Dave Ramsey taking a call about the subject of paying off a mortgage. He talked about his baby steps. He talked about studying millionaires and how most millionaires pay off their mortgage and save for retirement.

He makes the profound point that you wouldn’t want to borrow money to invest.

To be sure, he says that you should save 15% of your income towards retirement before paying down your mortgage.  So that in itself may be a little contradictory about not borrowing to invest.  However, I understand the concept and the rationale. This is especially true for people who get an employer retirement contribution match.

I have written about Dave Ramsey before, and I have just about the same opinion of him today as I did 10 years ago.  I think he offers a lot of wisdom, but I believe he gets the investing side wrong.  I wrote about Dave Ramsey and Suze Orman back in 2011.

I follow the FIRE movement because I find it is more advanced and more detailed in discussing financial topics.  People get into things that Dave Ramsey just wouldn’t dive deep into.  But it is nice to go back to Dave Ramsey from time to time for some simple, but much-needed financial advice.

When I watched this short video of him talking about paying off a mortgage, it reminded me that many people in the FIRE community could stand to listen to some of this. While the FIRE people tend to be more advanced than Dave Ramsey listeners, I think some FIRE people get too advanced for their own good.  This is especially true when they think they should never pay off their mortgage because they can make such high returns investing in the stock market.

Anyway, I appreciated what I heard from Ramsey.  I agree with him that it is wise in most situations to pay down a mortgage if you are in a good position to do so.  I think more FIRE people should take this advice.

Dave Ramsey on Gold

After all of that, I remembered why I didn’t care for Dave Ramsey at times.  I saw a recent video of him talking about hyperinflation and gold.  He unequivocally says not to buy gold.

He says it is just a golden-colored rock.  He says it’s no different than a green piece of paper with a picture of a president on it.  This is completely wrong because the green pieces of paper we call dollars are essentially forced on us.  And let’s not forget they originated as certificates for gold.

Gold has been used as a form of money for thousands of years.  It was chosen in the open marketplace.  It also does have uses other than being money, which can’t really be said for dollars.  Gold has industrial uses, and it is used for jewelry.

The worst part of this gold segment is when he said that the price of gold doesn’t have to go up in hyperinflation.  He says the dollar isn’t tied to gold any more.

Isn’t that the point?

Ramsey says that gold goes up in price when there is a perceived shortage.  He talks about gold going up in “value”.  I find it hard to believe that somebody with Ramsey’s wisdom doesn’t understand that gold would go up in price with more money in circulation, all else being equal.

He uses the word “value”, but it’s not that gold necessarily goes up in value.  It is that it holds its value, unlike the dollar or any other fiat currency.

There is no question that gold goes up and down in price based on a lot of factors, including perceived shortages or perceived over supplies.  It also tends to go up with more money in circulation. This would be especially true in a hyperinflation situation where the demand for a fiat currency goes way down. People are spending their depreciating money quickly to convert it to hard assets before prices go even higher.

So, after all of these years, it is still frustrating that Dave Ramsey has such a bad grasp on economics and monetary policy.  Remember, in this video, he wasn’t saying that hyperinflation was out of the question.  He was saying that he doesn’t recommend gold under any circumstances.

The crazy thing is that we don’t even need hyperinflation to get a massive rise in the dollar price of gold.  I wouldn’t consider 15 to 20 percent annual price inflation to be hyperinflation, but I would imagine that gold would go a lot higher in such an environment.

In conclusion, as I stated almost a decade ago, listen to Dave Ramsey when it comes to managing money and debt, but ignore him when it comes to investing.  I would recommend the same strategy when dealing with a majority of people in the FIRE movement.