Dave Ramsey Warns Retirees to Avoid These 6 Investment Choices

Retirement changes a lot of things, and your investment approach may be one of them.

Dave Ramsey says certain investments are a bad fit for retirement, warning that the wrong choice in your later years can damage your financial security.

Here are several investments Ramsey says you should consider carefully before putting money into them.

Bitcoin and cryptocurrency

Ramsey has repeatedly dismissed cryptocurrency as a passing trend.

He has compared investing in Bitcoin and other digital assets to chasing fads such as "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

Putting a lot of money into just a few stocks can pay off if those companies soar.

But it can also leave you exposed to major losses if one or more of those businesses collapses.

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 recommends mutual funds that spread risk across hundreds of companies.

Target-date funds

Target-date funds automatically become more conservative over time so their risk level matches an investor's age. In practice, that usually means shifting money out of stocks and into bonds as retirement gets closer.

Ramsey strongly disagrees with that strategy. As Ramsey Solutions says on its website, "We don't recommend target date funds because by the time you're ready to retire, your 401(k) will be mostly invested in bonds and money markets that won't give you the growth you need to support you through 30-plus years of retirement."

Ramsey and his team say the danger is that failing to keep up with inflation could leave you short of money later in life.

Company stock and ESPPs

Ramsey is a strong believer in diversification, so loading up on company stock or employee stock purchase plans, or ESPPs, runs counter to that philosophy.

Employees may be tempted by a discount on the shares, such as 15% off the purchase price.

But Ramsey Solutions warns against being lured in by the discount: "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 prefers a simple approach to investing. He says it can be a mistake to put money into something you do not fully understand, even if other people are excited about it.

"Do not put money in something you don't understand," he told one caller on his radio show.

Gold and other precious metals

Gold can seem like a refuge when markets are volatile, but Ramsey is not convinced. "I don't put money in precious metals at all because they have a lousy long-term track record," he has said.

His company also notes that gold does not generate income and that, since the dollar is no longer backed by gold, it will not protect you if inflation rises.

Where Ramsey says to put money instead

Ramsey says bad investment advice is everywhere, which is why his financial plan is built around what he calls 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 not apply to retirees, such as saving for children's college costs. Even so, many of the others can be useful at any age.

Consider a financial advisor if you need guidance

Ramsey Solutions encourages people to think about working with a financial advisor. A professional can help build an investment plan that fits your goals.

As the company says on its website, a good advisor can help you "make your own best choices with your own money."

Bottom line

If you want to avoid wasting money in retirement, it may be wise to avoid the approaches Ramsey has criticized.

Think carefully before taking on risky investments, and consider speaking with a financial advisor who can help you create a solid plan for your retirement years.