21-Year-Old Pro Investor Challenges Dave Ramsey Show Hosts On Index Funds vs. Mutual Funds: '80% of Mutual Funds Don't Beat the Market'

A 21-year-old marketing professional named Matt called into The Ramsey Show with a question that gets tossed around a lot in personal finance circles: Why does Dave Ramsey's team push mutual funds over index funds?

Hosts John Delony and George Kamel were immediately impressed—not just by the question, but by Matt's financial game. The guy isn't just dipping his toes into investing. He's been in the game since he was 15 and is now socking away 25% to 30% of his $80,000 to $90,000 salary—which adds up to $18,000 a year. That's the kind of number that got Kamel to say, "You're going to be a multi-millionaire regardless of this conversation that happens next."

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Index Funds vs. Mutual Funds: What's the Deal?

Matt has mostly been investing in index funds, with a bit of individual stock picking for fun. But he wanted to know—why does Ramsey's team favor mutual funds?

Here's the basic breakdown they gave:

• Index Funds: These are passively managed. They track a list of companies (like the S&P 500) and don't have someone actively picking stocks. Fees are typically lower.
• Mutual Funds: Actively managed by professionals who try to beat the market by hand-picking stocks. This comes with higher fees, but in theory, higher potential returns.

Kamel put it bluntly: "Your index funds won't beat the market because it represents the market." Meanwhile, mutual funds try to beat the market.

Matt pushed back: "I know 80% of mutual funds don't beat the market."

That's where Kamel jumped in with a Morningstar study that found 57% of actively managed U.S. equity mutual funds outperformed index funds over a 12-month period in 2023.

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But Matt wasn't buying the short-term outlook. "Why are you looking at a 12-month period versus, like, decades?" he asked.

And that's a solid point. A lot of investment debates come down to time frames. Over short periods, active management might win. Over decades? That's where index funds have historically shined.

Fees, Fund Managers, and the Long Game

The biggest knock against mutual funds? Fees. They're typically higher than index funds because you're paying an investment team. But Ramsey's crew argued that if the fund outperforms the index, the fees are worth it.

Matt had another sharp observation: "If a mutual fund has a 30-year history with one manager, and I want to invest for another 30 years, isn't it inevitable that the manager will change?"

Kamel admitted that's true—but compared it to rooting for a baseball team. "You hope they have guiding principles, the same desire to win, and the same integrity over time."

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The Ramsey Approach

So, what's the Ramsey-approved strategy?

• Mutual funds for retirement accounts – Higher fees don't matter as much in tax-advantaged accounts.
• Index funds for taxable brokerage accounts – Lower turnover means less tax impact.

At the end of the day, the biggest factor isn't mutual funds vs. index funds—it's actually investing consistently.

Kamel wrapped it up with this: "Just freaking invest. Be like Matt at 21 years old, invest $18,000 a year, and you're going to have money in retirement regardless of where you put it."

Sounds like solid advice, no matter which side of the debate you land on.

If you're still on the fence about whether mutual funds or index funds are the better move for you, that's where a financial advisor can really help. Instead of guessing—or spending hours going down a rabbit hole of conflicting opinions online—you can get personalized guidance based on your goals, risk tolerance, and time horizon.

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