What Dave Ramsey probably means when he says "risk tolerance" is what I call "risk capacity," which is the amount of risk someone can "afford" to take.
For example, even if you consider yourself an aggressive investor (high risk tolerance), it may not be wise to have 100% of your retirement savings in stocks just one year before you plan to retire.
Following Dave's example, imagine an inexperienced investor looking at a 401(k) plan that offers Vanguard mutual funds.
A common investment choice is the Vanguard S&P 500 Index (VFINX).
I also recommend reading the comments section of the blog post for more opinions from readers.
Disclaimer: The information on this site is provided for discussion purposes only and should not be misconstrued as investment advice.
This general respect of Dave Ramsey, combined with extensive financial services background and mutual funds expertise, makes me qualified to provide some insight into the best and worst of Dave's investment advice (although he's not licensed to sell securities and does not technically call it "advice").
In this second part of our feature, we cover all of the best ideas Dave shares with his audience, along with a few he could do a better job of communicating.
Elsewhere on the web, you can check out this article on the blog Bad Money Advice, Ten Things Dave Ramsey Got Wrong.
In his mutual fund investment strategy, Dave Ramsey urges investors to hold four mutual funds in their 401(k) or IRA: one growth fund, one growth and income fund, one aggressive growth fund, and one international fund.
This four-fund mix has great potential for overlap, which occurs when an investor owns two or more mutual funds that hold similar securities.