Sound Investing

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.

In this week’s podcast I focus on two topics:  The first is the culmination of a 10 year project that just took a giant leap forward.  As you know the mission of our Foundation is  to help do it yourself investors make better investment decisions.  The bottom line is we want to help  them improve their financial future. While it is not addressed in our written mission, it is our desire to have the work continue beyond what the present group of volunteers can provide. That means finding a stable institution or organization  to carry on our work.  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.

How Can Mindfulness Help You Reach Financial Independence? Do you want to reduce money anxiety, but don’t know who to trust? Would you like to learn how to set up and manage your own retirement plan? Do you want to know how we create a passive income stream you can’t outlive? If yes, join us and learn how to answer the 4 critical financial independence questions: Am I on track for financial independence? What do I need to do to get on track? How do I design a mindful investing portfolio? How do I manage that portfolio and my income over time through changing markets? 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: How to teach investors to develop realistic expectations for risk and return Best advice for first time investors Major changes in the financial planning industry How advisors bill for investments under management and those "held away” Robo advisory services 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.

Host Paul introduces an upcoming presentation on small cap value. Ben Carlson's article 'The Luckiest Generation' is discussed, highlighting the challenges faced by baby boomers. The SPIVA Report reveals the underperformance of actively managed funds, promoting the use of low-cost index funds. The impact of high management fees on low-risk investments is explored, emphasizing the unlikelihood of active managers outperforming.

The podcast discusses the article 'Everything & Everyone Underperforms Eventually' and compares the performance of long-duration bonds to other asset classes. It emphasizes the importance of investing in intermediate to short-term government bonds as a defensive position. The host expresses trust in Eduardo Repeto's strategies and plans to share valuable information through regular newsletters.