<prompt> Human: Dave Ramsey frequently talks about earning an average annual 12 return on his investments and claims that if you do your research, you can find funds that perform the same.My understanding is that Dave gets this number by simply taking an arithmetic average of returns each year. So if you earn 30 this year, and lose 6 next year, youve earned 24 over the two years - or an average of 12 per year.However, Dave is the only person who looks at returns in that matter. Everyone else takes a 12 average return to mean 12 compound interest. So if I invest 1,000 and earn 12 each year, Ill have 1,120 at the end of year 1, and 1,254 1,120 1.12 at the end of year 2.But taking Daves method, I earned 30 in year 1, so Im at 1,300 at the end of year 1. Then I lost 6 78 in year 2, so my balance is only 1,222.Dave claims to have an admirable objective. Something along the lines of hey, I just want to get people investing and by showing them this big number that their savings can grow to will incentivize them to do that. But I think it has the potential to do just the opposite and cause people to invest too little. They may put away 5,500 a year into an IRA thinking thats going to grow to 7,000,000 over their working life - which is highly unlikely based upon historical performance of the stock market.But Dave has a response to that too. Hell go through the calculations, come up with his 7,000,000 answer, and then say even if Im half wrong, youre still going to be a multi-millionaire. Sorry Dave, but thats just not true.In another thread, I was doing some calculations and came up with the following for a poster who was curious about investing:5,500 invested annually from age 22 to 65 will provide the following ending balance based upon assumed average return:3 - 510,0004 - 666,0005 - 878,0006 - 1,171,0007 - 1,571,0008 - 2,126,0009 - 2,892,00010 - 3,954,36411 - 5,427,00012 - 7,470,000So, no Dave. If youre half wrong and the average return is only 6 instead of 12, youre not going to still end up with a huge nest egg. Youll be ok with a bit over 1,000,000. But youll be a far, far, far cry from the 7.5 million you may have been expecting based upon Daves advice.And youre only ok if you actually do the 5,500 every year, consistently, for your working life. If youre a 22 year old doing the calculations, you may decide that you dont need to put away that full 5,500 because you arent going to need 7.5 million in retirement and would rather use more of your money to enjoy life now.So you run through your calculations again with Daves recommended 12 return and realize that a measly 1,200year 100month is more than enough to invest because youre still going to end up with over 1.6 million in retirement. If you luck into that 12 annual return for 40 years, congratulations.But, if you have a more realistic return of 8, you end up with a mere 463,000 in retirement. You can probably make that work what other option will you have, but youre living a far different lifestyle that what you had planned on when you were 22 and thinking youd have 1.6 million to live your golden years.  <response>: He was the first book I read. And he helped. But hes just a stepping stone. And you shouldnt plan too hard on any percentage of return. Just work hard save hard and invest conservatively. Not much to do besides that. 