In the 2007 edition of Dave Ramsey's book The Total Money Makeover: A Proven Plan for Financial Fitness (ISBN 978-0-7852-8908-1), on pages xv & xvi, he states the following:

Many intelligent but ignorant people seem to think that making a 12 percent rate of return on your money in a long-term investment is impossible.

He goes on to provide some evidence from his own portfolio:

I purchased a Growth and Income Stock Mutual Fund many years ago, that I still invest in, and it has average 12.78 percent per year since 1934 (72 years as of this writing). I bought another last week that has averaged over 15.43 percent per year since 1959, as of this writing. And yet another with average annual returns of 13.55 percent since 1984, and another averaging 13.51 percent since 1973, and yet another averaging 12.67 percent since 1952. Any decent broker with the heart of a teacher can, in his or her sleep, lead you to funds with long track records averaging over 12 percent.

1934 + 72 = 2006, so presumably he came up with those numbers at some point during 2006.

He never identifies the specific mutual funds--not here, nor anywhere else that I've been able to find. When asked, he refers you to an "Endorsed Local Provider," i.e., to someone who pays Mr. Ramsey for leads.

Given specific numbers, and a specific date range (15.43% per year from 1959 to 2006) it should be possible to determine the exact mutual funds that Mr. Ramsey is referring to. This question is two-fold:

  1. What mutual funds fit Mr. Ramsey's description?
  2. What tool did you use to determine this?

One of the challenges I have found is that all the free, online mutual fund performance & rating tools I've reviewed don't look back more than 10 or perhaps 20 years. Additionally, there numbers are always use "today" or "this year" as an endpoint--you can't arbitrarily pick your endpoint.

Note that this answer suggests that perhaps the first fund (12.78% per year) is The Investment Company of America® (growth-and-income fund) (symbol AIVSX for Class A, or front-loaded, shares, which is what Mr. Ramsey recommends). The numbers don't quite align, but the question uses numbers Mr. Ramsey provided during 2012, so you would expect them to be slightly different.

  • There are a few different average calculations one can make you do realize right? While there is the sum divided by the number of elements there is also the product of the elements and taking the nth root and there is the compounded annual growth rate for a 3rd calculation that can be done.
    – JB King
    Jan 21 '14 at 20:12
  • @JBKing, yes I realize that he didn't specify what type of 'average return' he was referring to. Are you saying this ambiguity makes it impossible to determine the answer or simply that it's another variable to consider?
    – Josh
    Jan 21 '14 at 21:18
  • Another variable to consider. For example, consider a mutual fund that has returns of 10%,-10%,10%,-10% over the course of 4 years. At the end, one could think the average is 0% but really the cumulative total return is -2% as the negatives bring things down. A geometric return would be 10% as the minus signs would multiply each other out so this is why one has to be careful on terminology here.
    – JB King
    Jan 21 '14 at 21:23
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    Perhaps somewhat naively, I had simply assumed that he was referring to "Annualized Total Return," which (I thought) was a well-defined term in the financial services industry, and therefore we would be able to find historical data for. See here ATR definition: investopedia.com/terms/a/annualized-total-return.asp
    – Josh
    Jan 21 '14 at 21:44
  • 1
    @JoeTaxpayer, what makes you say that, and (if you have an opinion on on this) what return do you think he is quoting?
    – Josh
    Jan 21 '14 at 22:35

See the Moneychimp site. From 1934 to 2006, the S&P returned an 'average' 12.81%. But the CAGR was 11.26%.

I wrote an article Average Return vs Compound Annual Growth to address this issue.

Interesting that over time only a few funds have managed to get anywhere near this return, but the low cost indexer can get the long term CAGR minus .05% or so, if they wish.

  • Thanks for the response and links--but I'm not sure how this answers my question? I.e., what funds fit Ramsey's descriptions, and what tool did you use to figure it out?
    – Josh
    Jan 21 '14 at 21:16
  • You already noted the fund. It was the American fund you cited. Jan 21 '14 at 21:19
  • In my quote Mr. Ramsey identifies five different funds. I'm trying to figure out what all five of them are, not just the one that I think I already identified as AIVSX.
    – Josh
    Jan 21 '14 at 21:35

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