Sound Investing

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 the last podcast of the year Paul discusses the many important projects Chris Pedersen, Daryl Bahls and he will explore in 2024. He then addresses a question from a listener:  Why not all equities forever?  The question is the focus of a wonderful interview with  Scott Cederburg, Associate Professor of Finance at the University of Arizona.  Scott is the guest of Truth-Teller Ben Felix and Cameron Passmore on their podcast, Rational Reminder. 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. 

Doc G interviews Paul. "Join me in an eye-opening conversation with renowned investing advisor and philanthropist Paul Merriman as we delve into the question: Is personal finance inherently selfish? In this episode, we explore the broader impact of financial decisions and discuss Paul's recent $3.6 million gift to empower students at Western Washington University through investing education." Listen to more of Doc G on Earn and Invest- https://www.earnandinvest.com/episodes-7/youre-not-spending-enoughhttps://www.earnandinvest.com/episodes-7/testhttps://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 sayIn 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 VideoHere is the latest from Morningstar on withdrawal ratesAnd 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

The following questions were sent from the October 11, 2023 presentation to the NYC AAII Chapter. You can watch the video here- https://www.youtube.com/watch?v=QjFlcDAlH1k Chris Pedersen's section starts at 59:00. Paul and Chris conclude with a Q&A session. 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? How should I create a do it yourself target date fund using one of your Sound Investing portfolios?   What are the tax implications of the portfolios you recommend?  Are some better for taxable accounts? Paul, do you invest in any individual stocks?  If not, why not? 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? What about 50% half small cap value and S&P, AND 50% in a target date fund? 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? Does it make THAT big of a difference if someone lump sums vs dollar cost averaging? which is better/worse? Is there a small cap value emerging markets ETF you recommend for best in class? 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? 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?  

Paul answers 12 questions  from the AAII New York City Chapter October 2023 Meeting 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?