Dave Ramsey Says to Avoid These 3 Things if You Invest in ETFs

Dave Ramsey has never been shy about where he stands on investing: pick solid mutual funds, hold them for the long haul, and resist the urge to tinker. So when the personal finance personality weighs in on exchange-traded funds (ETFs), his message often surprises people. Ramsey doesn't argue that ETFs are inherently flawed investments, according to Ramsey Solutions. His concern is that the ease of trading them tends to pull investors into behaviors that erode long-term returns.

For retirees and near-retirees focused on financial fitness and steady portfolio growth, those behavioral missteps could matter more than expense ratios or tax efficiency.

Here are the three specific habits Ramsey warns ETF investors to avoid, and why each one ties back to his broader buy-and-hold philosophy.

Chasing whatever sector or style is currently outperforming

It might feel smart to pile into whichever ETF sector just posted a banner quarter: tech, energy, artificial intelligence, but Ramsey cautions against this pattern. Moving money from one fund to another based on recent performance is a form of return chasing, and it often means buying high after a rally has already played out.

Research from DALBAR's 2025 Quantitative Analysis of Investor Behavior report found that the average equity investor earned 16.54% in 2024, while the S&P 500 returned about 25%, a gap of roughly 8.5 percentage points largely driven by poorly timed moves, the firm reported.

Ramsey's view is that your investment mix should be based on your long-term objectives and risk tolerance, not on which corner of the market happened to shine last quarter.

Trying to time the market based on headlines

ETFs trade throughout the day like individual stocks, which can make it tempting to jump in or out of positions based on breaking news: a tariff announcement, an interest rate decision, or a volatile earnings report. Ramsey's warning is that this kind of reaction usually comes too late. By the time most investors see the headline, the market may have already absorbed the news.

Trying to act on public news rarely produces an edge, and in most cases, it leads to buying after prices have risen or selling after they've already dropped. DALBAR's data reinforces that warning. In 2024, investors timed their market moves correctly only about 25% of the time, according to the firm's research cited by PLANADVISER.

The emotional pull of real-time trading access could make the problem worse for ETF holders compared to mutual fund investors, who face a built-in delay before trades execute.

Trading in and out too frequently

Even if you aren't chasing sectors or reacting to news, Ramsey warns that the sheer convenience of ETF trading could lead to excessive buying and selling.

Every time you sell a position held for one year or less, any profit is classified as a short-term capital gain, according to the Internal Revenue Service. That's taxed very differently than a long-term holding:

• Short-term (held one year or less): taxed at ordinary income rates of 10% to 37%, depending on your bracket
• Long-term (held more than one year): taxed at 0%, 15%, or 20%

Beyond the tax hit, frequent trading disrupts the compounding process that Ramsey considers essential to building wealth.

Each time you step out of the market, you risk missing the recovery days that drive a disproportionate share of long-term returns.

Why the buy-and-hold discipline matters more than the fund type

All three of Ramsey's warnings boil down to the same issue, which is the gap between how ETFs perform and how ETF investors perform.

Over the 20-year period ending in December 2024, the average U.S. equity investor returned about 9.24% annually, while the S&P 500 returned roughly 10.35% over the same stretch, according to DALBAR's analysis. That 1.1 percentage point annual gap might seem modest, but compounded over two decades, it could mean the difference between a comfortable retirement and one that feels tight.

Ramsey's philosophy treats investment selection as secondary to investor behavior: choose quality funds based on your goals, then stay the course through the market's inevitable ups and downs.

How ETFs and mutual funds differ on built-in discipline

ETFs and mutual funds hold similar baskets of stocks or bonds, but the mechanics work differently. ETFs trade on an exchange all day at fluctuating prices, while mutual funds are priced once daily after the market closes.

That once-a-day pricing creates a natural speed bump. You can place an order, but it will not execute until the close, giving you time to reconsider an impulsive decision.

Mutual funds also tend to make automatic contributions and dollar-cost averaging simpler to set up, which Ramsey sees as a structural advantage for the kind of steady, hands-off investing he advocates. None of this means ETFs are a poor choice for disciplined investors, but Ramsey's argument is that mutual funds make discipline the path of least resistance.

Bottom line

Ramsey's caution about ETFs focuses less on the funds themselves and more on the trading habits they can encourage. For retirees and pre-retirees, the practical takeaway is that ETFs could serve as perfectly fine long-term holdings, as long as you treat them the way Ramsey recommends treating any investment: set an allocation based on your goals, automate contributions where possible, and resist the itch to react when the market gets noisy.

Ramsey recommends investing 15% of household income for retirement, ideally through a Roth 401(k), spread across growth stock mutual funds in four categories: aggressive growth, growth, growth and income, and international, according to Ramsey Solutions.

Whether you are just trying to start investing or deciding how to manage an existing portfolio, the discipline of consistent contributions and the patience to hold through volatility may matter far more than whether your investments come in a mutual fund, ETF, or blend of both.