Dave Ramsey Says Think Twice Before Making These 6 Investments in Retirement

Many things change during retirement. Perhaps your investment strategy should be one of them.

Dave Ramsey believes some investments are foolish in retirement. The money guru warns that the wrong move during your golden years can be a threat to your financial fitness.

Here are some investments Ramsey urges you to think about twice before you take the leap.

Bitcoin and cryptocurrency

In the past, Ramsey has blasted cryptocurrency as nothing more than a mere fad.

In fact, he has characterized investments in Bitcoin and other cryptocurrencies as being little different from the craze for "Beanie Babies and emus."

On his radio show, Ramsey said, "Right now it's just all the cool kids doing stupid stuff. It's maddening because people are using up their wealth-building power that they could have actually become wealthy — and they get screwed over trying to be cool."

Individual stocks with heavy concentration

It is true that concentrating your money into just a few investments offers the chance at a big payoff if one or two of the companies do incredibly well.

But it's also just as possible that you could permanently lose a big chunk of your wealth if one or more of the companies falls apart.

On his radio show, Ramsey told a caller, "It would scare me if I woke up and half of my fortune was in four stocks. Because as those four companies go, so goes my fortune."

Instead, Ramsey advocates investing in mutual funds that can spread your risk across hundreds of companies.

Target-date funds

Target-date funds automatically adjust so their risk profile better suits a level of risk appropriate to an investor's age. That means that as you get older, target-date funds shift money out of stocks and into bonds.

Ramsey has a big problem with this approach. As it states on the Ramsey Solutions website, "We don't believe in the target date fund method because people live longer than they think they will after retirement, and switching your investment mix to be more conservative won't give your money a chance to grow above the rate of inflation."

Ramsey and his team say the danger of not keeping pace with inflation is that you could run out of money before you die.

Company stock and ESPPs

Ramsey is a big proponent of diversification in investing. However, concentrating your holdings in company stock or employee stock purchase plans (ESPPs) is the exact opposite of his philosophy.

Workers can be tempted to take this route if their employer offers a discount on the stock price, such as 15% off the purchase price.

However, the Ramsey Solutions website warns against being seduced by this sales price. "Given the risk involved with putting too many of your retirement eggs in one basket, it's not worth it. Stocks go up and down all day, and that 15% discount can be gone in a flash. It's an accident waiting to happen."

Complex products

Ramsey believes in keeping things simple. It can be a mistake to invest in something you don't fully understand. So, ignore the crowd if it gravitates toward "hot" but complex products that you do not fully grasp.

"Put money in stuff you understand and you're comfortable with," he once said on his radio show. "If that's all you ever do, you're going to be fine."

Going all-cash

As we mentioned earlier, Ramsey is skeptical of target-date funds because he believes they are too conservative and might not allow your investment returns to exceed the rate of inflation.

Going to an all-cash portfolio is probably even riskier, as the low returns on cash are unlikely to exceed the inflation rate. So, it's a safe bet that Ramsey would warn many retirees to think twice about going all-cash.

Where you should put money instead

Ramsey believes there is a lot of bad investment advice floating around. So, he has built an investment philosophy based on what he refers to as the "7 Baby Steps." They are:

• Save $1,000 in an emergency fund
• Use the snowball method to pay off debt
• Add to your emergency fund until it totals three to six months' of your living expenses
• Invest 15% of your household's income for retirement
• Save money to pay for your kids' college expenses
• Pay off your home early
• Build wealth and give to good causes

Some of these steps may no longer apply for retirees, such as saving for your children's college costs. But many of the other steps can be used by anyone of any age.

Seek out a financial advisor if you need more help

The team at Ramsey Solutions urges people to consider working with a financial advisor. This type of money professional can help you craft the right investment plan.

As the Ramsey Solutions website says, a good advisor can teach you to "make your own best choices with your own money."

Bottom line

If you want to avoid wasting money in retirement, you might want to steer clear of doing the things Ramsey has criticized in the past.

Instead, think twice about making risky moves and consider meeting with a financial advisor who can help you create a solid money plan that will guide you through your golden years.