Sound Investing

AAII Article describing his Best-in-Class ETF selection process- 

Video link to section of prior video showing more detail of the factor analysis he uses- Time mark- 46:00

Best-in-Class ETF's article 

Best-in-Class ETFs

Portfolio Configurator

Resources mentioned:https://lookerstudio.google.com/u/0/reporting/a941a5d4-0929-45ea-b22e-3bb82dc334ff/page/p_zy32acuhdd?s=hqmha3-AK5k

Watch the video here.

In this podcast Paul addresses the advantage of using a Flexible Distribution strategy.  He starts by mentioning the earlier podcasts that focused on the Sound Investing Portfolios, Fine Tuning Your Asset Allocation Tables and Fixed Distribution Tables D1.4, D1.5, D9.4 and D9.5.
He then focuses on  Flexible Distribution  Tables F1.4, F1.5, F1.6, F9.5 and F9.6.
The following are links for listeners who want to review all the Fine Tuning Tables, all the Fixed Distribution Tables and all the Flexible Distribution Tables.

⁠9 Fine Tuning Your Asset Allocation Tables

S&P 500 (⁠Table B1⁠)

U.S. 2-Fund (50/50 S&P and Small Cap Value) (⁠Table B9⁠)

Fixed Distribution Tables

Flexible Distribution Tables

For questions on Flexible Distributions please send to paul@paulmerriman.com or  post the questions in the comments section of the Flexible Distribution video. (link)

In this podcast Paul uses 11 tables  to address the questions above.  It is recommended the viewer print out the PDF of the tables to make it easier to follow the numbers.

Many may find it is easier to follow the information on Paul’s video on the same topic.

If you have questions about the presentation please leave comment or question in the comment section below or email paul@paulmerriman.com.

#1 Stocks vs. Bonds: The $10 Million Decision

#2 The Ultimate Buy and Hold Portfolio 2024 Update

#3 Sound Investing Portfolios: 2024 Update

#4 Fine Tuning Asset Allocation 2024 Update
In his presentation Paul references Tables J1a, A1a, H2a, B1, B9, C1 and C9.
The purpose of the podcast is to familiarize investors with how to use and compare the rest of the Fixed Contribution Tables. This link takes investors to the rest of the C tables.

In the previous three podcasts we have addressed the long term decision between investing in stocks vs. bonds, what equity asset classes you might use in building your equity portfolio and how to combine the different equity asset classes to build the best portfolio for your different investments.

The purpose of each of the Boot Camp Series is to address some of the most important investment decisions.  In this podcast I discuss the question of how much fixed income an investor should  hold in their portfolio.

There are 9  Fine Tuning Your Asset Allocation Tables.  Each one assumes the use of one of the nine Sound Investment equity portfolios.  Paul focuses on two of them and expects that those who are interested will be able to view the rest of the tables on their own.

The two tables use the S&P 500 (Table B1) and the U.S. 2-Fund (50/50 S&P and Small Cap Value) (Table B9).  Each of these tables represents the annual returns of  11 combinations of equities and bonds.  The goal is for investors to find the combination of equities and bonds for their risk limits and and return expectations.

Paul will be monitoring the YouTube video and will respond to questions there. Disclosures Data Disclosure Notice - Funds (1970-Present)

Data Disclosure Notice - Indexes (1928-Present)

Table H1a lists the 9 Sound Investing Portfolios and includes percentages of each of the asset classes included in each portfolio.Table 

H2a lists the risk and return data for each portfolio.  The table compares profitable  years, unprofitable years, decade returns and total return of a $10,000 investment.

Table H3a lists the portfolios annual return for each year for the period 1970-2023.

Paul encourages listeners to pose questions regarding the Sound Investing Portfolios.  Send questions to paul@paulmerriman.com.  

Paul recommends new listeners listen to the previous podcast on ⁠Equities vs. Bonds⁠ prior to this podcast. 

The purpose of this annual update is to remind investors of the power of equity asset class diversification.  Paul makes the case for the 10 equity asset class portfolio that he introduced over 25 years ago.  During the presentation he uses Tables A1a and A2a.  A1a shows the series of portfolios, starting with the S&P 500 on its own, and then the results of adding 9 other asset classes one at a time.

 In A2a Paul reviews the Ultimate Buy and Hold results to 7 other portfolios that investors may select for better returns with fewer funds and similar volatility. 

In both cases he shows the results with both annual and monthly rebalancing. 

On the next podcast Paul will dig into the important differences of the risk and return for all  9 portfolios, including the S&P 500 as the single holding.

This podcast is the first in the series of 8 to 10 podcasts, videos and articles that will be found under Bootcamp and Best advice.

In this podcast Paul discusses the biggest investment decision of an investor's lifetime:  Invest in stocks or bonds.  He reviews the  long term risk and return for both important asset classes.  In each case there is a set of 3 tables that reflect the returns from 1928 to 2023.  In Tables J1a and J2a he compares the annualized return for the entire period as well as for all the 15 and 40 year periods.  His discussion includes the impact of inflation as well as rebalancing.  He also encourages those who have not read  "We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement” to  download the free pdf.

Join Paul and Chris for this podcast/video they recorded. During the conversation Paul  mentions Chris’ free copy of  “2 Funds for Life”  and a fascinating interview with Professor Scott Cederburg on Rational Reminder.  Cederburg is an advocate for a lifetime portfolio of all equities. 

The following are the topics and questions they discussed:  

1. What does an investor do if a small cap value fund is not available in their 401(K)?  Does a small cap blend fund, that is available, have the same impact as small cap value?
2. How do you choose between investing in a higher expense ratio ETF (say Avantis) compared to investing in a low expense ratio small cap value index fund?  Would the decision be as simple as going with the lower expense ratio fund?  
   
3. How do taxes impact your recommendations whether the asset class is held in taxable or tax advantaged accounts?  Specifically, the S&P 500 fund that has little to no annual taxes vs small cap value which is less tax efficient.
   
4. Are you tempted to invest in individual stocks or actively managed funds?  
   
5. Since small cap value funds can have long periods of underperformance,  does that suggest  those approaching retirement should avoid small cap value funds?
   
6. How did you react to the March 2020 Market Meltdown and other past major market declines?   Did you try to take advantage of the declines as a buying opportunity?
   
7. What about combining 25% each small cap value and S&P 500 fund with  50%  target date fund?  
   
8. What’s the best way to move from your present holdings to a 2 Funds for Life Portfolio?
   
9. Where do I find information on how you make your selection of Best In Class ETFs?  Here is the page that has links to the articles, podcasts and video.  Plus here is a link to Chris’ AAII article on the topic.
   
10.  I’m setting up a  50/50 small cap value/target date fund.  Would it help to add international small cap value?
    
11. How about using two small cap value ETFs?  DFA and Avantis each have similar ETFs but different portfolios.  
    
12. What is the status of Chris’ new white paper on 2 Funds for Life?

During the presentation he discusses the important differences between investment success and investor success.  He encourages all listeners to get the free pdf of Paul Heys book, “Spending Your Way to Wealth(s).” 

2.  Do you recommend a solo 401k or SEP IRA for a single employee LLC that will never have employees?  Recommended reading from Truth-Teller Jim Dahle- https://www.whitecoatinvestor.com/sep-ira-vs-solo-401k/

3.  How much more do you think Avantis Small Cap Value (AVUV), which has higher fees, will make than Fidelity Small Cap Value Index (FISVX)?

4.  I have $1.5 million in cash and a total portfolio value of $5.8 million.  My asset allocation is 43% equities and 57% bonds.  I have Social Security and other income of $90,000.  Should I change my balance to 60% equities and 40% bonds?

5.  If you only need a 2% withdrawal rate, what would be the right asset allocation for a someone really investing for my survivors?  How about 90% equities and 10% bonds? 

6.  Is there a time or value of investments that someone should get a trusted advisor?  If so, how do you find them?  Several sources mentioned:  https://www.garrettplanningnetwork.com/about/contact/ and https://adviceonlynetwork.com/

7.  What changes can a 50-something make to boost their 401k returns?

8.  What are your thoughts on robo advisors/investing?

9. What is your advice for a parent who wants to persuade their adult children to educate themselves about investing?  After you listen to the answer please send me an email  to paul@paulmerriman.com about what steps you would take?  Please include your phone number.  

10.  Will the program be recorded?  Of course I don’t know as I don’t know where the list came from.  If you know, please let me know.

11.  What should I do with penny stocks that are down 89 to 90 percent?

Table 1 and Table 2. 

D1.3

D1.4

Paul reminds listeners to forward copies of our 3 free books.

Paul, Chris, and Daryl are back together for the first time in 2024.  The podcast starts with Chris demonstrating a new and improved Portfolio Configurator, which adds the 2 Funds for Life portfolios. Now, investors can see how the equity portion of Sound Investing Portfolios, like the Ultimate Buy and Hold or Four Fund Combos, compare to various 2 Funds for Life approaches.  

Next, they discuss the question "Which backtested portfolio has the highest return per unit of risk, and shouldn't we all be using that one?"  Daryl uses Table H2, and Chris uses the 2 Funds for Life Fine Tuning Table to point out various ways investors might define risk and try to find the portfolio with the best return per unit of risk.

The podcast closes with some thoughts on 2024, and requests for feedback on the new Portfolio Configurator.   Chris, Daryl and Paul also comment on the new documentary, “Turn Off the Noise.” This documentary is available free through the end of the month.

Trust is the key for most investors to stay the course for the long term.  I formed a lasting trust in the academic work of Drs. Fama and French when I attended a 2 or 3 day workshop at Dimensional Fund Advisors in 1994.  
That trust led our firm to use the DFA funds since the mid 90s.  While I believe there are a lot of people who find our long term studies helpful, I’m not sure that all of those people understand that almost all of our studies that go back to 1928 are based on the work of the academics who are associated with DFA.
If you don’t immediately feel better about the source of our data, I think you will feel better if you watch the new documentary, “Turn Off the Noise.”  I sent it to Daryl and he responded, “Spectacular!”   I sent it to Chris and his response was, “We stand on tall shoulders.”
You can watch the documentary at no cost by going here.  You will be asked to fill in a few pieces of information and use the Access Code: RATIONAL  This offer only extends through January 31, 2024
Then I would like you to watch a wonderful interview of Errol Morris, an Academy Award-winning film director and author.   The following are the notes from interviewers Ben Felix and Cameron Passmore.
In today’s episode, Errol Morris, Academy Award-winning film director and author, joins us to talk about his recently released documentary called Tune Out the Noise. The documentary focuses on the revolution that's happened in the financial system, how the markets work, and why the advancements made are so vital. Errol is an acclaimed figure in film and literature, boasting an impressive array of accolades, notably securing an Oscar for his renowned documentary The Fog of War.

His work spans various arenas, encompassing short films for prestigious events and many charitable and political organizations. In our conversation, we delve into the significance of storytelling in communicating complex subjects, the power of serendipity, the evolution of finance, and the enigmatic nature of truth. We discuss the necessity of storytelling, the unexpected occurrences that influenced finance, the importance of empirical data in understanding truth, the central story of Tune Out the Noise, and much more. He also provides insights into the amazing economists, many of whom are past guests, who helped shape the financial landscape. Discover how chance, humility, and the pursuit of truth intertwine in this captivating episode, where the intriguing art of storytelling converges with the complexities of the financial world. Tune in now!

In this podcast Paul starts by recommending, “Episode 285:  A Year In Review" a podcast/video.

In Paul’s review of 2023 returns he compares Chris’ Best In Class ETF recommendations with similar Vanguard ETFs and the average return in each equity asset class. 

He also gives returns for the most popular portfolios including, Ultimate Buy and Hold, 2 Fund U.S., 4 Fund U.S. and 4 Fund WW.

Using an article from Ben Carlson  Paul is able to find even more reasons 2024 should be a very profitable year for investors.Paul discusses his nominee for the #1 Fund Family in America.

He closes with a portion of a letter from Subah Randhawa, President of Western Washington University.

In this podcast (https://rationalreminder.ca/podcast/284) entitled "Challenging the Status Quo on Lifecycle Asset Allocation” Scott discusses his groundbreaking research on the implications of retirees using all equities during their entire retirement vs. the traditional stock/bond allocation most experts recommend.

Paul uses Tables D1.4 Fixed Distributions S&P 500 and D9.4 Fixed Distributions U.S. 4 Fund to demonstrate how much better returns than all equity large cap blend can be earned with a combination of small, large, growth and value and up to 50% in fixed income.

Another listener asks where one can find the tables referenced in the podcast entitled,  "The best gift of all? A financial legacy for a child"    

Here is the link to the pdf that includes the tables mentioned in the article. He also recommends he review these tables that Daryl put together to show the impact of two investors starting at age 18 and 23.   

Paul Merriman and Chris Pedersen introduce the 2 Funds for Life Fine Tuning table and describe how it can be used by investors of all ages to evaluate various combinations of target-date and small-cap value funds.  

Historically, these combinations have produced higher returns and higher safe withdrawal rates with only modest increases in risk compared to the target-date fund alone.  The table provides investors a way to see what these differences have been in the past for target-date funds across their lifetimes when combined with 0% to 50% small-cap value in 10% increments.  

Paul and Chris also discuss rebalancing approaches and the methodologies used in the backtests.  Whether you're a young investor, mid-career, or well into retirement, we think this information will be relevant and hope that it will be life-changing.

Watch video here- https://youtu.be/SiByQZzf3vQ

Paul wishes to warn podcast listeners that this podcast contains a lot of important numbers from the following 4 tables.  The torrent of numbers can be irritating but these are some of the most important aspects of risk and return we should know.
Paul asks that investors email him with questions about the tables.  paul@paulmerriman.com

In this podcast Paul introduces a new way to understand and compare the likely risk and return of equity asset classes. The biggest challenge for first time investors is not understanding the likely losing periods they will experience as part of the normal progression of successful investments.  These 4 tables compare the historical risk and return of the S&P 500, Small Cap Value, a 2 fund portfolio that’s 50/50 S&P and SCV and 4 fund portfolio with 25% each in S&P, Small Cap Value, Large Cap Value, and Small Cap Blend.

The biggest challenge of educating first time investors is reaching them with our educational materials. One of the best ways to reach young investors is through young podcasters who have loyal audiences of these first time investors.  Jose and his podcast, Slow Brew Finance is a great example.  It is available both as an audio  and video podcast. 

During the presentation Paul mentions a table of returns for the S&P, U.S. large cap value, small cap blend and small cap value. Here is the link.

To sign up to Slow and Steady, a bi-monthly email newsletter with bite-sized practical personal finance thoughts and tips https://slowbrewfinance.com/subscribe

The topics in this interview include:
00:00 - Intro 

03:04 - Your Own Small Value Portfolio 

07:23 - Value and Quality 

10:12 - What if Value Doesn't Work Anymore?

14:47 - International Diversification

19:51 - Momentum

23:14 - Size 

27:55 - Market Timing via Trend Following 

39:13 - The Key to Becoming a Good Investor

46:42 - Investor Psychology 

55:59 - Outro

Paul begins the podcast by noting a recent interview he had with Andrew Giancola of Master Money and the Personal Finance Podcast.  The topic is “Simple Financial Steps With Massive Payoffs.”
In this podcast Paul discusses a new study that compares long term returns of the S&P 500 and the 4 Fund Portfolio.  The study was motivated by an article written by Ben Carlson. 
Paul discusses the same 20 year periods starting in 1930 and compares the results of The 4 Fund Portfolio to that of the S&P 500.  He also makes the case, using one of his favorite quilt charts, that the 4 Fund Portfolio is not only more profitable but is less risky on an annual basis. 

Listen to more of Doc G on Earn and Invest-

https://www.earnandinvest.com/episodes-7/youre-not-spending-enough
https://www.earnandinvest.com/episodes-7/test
https://www.earnandinvest.com/episodes-7/spreading-the-financial-independence-gospel-are-we-preaching-to-the-choir

Topic 1: The industry has responded loudly to an announcement by Dave Ramsey that he would be comfortable about taking 8% a year from a retirement account.  Here is what Rob Berger has to say
In a recent video answering a caller's question, Dave Ramsey described those promoting the 4% Rule as "stupid," "goobers," and "morons. He described the 4% Rule as stupid and said he's "perfectly comfortable" with an 8% withdrawal rate. In this video, I'll describe his rationale and why I'm "perfectly comfortable" telling him he's wrong. New RetirementFICalcDave Ramsey Video
Here is the latest from Morningstar on withdrawal rates
And another good article from Amy Arnott from Morningstar  
In my discussion I try my best to explain the real thinking by Dave Ramsey.  

Topic 2: “ iShares just came out with target date funds as ETFs.  What are your thoughts on their returns and  their tax efficiency?

Topic 3:  Today I listened to my 1st Youtube Paul Merriman video --- your Ultimate Buy & Hold  Update 2023.  Very intrigued by your strategy as I'm also a DIY investor.  Since I'm retired & 62 years old with a wife that will be working for another 3 years, can you direct me towards your more specific information that would be more relevant to my situation?
Topic 4:  New study on market timing vs. buy and hold from Vanguard

1. If I have a pension and social security that cover my cost of living, is it inappropriate to have 100% of my  long term portfolio in stocks?
2. How should I create a do it yourself target date fund using one of your Sound Investing portfolios?  
3. What are the tax implications of the portfolios you recommend?  Are some better for taxable accounts?
4. Paul, do you invest in any individual stocks?  If not, why not?
5. I have relied on professional managers for most of my life but would like to quit paying the fees to have someone else do it.  How can one feel confident in taking over the management of an account?
6. What about 50% half small cap value and S&P, AND 50% in a target date fund?
7. If I am dollar cost averaging is there a point (size of market decline) at which it would make sense to go ahead and invest it all?
8. Does it make THAT big of a difference if someone lump sums vs dollar cost averaging? which is better/worse?
9. Is there a small cap value emerging markets ETF you recommend for best in class?
10. No investment advisor I know recommends a 100% allocation to small value. More common is a tilt toward the favored factor, say, 80% in the market and 20% in small value. What do you recommend?
11. Do you recommend tax loss harvesting in a taxable account?

https://www.whitecoatinvestor.com/tax-loss-harvesting/

https://www.whitecoatinvestor.com/how-to-tax-loss-harvest-a-large-taxable-account/

12. Does a large cap blend fund that’s equal-weighted compare well with a cap-weighted fund?  

The video can be watched here- https://www.youtube.com/watch?v=QjFlcDAlH1k

Paul's section begins at 08:40. 

The following links are used in this presentation: Table B14B, ETF portfolios,  and SPIVA Report 

1.  Do you recommend using index funds for international funds? 
2.  Since small cap value underperforms the S&P 500 for long periods of time, should SCV be avoided by those who are nearing retirement?
3. I don’t have small cap value available in my 401(k).  Will a small cap blend fund have the same impact?
4. How can there be such radical return differences between the small cap value indexes?
5.  Are you going to show risk-adjusted returns for the index funds? Treynor ratios?  Sharpe ratios?  Sortino ratios?
6.  How does one juggle the choice between investing in a higher expense ratio ETF (example AVUV) compared  to investing in a lower cost index fund?  Would the decision be as simple as going with the lower cost fund?
7.  If everyone invests in small cap value funds will that reduce the premium in the future?
8.  Some say the SCV premium is declining because private equity companies are taking SCV companies private.  Any truth to the comment?
9.  How do I rebalance a target date fund and a small cap value fund?  What gets rebalanced?
10. Please recap what the good, bad and ugly of small cap value funds and ETFs.
11. How long have you been aware of the small cap value premium?  Did you know about it before they became popular?
12.  Fidelity Freedom TDF 2035 has an expense ratio of .7%.  When the expenses are that high does it change your recommendation of adding a small cap value fund?

Paul is interviewed by Andrew Stotz and the My Worst Investment Ever podcast

BIO: Paul Merriman is a nationally recognized authority on mutual funds, index investing, and asset allocation. After retiring in 2012 from Merriman Wealth Management, which he founded in 1983, Paul created The Merriman Financial Education Foundation, dedicated to providing investors of all ages with free information and tools to make better investment decisions.

STORY: Paul has had a series of bad investments, and they were all driven by emotions. It wasn’t until Paul got the emotion out of that process that his money started to grow.

LEARNING: The first five years of the money you put away can, theoretically, represent 40% of the value of your portfolio over the long term. Start investing early so that you can benefit from the compounding effect.

I went to the Bogleheads Conference with high hopes I would convince guests that small cap value should be at least a small part of every equity portfolio.  Many respond that they have all the small cap value they need in a total market index like VTI.
Why I failed:  I only had 20 minutes, as compared to 45 a couple of days earlier for the NYC AAII Chapter.  I took a dozen slides out of the shorter presentation but still had at least another dozen tables and graphs to address in the 20 minutes.  What I should have done is spend the 20 minutes on one table.  That table is B14B. In this podcast I make the presentation I wish I made at the conference. 
If you have a friend you think could use the information, please pass it on.

The following release from the Western Washington University introduces a new program that will soon establish a financial literacy program that will impact every student who attends WWU.   Over the next 100 years this endowment should help millions of students and their families make better financial decisions.

The second topic is about someone I think everyone of our readers should become familiar.  On October 11 I will be speaking to the New York City AAII Chapter and on October 13 the Bogleheads Conference in Rockville, MD.  In both cases I will be speaking on The Good, the Bad and the Ugly aspects of investing in small cap value.  My hope is my presentation will motivate investors to give serious consideration to adding SCV to their portfolio.

While I am excited about the opportunity to present our findings, I must admit the work that Ben Felix, one of our Truth Tellers, has done is about the best I have found on the topic.  If you want to see one of the best cases for SCV please watch Ben do his magic.

Learn more: https://courses.mindful.money/financial-independence-bootcamp

Paul Merriman is a nationally recognized authority on mutual funds, index investing, and asset allocation. He founded Merriman Wealth Management in 1983, retired from the firm in 2012, and created the Merriman Financial Education Foundation. Everything he does is dedicated to providing investors of all ages with information and tools to make informed decisions for their own best interests.

Today, Paul joins the show to reflect on early financial lessons he learned, discuss the current state of financial education, and share the top three decisions everyone must make in their financial lives.

Paul opens with information on the Oct. 11 AAII presentation.  Here is the link to sign up.
There was a time when Paul was very critical about target date funds.  But important circumstances made him more accepting of the important value of target date funds.  He discusses why he changed his mind but explains why he still thinks you should build the glide path on your own.
He also responds to Ken Fisher’s comments about the small cap and large cap historical returns. In the discussion Paul recommends listeners take a look at the quilt charts that show individual asset class and portfolio annual returns.

Tom Cock and Don McDonald record a daily podcast Talking Real Money and a 2 hour radio show on KNWN (previously KOMO) each Saturday afternoon from 12 to 2.  Last Saturday Don was taking a day off and Tom asked me to join him.  While I was in their studio I asked Tom to join me for a discussion about the challenges of educating  investors as well as giving some advice to  those interested in building a career as a financial advisor.  Here are a few of the topics we discussed:

1. How to teach investors to develop realistic expectations for risk and return
2. Best advice for first time investors
3. Major changes in the financial planning industry
4. How advisors bill for investments under management and those "held away”
   
5. Robo advisory services
   
6. Advice to young and older adults who want to get into the financial planning industry
   

Working with Tom is always fun!

Watch the video here.

Chris Pedersen and Daryl Bahls join Paul to answer questions from investors of all ages. 

1:  I hold a REIT fund in my tax deferred account but have found other funds include REITS.  Am I overweighted in REITS and what should I do about it?

2:  Are all total market index funds created equal?  Should there be meaningful differences in returns? Chris compares the returns of 4 total market funds using Portfolio Visualizer.

3.  I am a 79 year old retiree who wants to use your 2 Funds for Life strategy.  How do you recommend I put my portfolio together? 

4.  How would I establish an expected rate of return for the U.S. 4 Fund Portfolio? 

5. I’m a young investor with a Worldwide All Value Portfolio.  As I age should I start to transition to a lower risk equity portfolio? 

6.  The Avantis funds use a quality factor to produce better returns.  Why don’t all small cap value funds use the quality factor in their selection of companies? 

7.  How have real returns of equity asset classes compared to theoretical returns? 

8.  I want to carefully build my portfolio to work within my risk limits. My challenge is to decide what period of time represents the kind of losses I’m willing to accept.  If I use the information starting in 1928 or in 1970 the loss exposure is very different.  Which period should an investor use to match their asset allocation to their risk tolerance? 

9. Chris, Daryl and Paul discuss the long term implications of the risk and return of a 60% equity and 40% bonds using a  combination of equal percentages of the S&P 500 and small cap value.

During the presentation Daryl and Chris reference a new 1928-2022 Fine Tuning Table for an equity portfolio of 50/50 S&P 500 and Small Cap Value. 

Daryl introduces a new table that compares the returns from 1928-1969 with 1970-2023 

Financial Feast Pod is a new podcast  focused on simplifying personal finance, with each segment dedicated to understanding and implementing the most important financial decisions.  In this podcast Zach and Kevin interview Chris Pedersen about “2 Funds for Life”.

Not only will you learn about Chris’ book but the hosts ask a lot of questions about the Foundation and Chris’ favorite food.

Topics:

2 Funds for Life explained

Risk and return of 2FFL

How to use 2FFL in a 401k

To rebalance or not to rebalance

Conservative, moderate and aggressive portfolios

Why not put all in small cap value

What about international small cap value

Advantages and disadvantages of hiring an investment manager

If you haven't signed up for our weekly Sound Investing newsletter, click here to sign upand for a copy of  2 Funds for Life and We’re Talking Millions

Orange County AAI video- (Chris' presentation starts at the 5:20 mark)

On July 22, 2023 Chris Petersen made a 2 hour presentation to over 650 AAII members and our Foundation members.  The following is the AAII announcement of Chris’ topics:

As investors, we all want to get the best return we can with the least possible risk. We often think of this as an asset allocation problem. Although there is some truth in that, it can only go so far. We still have to take some risk to get a reasonable return, and select specific funds in which to invest. And then, we're still left with the risk of our emotions and behavior. In this presentation, Mr. Pedersen will discuss how portfolio asset allocation, fund selection, and investor behavior impact the returns we get for the risks we take. He'll also show some practical approaches to help us all come closer to being best-in-class in all three of these areas.

Attend Mr. Pedersen's discussion and you will learn:

• How various types of equities and bonds interact to impact risk and reward
• An objective approach to choosing best-in-class funds for equity asset types
• The impact investor behavior has on risk and reward, and ways to mitigate or improve it.

Chris Pedersen is Director of Research at The Merriman Financial Education Foundation and creator of the 2 Funds for Life investing approach to augmenting target-date funds. He is an engineer by training, and a new opportunity finder by nature. In his work for the Foundation, he develops and maintains a set of best-in-class exchange-traded fund (ETF) recommendations, the customizable Merriman Aggressive Target Date glidepath calculator and regularly contributes to articles and podcasts.  Like the rest of the Merriman Foundation staff, his work is motivated by a genuine desire to learn and help, free of any financial incentives or conflicts of interest.

I hope you will forward this presentation to friends and family that are looking for better ways to invest.

After Paul speaks, Chris’ presentation will focus on 2 Funds for Life in retirement and how to select the Best In Class ETFs.
One of Paul’s favorite Truth Tellers, Ben Carlson, has recently written, "The Luckiest Generation”.  Paul reads highlights from the article.  It turns out “The Luckiest Generation”  faced a lot of serious headwinds.  Then Paul suggests the steps we should take if we aren’t so lucky.

The annual SPIVA Report is one of the most important studies in the industry on mutual fund performance.  While many may wish to read the whole report, 
Paul focuses on the tables on pages 9, 10, 13, 14, 17 and 19.
Those who take the time to review this information will hopefully reconsider holding any actively managed funds in their portfolio.  

The podcast opens with Paul reading and discussing Ben Carlson’s recent article on the collapse of bonds,“Everything  & Everyone Underperforms Eventually.”   Paul references a table of returns that compares Short, Intermediate and  Long Term Treasures.   Paul also references a table of Fixed Income Returns during years with S&P 500 loss.  The following short article is referenced in a discussion of Bill Miller and Legg Mason Value Trust's 15 year record of returns ending in 2005.Russel Kinnel Jan 3, 2006 

"Bill Miller has done it again, but it was a close call. Miller's  Legg Mason Value (LMVTX) extended its winning streak against the S&P 500 Index to 15 straight years, with a 2005 return of 5.32%. The S&P 500 returned 4.91% for the year.

Miller's aversion to commodity producers, specifically energy stocks, meant he had an uphill climb in 2005. In addition, duds like Tyco International   and  eBay (EBAY) added to the challenge. However, big bets on  Google (GOOG) and  UnitedHealth Group (UNH) won the day.

Those stocks nicely illustrate Miller's style. He believes that you have to stick your neck out on controversial or at least misunderstood names to beat the market. EBay and Google are bold bets because their multiples are so steep that they need nearly flawless execution to produce good returns for shareholders. Yet, Miller will also buy fallen growth stocks where controversy has frightened off less-secure money managers. Hence, Tyco and UnitedHealth.

While his streak against the S&P 500 is a fun way to keep score of Miller's accomplishments, his goals revolve around long-term success versus the market. The consistency of his record helps to keep investors in, but his 10-year return is more impressive. The fund has gained an annualized 15.19% over that period, which is about 6 percentage points per year better than the index. For more perspective on the streak, read Chris Traulsen's Fund Spy column from November 2005."

The Long Term Investor – Episode 62 – Investing for Higher Returns with Eduardo Repetto  

Rational Reminder – Eduardo Repetto : Deep Dive with Avantis Investors’ CIO – 11/24/2022 

Paul recommends investors listen to the following interviews with Eduardo Repetto, the Chief Investment Officer of Avantis Funds.         Bogleheads on Investing (the one w Rick Ferri)  - Episode 43: Eduardo Repetto on factor investing    

On July 22 Chris Pedersen spoke to the Orange County AAII Chapter.  This podcast, as well as one on 8/9/23 (20 Q&As) and another on 8/2/23 (16 Q&As) address questions that arose from the presentation.  This podcast covers a few more AAII questions plus other recent questions. 

Topic 1:  What is the difference between investing today vs. 40 years ago?  And how  is  investing likely to be different in the future? 01:11

Topic 2:  Will the new Avantis All Equities Market Value ETF be a good substitute for your Worldwide All Value Portfolio?  7:00

Topic 3:  Do you recommend converting traditional IRA funds to a Roth IRA using the back door Roth IRA strategy?  Paul suggests reading:  https://www.thebalancemoney.com/when-does-a-backdoor-roth-ira-make-sense-4153803  and various articles at The White Coat Investors:  https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/.  14:30

Topic 4:  What is the most important table on your website?  Paul mentions tables at these pages:  https://paulmerriman.com/ultimate-buy-and-hold-strategy/,  https://paulmerriman.com/portfolios-2023-updates/ (most important), https://paulmerriman.com/fine-tuning-your-asset-allocation/,  https://paulmerriman.com/fixed-contributions/,  https://paulmerriman.com/fixed-distributions-2023/ and https://paulmerriman.com/flexible-distributions-2023/.  18:25

Topic 5:  Should a younger investor (20s, 30s, 40s) put TIPs as part of their fixed income or just stick to the Total Bond Market? 22:17

Topic 6:  Can you discuss your recommendations for the bond portion of a portfolio?  For example, how do you decide how much would go with the Worldwide 4 Fund Portfolio?   23:57Topic 7:  Could there be a problem when small cap value funds get too large? 28:02

On July 22, 2023 Chris Pedersen addressed the Orange County Chapter of the American Association of Individual Investors.  At the end of his 2 hour presentation there were many unanswered questions. Our last podcast and video addressed 16 of those questions. 
In this podcast Paul responds to 20 more of the AAII questions. 

1.  How do you feel about using a balanced fund such as Vanguard Wellington in retirement?
01:44

2.  I subscribe to your mantra of index funds, keep costs low, buy and hold etc,  Is Merriman Wealth Management your company as well?  I ask because that company espouses buy and hold and market timing and charges “AUM” fees. 14:15

3.  I am a new retiree at 65 and have decided to use the “2 Funds for Life” target date fund with a 10% small cap value portfolio.  Do you recommend the 10% small cap value be split between U.S. and international small cap value funds?  23:30

4.  Is it too late for someone just entering retirement to change their investment portfolio to the 10-Fund Merriman Ultimate Buy and Hold Portfolio?   26:39

5.  What is your impression of a recent Vanguard study that showed a large percentage of investors over 85 with an asset allocation of 100% in stocks? 30:14

6  How about using a technology fund instead of a small cap value funds? 35:00

7.  What are some short term bonds funds you recommend?  Bonds funds discussed VSBSX, VMLTX and VSCSX 39:24

8.  I am 25 years old and have a high risk tolerance.  Would it be okay to be all small cap value and would it be okay to invest 10% of the portfolio in individual small cap value stocks? 41:06

9. I have been using the Merriman 10 fund portfolio for 10 years.  The annual rebalancing takes a lot of time.  Do you recommend I move to the worldwide 4 fund portfolio instead? 43:00

10. I am retired and just took a full distribution from my 401k and invested the cash in a Vanguard Rollover IRA.  I I use one of Merriman's portfolios should I stage my investment over many months or invest it all immediately? 44:45

11.  I currently hold a large amount of cash and want to start investing.  Do you recommend a lump sum investment or dollar cost average over a few months? 48:25   Fine Tuning tables.

12.  Do you think the Avantis All Equity Markets Fund (AVGE) has enough small cap value to compete with the returns of your Worldwide 4 Fund Portfolio? 53:53

13.  How does the Avantis Small Cap Value ETF (AVUV) compare to the DFA Small Cap Value ETF (DFSX)? 56:46

14.  Do you recommend buying individual bonds instead of bond funds? 59:58

15.  Do you recommend moving to a target date fund with a later retirement to get more exposure to equities? 1:02:00

16.  What would happen if one of the Avantis funds closed?  Paul recommends reading this article. 1:03:39

17.  I own VBR (Vanguard Small Cap Value ETF) in a taxable account.  Should I take the tax hit and move the investment in AVUV (Avantis Small Cap Value ETF)? 1:07:00

18.  What is your opinion of holding target date funds or a fund of funds during retirement? 1:10:33

19.  What is the range of Price to Earnings (P/E) ratio of large and small growth and value funds? 1:13:00

20.  I think I need a professional advisor to help me with my financial decisions.  Will the fees I pay be covered by higher returns?  Financial Advisor services. 1:17:21

1. Should investors limit their bond holdings to short term bond funds?
2. Are CDs a good place to park cash right now?
3. Do you think investing in an internationally diversified index fund is a good way to manage currency risk?
4. My wife and I are 70 with our portfolio 75% in cash.  Is now a good time to invest and should we put it all in now or dollar cost average?  Chris mentions a podcast on dollar cost averaging vs lump sum investing by Rob Berger.
5. Dimensional Small Cap Value Fund appears to have less than a 2% return over the last 16 years.  Could that be true?
6. For retired investors wouldn’t it be prudent to apply a market timing system that will protect against a big selloff?
7. How does your Ultimate Buy and Hold Portfolio compare to your other portfolios in terms of risk and return?  Paul mentions Table H1 at this link.
8. Would an investor be better served in a target date fund or managing a simple 3 Fund Bogleheads portfolio?  Paul mentions H1 here as well.
9. Why not put your bond holdings into a diversified stock fund that pays dividends, like the Schwab U.S. Dividend Equity ETF (SCHD)?
10. What is average maturity of the short-term bond funds you recommend?
11. If I don’t have small cap value available in my 401k, should I substitute a small cap blend fund in my 2 Funds For Life portfolio?
12. How does Portfolio Visualizer work on target date funds?
13. Your charts show the possibility of an 81% decline.  Does that mean the fund could see the value fall from $100,000 to $19,000?
14. Please explain the term investment factor.
15. Instead of comparing different market factors, how would you compare the returns of different market sectors?
16. Would you consider producing a factor regression video/course so do it yourself investors could learn to evaluate funds for themselves?

Paul uses Tables 1 and 2  to show the impact of making an extra .5 and 1 percent a year.  Click here to view all the tables. He also references information from the annual SPIVA Report  on pages 7, 9, 13, and 19. 

He mentions Morningstar risk and return date for the Investment Company of America (AIVSX) and the Vanguard S&P 500 (VFIAX).

The public is invited to attend this webinar.  Please share this information with your family and friends.  The FREE WEBINAR will be live-streamed to your computer or mobile device, but you must register at https://us02web.zoom.us/webinar/register/WN_xYAAhMVnT--qDnipfpaIqQ#/registration

After registering, you will receive a confirmation email containing information about joining the webinar.

Paul mentions a new survey on AI. 45% say they would turn to AI to make financial decisions. Paul mentions AI eliminates wading through 20 advertisements to get to the information you’re after.

Paul mentions his lists of 80 project.  One list of 80 focuses on important Investment lessons. One lesson is figuring out how to deal with the reality that there is always good news and bad on every important economic factor.  In a recent Ben Carlson article, "Good News-Bad New About the Economy” he explores the good  and bad news about the economy, inflation, cost of housing prices, wage growth and unemployment. So what do investors do with this list?  Paul suggests it’s best to ignore the temptation to take sides.

Paul mentions a new fund from Avantis.  The Avantis All Equity Markets Value fund combines U.S. and international small, mid cap and small cap value asset classes.  Will this new fund be a one fund solution for the 5 fund Worldwide All Value Portfolio on Table H102?

Paul suggests investors watch the Morningstar U.S. Barometer style box returns on a daily basis.  The purpose of this exercise is to become aware of the wide swings of the range of equity asset classes over short periods of time.

Paul updates the work of Truth-Teller Tim Ranzetta and his non profit NGPF.org.  Their mission is to have every state require a semester of personal finance as necessary for graduation from high school by 2030.  In the last 2 years the number of states that meet the requirement rose from 8 to 22, with 6 more expected this year.

Paul recommends parents consider ways to help their family and their school district make the move.  Here are ways Tim suggest you can help your family and local schools:

• Find out what their state is doing about personal finance education. Here's the most up-to-date: https://www.ngpf.org/state-of-financial-education-report/
• Find out what their school is doing: https://www.ngpf.org/got-finance/
• Advocate at their school using these resources: https://www.ngpf.org/expand-access/
• Take an activity from our website and teach in their child's schools: Bean Game is a particularly easy one and very popular: https://docs.google.com/document/d/1MRzOVjYtctMlYpLogKbdc5ZCgBO1b8Rc-FlbGfE5IA4/edit?usp=sharing

Paul recommends parents subscribe to one or more of the NGPF regular newsletters:  

https://www.ngpf.org/blog/current-events/whats-new-with-investing-2023/

https://paulmerriman.com/wp-content/uploads/2023/04/7-Sound-Investing-Portfolios-50-50-2023.pdf

SCV vs S&P500 Fine Tuning Tables (2022)

Paul also talks about his early 80th Birthday party, it was a magical success.

Paul uses ChatGPT as the source to a number of lists. 
Paul also mentions free books:

If You Can by William Bernstein

We’re Talking Millions — 12 Simple Ways To Supercharge Your Retirement

2-Funds for Life: a quest for simple and effective investing strategies

101 Investment Decisions Guaranteed to Change Your Financial Future

Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor 

First Time Investor: Grow and Protect Your Money

And for DYI investors to learn the most important investment decisions please visit:  https://paulmerriman.com/bootcamp-for-investors-2023/

https://boglecenter.net/bogleheads-university/

For those interested in 2023 Conference, including list of speakers:  https://boglecenter.net/conferences/

For this interested in exploring John Bogles archives:

https://boglecenter.net/bogle-archive/

Paul is working on a list of 80 quotes investors might use to remind themselves of the important investment beliefs that keep investors on track.  He asks listeners to send him the quotes that have kept you on track.  Please send to paul@paulmerriman.com.

Our Truth Tellers are individuals or organizations that, in our opinion, are committed to helping investors better understand the facts and act in their own best interest. Their work and voice consistently provides useful, evidence-based information and advice, often on topics that we do not cover, and we want you to be aware of them to help you be a better long-term investor.

Here is a Truth Teller page for Ben Felix.

Ben is  the host of a popular YouTube series.  His over 100 videos are some of the best teaching tools in the industry.  The following are a few samples:

Is Investing Risky?

Dave Ramsey's Investing Advice

Small Cap and Value Stocks

Plus  Ben and Cameron Passmore interview other financial experts on their podcast, Rational Reminder.  They have made a special effort to interview many of the academics who have studied the investment process.

Here is a wonderful interview with:

Prof. Meir Statman: Financial Decisions for Normal People

5:16 Meir defines Behavioral Finance

15:37 The difference between a "normal" investor and a rational one

21:48 Why normal investors like lottery-like assets despite low or negative expected returns

26:24 The downsides to the "consume from dividends but don't dip into capital" rule

32:59 Why dollar-cost averaging is so persistent, when it is well-known to be rationally suboptimal

36:48 What makes strategies like covered calls and structured products so attractive to normal investors

43:19 Why normal wealthy people seek to invest in hedge funds and private equity, despite their questional benefits to a rational investor

48:24 How normal investors should deal with currency hedging in global portfolios

53:03 How behavioral portfolio theory differs from mean-variance portfolio theory

1:00:21 How an optimal behavioral portfolio differs from an optimal CAPM portfolio

1:09:21 How the typical risk-profile questionnaire can be adapted to improve the behavioral dimension of portfolios

1:15:53 How financial advisors can use behavioral finance principles to improve client outcomes

1:17:55 What puts financial advisors in a position to give well-being advice

1:23:27 Meir defines success in his life

There is no question AI is a hot topic.  I have watched “end of the world” interviews with people who know a lot more than I do about AI.  In a recent poll, noted in The New Yorker, half of A.I. scientists agreed that there was at least a ten-per-cent chance that the human race would be destroyed by A.I.” 

I have also watched marketing people use Chat GPT to create very good marketing pieces.  

So I thought it’s time to find out how good a source of general and specific investment advice Chat GPT might be.  Will it help people understand the important investment decisions that will lead them to higher rates of return within their personal risk limits.  Will it help them to understand the sources of information that will possibly put more money into the presenters pocket or the investors pocket.

Since I recently discussed Dave Ramsey,  the very controversial and very popular guru, I thought it would be interesting to see what Chat GPT would say about Ramsey’s advice.

1. On this podcast I ask Chat GPT:
2. What are the pros and cons of advice from Dave Ramsey? 
3. What is Dave Ramsey's position on index funds vs. actively managed funds?
4. I asked again:  How does Dave Ramsey feel about index funds?
5. Does Dave Ramsey recommend an advisor be a fiduciary?
6. Are all the advisors that Dave Ramsey recommends fiduciaries?

Here are links to what Motley Fool has to say about Dave Ramsey’s advice:

https://www.fool.com/the-ascent/personal-finance/articles/dont-follow-this-dave-ramsey-advice-about-getting-out-of-debt/

https://www.fool.com/the-ascent/personal-finance/articles/4-things-dave-ramsey-is-dead-wrong-about/

The following links are to Dave Ramsey’s literature:

https://www.ramseysolutions.com/retirement/why-dave-prefers-up-front-fees

https://cdn.ramseysolutions.net/media/pdf/daves_investment_philosophy.pdf

Paul starts the podcast encouraging listeners to check out the latest video where Chris, Daryl and Paul answer questions from readers, listeners and viewers regarding the article, podcast and video about the Sound Investing Portfolios 2023 Update. 
The following are the links that were used in the video:

Asset Class Index CAGR Comparison (1927-2023)

Table H2 - Sound Investing Portfolios Performance (50-50) - 2022

Table H102 - Sound Investing Portfolios Performance (70-30) - 2022

Paul also discusses a new table that Daryl is building that will show more long term details on U.S. portfolios from 1928-2022.  The discussion includes an interesting comparison of lump sum and dollar cost averaging from 1928-1937.  He also digs into the relative returns of large and small cap value in good times and bad.

In the last newsletter there was a section regarding a lawsuit that investment guru Dave Ramsey is facing.  In this podcast Paul makes a recommendation that would eliminate the conflicts of interest Dave may have and provide a much needed service to help investors find the kind of advisor they prefer.

 
The only other tables that are referenced are the 1928-2022 1,15 and 40 year returns.Paul ends the podcast asking listeners to email him (paul@paulmerriman.com) with any questions or comments they have regarding the  recent series of 8 major investor decisions.  These topics were covered in articles, podcasts and videos on the following pages.

1. Ultimate Buy and Hold Strategy
2. Sound Investing Portfolios Risk and Return History
3. Fine-Tuning Your Asset Allocation
4. Fixed Contributions
5. Fixed Distributions
6. Flexible Distributions
7. The Simple Story About 2 Funds for Life
8. Selecting the Best in Class ETFs

Ultimate Buy and Hold Strategy

Sound Investing Portfolios Risk and Return History

Fine-Tuning Your Asset Allocation

Fixed Contributions

Fixed Distributions

Flexible Distributions

The Simple Story About 2 Funds for Life

Selecting the Best in Class ETFs

Paul has been writing articles about index funds for decades.  The most read is “30 reasons to fall in love with index funds”.  While the most common advantages are low expenses, low turnover, massive diversification, Paul suggests the #1 reason may be keeping investors as far away as possible from commission-based sales people, con artists and other conflicts of interest typically not associated with index fund providers.

Many do-it-yourself investors rely of services that have a large presence on the internet. A wonderful aspect of the internet is the ability to do meaningful due diligence on the reputations of those offering their “special ways” to perform better than index funds.  But can you depend on the information you find on the internet?

Paul discusses the services of “search engine suppression consultants.”  These very clever people are wizards at making bad information disappear.  In fact, in many cases their fees are not earned until all the damaging information is totally eliminated.  He reads an example of one such article that claims to address the pros and cons of a well-known investment manager.  The pros are strong convincing points, while the cons are almost the mistakes that we would expect would be found in any firm.

Paul also addresses the outrageous life-changing fees teachers are being charged and the work of an unscrupulous sales person who holds himself out as a friend of his community.

The bottom line: None of these bad investments would be available through those who supply very low-cost index funds. The low costs don’t leave any room to take advantage of the investor.

Over the last 8 weeks Paul, Chris and Daryl have produced a series of podcasts and videos on 8 of the most important investment decisions investors make.  Along with these podcasts and videos Paul and Rich have written Marketwatch articles on the same topics.  As a part of the discussion of these important decisions Daryl has updated over 200 tables of hypothetical returns that are used to support the recommended conclusions.

This week, Ben Carlson, one of our Truth Tellers, has written an article on the inherent weaknesses of  backtesting.  While we have taken steps to minimize the potential problems with backtesting, Paul thinks Ben’s comments are worthy of consideration.  Along with his recent article, “10 Things You Can’t Learn From a Backtest,” we have included links to two of Ben’s past articles on the same topic. 

Backtests are Unemotional.  Humans are not.
Roughly Right or Precisely Wrong

Table 1

Table 2

Table 3

Table 4

Equity Index Returns (1928-2022) to compare the returns of major equity asset classes
Table B13 to show what happens when you combine a small amount of small cap value with a mostly bond portfolio
Table B14A to show the impact of combining a small amount small cap value with a large cap blend fund

The first objective is to help a young investor understand how a target date fund works and why it is likely to provide a reliable source of income for the balance of their life.

The second objective is to show a young investor how a small amount of a small cap value fund, along with a target date fund, will likely help build an investment portfolio that will allow them to retire with substantially more income and leave more to their heirs.

For the parent or grandparent it will be helpful to watch the videos on Fixed and Flexible Distributions.