Sound Investing

This podcast discusses the differences between investing today and 40 years ago, as well as the future of investing. They also cover the Avantis All Equities Market Value ETF and whether it's a good substitute. The topic of converting traditional IRA funds to a Roth IRA using the backdoor strategy is explored, along with the importance of various tables on the website. They also address whether younger investors should include TIPs in their fixed income and discuss personalized investment options vs prepackaged products.

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

On July 22, 2023 Chris Pedersen gave a 2 hour online presentation to the Orange County Chapter of the American Association of Individual Investors (AAII).  The title was “Best In Class Fund Selection and Behavior.”  Over 650 people attended the presentation, a record turnout for our presentations.  The video will be available in the coming weeks.  While  Chris answered  many questions during his presentation, there were over 60 questions remaining unanswered.  In this podcast and several to follow Chris and Paul will try to answer all of the questions.  Here are the answers to the first 16 questions: Should investors limit their bond holdings to short term bond funds? Are CDs a good place to park cash right now? Do you think investing in an internationally diversified index fund is a good way to manage currency risk? 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. Dimensional Small Cap Value Fund appears to have less than a 2% return over the last 16 years.  Could that be true? For retired investors wouldn’t it be prudent to apply a market timing system that will protect against a big selloff? 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. 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. Why not put your bond holdings into a diversified stock fund that pays dividends, like the Schwab U.S. Dividend Equity ETF (SCHD)? What is average maturity of the short-term bond funds you recommend? 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? How does Portfolio Visualizer work on target date funds? 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? Please explain the term investment factor. Instead of comparing different market factors, how would you compare the returns of different market sectors? Would you consider producing a factor regression video/course so do it yourself investors could learn to evaluate funds for themselves?

Some of the worst investment advice I know happens to millions of investors each year. Between paying commissions, paying higher expenses,  paying more taxes, being less diversified, and sitting on too much cash, so-called experts encourage investors to hold investments that are built to make as much as 2 to 4 percent less PER YEAR.  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).

Paul announces Chris Pedersen’s upcoming AAII presentation on Saturday, July 22.  The 2 hour Zoom presentation will begin at 8:45 a.m.  Chris will discuss how portfolio asset allocation, fund selection and investor behavior impact the returns we get for the risk 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.   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/

On this week's podcast Paul addressed a couple of very important questions:1. Is there really such a thing as a buy and hold investor?2. What can an investor do to improve their chances of staying the course through all market cycles?3. Many of your portfolios don’t include international equities.  Should investors use portfolios that don’t include any international funds? The following links were referenced in the podcast: 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.

While the industry generally agrees the most important investment decision is your choice of asset allocation, Paul makes the case that the choice between being a do it yourself investor vs. hiring a professional advisor is much more impactful over a lifetime. Paul discusses the many challenges of both decisions and finishes by showing DIY investors what they should do to be sure they address all of the risks investors accept, with or without a professional advisor. 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/

Paul starts the podcast with an update on the Bogleheads Conference.  For those who want to see a sample of last years presentations here is a link to all of the 2022 presentations. 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. On this podcast I ask Chat GPT: What are the pros and cons of advice from Dave Ramsey?  What is Dave Ramsey's position on index funds vs. actively managed funds? I asked again:  How does Dave Ramsey feel about index funds? Does Dave Ramsey recommend an advisor be a fiduciary? 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

Financial expert Dave Ramsey joins Chris, Daryl, and Paul to discuss the lawsuit he is facing and recommendations to eliminate conflicts of interest. They delve into the performance of small cap value and compare actively managed funds to index funds. The hosts also emphasize the importance of minimizing costs and maximizing efficiency in investing.