Dave Ramsey generally advises against investing in bonds, viewing them as slow, underperforming, and risky compared to growth stock mutual funds, which he recommends for wealth building, even for retirees, believing stocks offer superior long-term returns and bonds don't adequately outpace inflation or provide significant risk reduction. Instead of bonds, his plan involves investing 15% of income in diversified stock mutual funds for long-term growth, with some "growth and income" funds for stability, contrasting traditional advice to add bonds for risk reduction as one nears retirement.
Warren Buffett views bonds as a safe haven for cash, often recommending a 90/10 portfolio (90% S&P 500 index fund, 10% short-term government bonds) for average investors, while Berkshire Hathaway itself holds large amounts of U.S. Treasury bills for capital preservation and to earn competitive yields, especially when stocks are expensive. He favors short-term Treasuries (T-bills) due to low interest rate risk and high liquidity, using them to park cash while waiting for better stock opportunities, rather than as a primary growth engine.
The Bottom Line
However, no investment is without risk. Some of the risks related to bonds are interest rate risk, reinvestment risk, call risk, default risk, and inflation risk. These can impact a bond's value, the income you receive from a bond, and the value of that income.
A diversified portfolio typically includes a mix of stocks, bonds, and mutual funds, balancing growth and stability. Ramsey often recommends allocating investments into four types of mutual funds: growth, growth and income, aggressive growth, and cross-border investment strategies.
The 7-3-2 rule is a financial strategy for wealth building, suggesting it takes 7 years to save your first major financial goal (like a crore), then accelerating to achieve the next goal in 3 years, and the third goal in just 2 years, leveraging compounding and disciplined, increased investments (like a 10% annual SIP hike). It highlights how returns compound faster over time, drastically reducing the time needed for subsequent wealth targets, emphasizing patience and consistent, growing contributions.
The future value of $5,000 in 10 years depends entirely on the rate of return (interest rate); it could be around $6,700 at a 3% return, over $8,100 at 5%, and potentially over $12,000 at 9% or higher, thanks to compound interest, but could also be much lower or higher depending on the investment vehicle (e.g., savings account vs. stocks).
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
Stocks offer an opportunity for higher long-term returns compared with bonds but come with greater risk. Bonds are generally more stable than stocks but have provided lower long-term returns.
Ramsey states that beating the market is easy with his asset allocation. You get 12% per year, take out 8%, and leave 4% to keep compounding.
Treasury securities are considered one of the safest investments because they are backed by the U.S. government. They're issued in different maturities, ranging from a few days to 30 years, allowing investors to choose the term that best fits their investment goals.
If the new bonds have higher interest rates, the investors who buy them will make more money than you. On the other hand, your Treasury bonds will become more valuable if the newer interest rates are lower than yours. Orman explained that these rate changes affect bonds differently depending on their maturity.
Millionaires may allocate a portion of their portfolios to bonds and other fixed income instruments. These assets can provide predictable interest payments and help balance risk against more volatile investments like stocks or real estate. Common choices include: Government bonds.
A negative return correlation means that, on average, when equity returns decrease, bond returns increase, and vice-versa. This inverse relationship between equity and bond returns has helped multi-asset portfolios weather various economic and market downturns.
That's why we recommend investing 25% of your retirement portfolio in growth and income mutual funds, which usually contain a blend of growth and value stocks to provide a stable foundation for your portfolio.
Dave Ramsey's Rule of 72 is a simple mental math shortcut to estimate how long it takes for an investment to double: divide 72 by the annual rate of return (as a whole number, e.g., 8 for 8%) to get the approximate number of years for your money to double. For example, at a 12% return (Ramsey's often-used figure), your money doubles in 6 years (72/12=6), while at 8%, it doubles in 9 years (72/8=9). It's a motivational tool to show the power of compound interest, though his use of an optimistic 12% average return is a point of debate.
Always give 10% of your income, even when money's tight—generosity shifts your mindset and reminds you what matters. Save $1,000 right away, build up 3–6 months of expenses in an emergency fund—and once you're debt-free, start investing 15% of your income for retirement.
Ten years later, the outcomes diverged dramatically: Bitcoin: Your $50,000 bought roughly 220 coins at about $227 each. Now, with the cryptocurrency recently at about $102,000 per coin, your investment is worth around $23.2 million. S&P 500 ETF: Your $50,000 purchased roughly 236 shares at about $212 each.