Dave Ramsey is well known for giving out financial advice that involves minimizing risk in all ways, shapes and forms- in particular as it relates to consumer credit. Unfortunately, this time around, it appears as though he got in over his head while responding to a reader’s query:

Dear Dave,

My broker has recommended a managed futures fund. I’ve never heard of these, and I got the feeling she doesn’t know much about them, either.

She’s always been very conservative and reliable before, so we’re concerned. Can you explain something about them?

Krista

—

Dear Krista,

It sounds a little like she jumped off the cliff and became a roulette dealer. The term “managed futures” is virtually an oxymoron. I think she needs to explain her behavior

and the investment after this stunt!

With managed futures you’re basically betting on the future price of a commodity. What’s the price of gold, or oil, or wheat going to be somewhere down the road? You’re guessing as to what the future will bring, and managing a group of those guesses. What a joke!

People in the brokerage business represent dumb things every day. The sad thing is this is someone you thought you could trust.

—Dave

We, obviously, disagree.

Dear Dave,

We have a few problems with your response to Krista. Initially- there is a big difference between Managed Futures and Managed Futures Funds. To educate yourself further on the issue, check out our newsletter on Rydex and Wisdom Tree’s funds.

Secondly, your description of managed futures is just plain wrong. Managed futures are an asset class which allows exposure to commodities, correct. But they also give exposure to interest rates, foreign currencies, and even stock indices. But more importantly, managed futures funds are run by professional commodity trading advisors who are registered with the CFTC and NFA. So Krista would not be guessing what the future will bring at all, nor would Krista be managing a group of those guesses – she would be hiring a professional manager to monitor global markets and invest in trends both up and down.

The main difference between managed futures and whatever you would recommend to deal with an uncertain economic environment ahead is this ability of managed futures to invest in markets both on the long side (going up) and the short side (going down). This allowed managed futures as an asset class to post gains in 2008 while global stock markets were down a large amount [past performance is not necessarily indicative of future performance].

We understand Managed Futures are not well known among the public (kudos to Krista’s advisor for pointing them out to her), but immediately condemning something which is new and not understood as a “joke” is not the way to educate your readers. A little digging and you would have found that managed futures have the ability to reduce risk in a portfolio, which seems right up your alley.

We launched our blog and weekly newsletter to help people learn more about this misunderstood asset class.  Perhaps you should have checked them out before passing judgment, and perhaps you can reach out to Krista and let her know the joke is actually on those who don’t know about managed futures. If you have any questions regarding managed futures with subsequent reader queries, we’re here to help.

Sincerely,

Your Friends at Attain Capital