Don’t expect to see Dave Ramsey recommending crypto anytime soon.
Finance personality Dave Ramsey has been getting plenty of questions on his radio show about investing in cryptocurrency. If you follow Ramsey or know about his typical advice, his responses won’t come as a surprise.
Last month, he called crypto an unbelievably high risk, comparing it to trading futures, betting on football, and even investing in cocaine. Yes, he compared making money from cryptocurrencies to making money from cocaine. He wasn’t so outlandish with a more recent caller, but he still cautioned against buying crypto due to the volatility, and recommended a more methodical approach to building wealth.
No matter how popular he is, there are some things Dave Ramsey is dead wrong about. Is cryptocurrency one of them? His advice isn’t right for everyone, but he does make several valid points that fledgling crypto investors should think about.
Why Dave Ramsey’s crypto advice makes sense
It’d be easy to call Ramsey an out-of-touch boomer and discount his take on crypto. He doesn’t seem to have much knowledge of the subject. In December 2020, he said Bitcoin could be “funny money” and expressed doubt that a caller would be able to turn his $120,000 worth of the cryptocurrency into cash. Selling Bitcoin for fiat money isn’t difficult now, and it wasn’t then, either. If you have an account with any of the best cryptocurrency exchanges, you can sell crypto whenever you want.
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Despite a lack of knowledge, Ramsey has nailed a few key points that everyone should know before buying crypto:
- Cryptocurrencies are extremely volatile. You need to be ready for large price swings, and you shouldn’t invest money you can’t afford to lose.
- Get-rich-quick schemes rarely pay off. Most of the people who try to get rich quick through crypto end up disappointed.
- There are more proven ways to build wealth. Ramsey generally recommends mutual funds. These can work well if you choose one of the best mutual fund brokers with low fees.
Ramsey’s target audience also needs to be taken into account here. His advice is tailored to people in the early stages of improving their financial situations. Many of his listeners are looking for ways to pay off debt, start building an emergency fund, or get into the habit of saving money.
For people in that situation, Ramsey’s recommendation not to buy crypto is spot on. If you’re not financially stable, crypto isn’t where you should put your money.
What if you are financially stable, though? In that case, crypto could be a worthwhile addition to your portfolio.
Cryptocurrency is a high-risk investment, but it isn’t stupid
There’s nothing wrong with making high-risk investments like crypto, as long as you keep it within reason and you don’t have more important financial needs.
Make sure all of the following is true before you think about buying crypto:
- You have an emergency fund with at least three to six months of living expenses.
- You don’t have any high-interest debt, such as credit card debt.
- You save money and contribute to a retirement account every month.
If you buy crypto, it should be a small part of your portfolio. A smart guideline is to put no more than 5% to 10% of your money into high-risk investments. At least 90% should be in more stable investments. With this approach, you get the excitement of investing in crypto without having your entire future tied to a very volatile asset.
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Dave Ramsey certainly isn’t popular with crypto enthusiasts, but it’s good to listen to both sides of the debate. If you only pay attention to people who love crypto, it clouds your judgement. Although I don’t agree with his blanket recommendation not to buy any cryptocurrencies, it fits his core audience.