Sound Investing

Paul starts the podcast with a brief discussion about the new “financial Literacy for All Students” project at Western Washington University (WWU).   The Merriman Financial Education Foundation, WWU, and Paul personally, are working together to make this project a reality in the next two to three years. The main topic of the podcast focuses on the returns investors should expect in the future.  Paul reviews the 5, 10, 20, 50 and 80 years ending 2022,as reported by Dimensional Fund Advisors 2023 Matrix Book.  He also reviews the DFA asset class returns from 2000 to 2022.  The period starting in 2000 is used as 1999 was the end of one of the longest market runs in history.  Paul compares both the U.S. and international returns for large, small, value, growth and NASDAQ indices.  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.   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

"It’s good to learn from your mistakes.  It’s better to learn from other people’s mistakes.”  Warren BuffettThere are easy choices in the investment process.  Much of the advice we offer is very simple and without much disagreement.  On the other hand there are choices that must come after a thoughtful understanding of long term historical results along with an understanding of your need for return and personal risk tolerance.Jerzy Gregorek says it simply (not about investing).  “Hard choices, easy life.  Easy choices, hard life.”I would make a change in that quote to represent what I know about investment choices.Easy choices, good life.  Hard choices, great life.This podcast is a quick review of  the series of articles, podcasts and videos that address 8 investment decisions that Paul feels require deeper consideration and more statistical information than the simple choices that most people understand intuitively.Here are links to 8 pages that offer the article, podcast, video and tables about the important investment decision each addresses. 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

I have a number of things on my bucket list.  One is to get "We’re Talking Millions!” in the hands of a million young people.  It would seem an impossible challenge but I know it can be done.  One of the reasons I know it is possible is because one of our podcasts has been opened by 977,088 listeners.  Let’s see if we can take it to a million!   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

Paul discusses ways a parent or grandparent might explain 2 Funds for Life to a young adult. In the discussion Paul suggests using the following tables to make a handful of important decisions.Tables 1-4 from his Follow the Math comments- Table 1 Table 2 Table 3 Table 4 Equity Index Returns (1928-2022) to compare the returns of major equity asset classesTable B13 to show what happens when you combine a small amount of small cap value with a mostly bond portfolioTable 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.

If a retired investor has the ability to use a flexible distribution strategy it will likely produce one of the best financial outcomes in retirement. In this presentation Paul compares the difference in returns and risk between the fixed and flexible distribution strategies.The discussion compares returns and total distributions for two of the 9 sound investing portfolios.In the presentation he makes use of the following tables:Table D1.3 Fixed Distribution S&P 500 Equity Portfolio ($30,000/yr)Table D1.5 Fixed Distribution S&P 500 Equity Portfolio ($50,000/yr)Table E1.3 Flexible Distribution U.S. 4-Fund Equity Portfolio (3%/yr)Table E1.4 Flexible Distribution U.S. 4-Fund Equity Portfolio (4%/yr)Table E1.5 Flexible Distribution U.S. 4-Fund Equity Portfolio (5%/yr)Table E1.6 Flexible Distribution U.S. 4-Fund Equity Portfolio (6%/yr)For those interested in the historical returns of the 9 portfolios, as well as the complete list of flexible distribution tables:50/50 Sound Investing PortfolioFlexible distribution tables (50/50 U.S./Intl)Flexible distribution tables (70/30 U.S./Intl)

This podcast is Part 5 OF AN 8 PART series ON THE MOST IMPORTANT INVESTMENT DECISIONS. The discussion addresses the distribution tables that use a Fixed Distribution Strategy of 3, 4, 5 and 6 percent plus annual increases for inflation.  One set of distributions uses the S&P 500 as the equity position while the other uses the U.S. 4-Fund Portfolio (25% each of S&P 500, Large Cap Value, Small Cap Blend and Small Cap Value).The podcast references information on 8 different distributions tables:Table D1.3 Fixed Distributions: S&P Equity Portfolio-initial distribution $30,000 Table D1.4 Fixed Distributions: The same but initial distribution $40,000 Table D1.5 Fixed Distributions: The same but initial distribution $50,000 Table D1.6 Fixed Distributions: The same but initial distribution $60,000 Table D9.3 Fixed Distributions: U.S. 4-Fund Portfolio-initial distribution $30,000 Table D9.4 Fixed Distributions: The same but Initial distribution $40,000  Table D9.5 Fixed Distributions: The same but initial distribution $50,000  Table D9.6 Fixed Distributions: The same but initial distribution $60,000 Also mentioned:  Sound Investing Portfolios ACCESS ALL FIXED Distributions strategies for both 50/50 and 70/30 U.S AND INTERNATIONAL Sound Investing Portfolios

This podcast is the 4th in a series of our series to help do it yourself investors build a lifetime investment strategy.   The  presentation uses the following tables: ⁠Table C1 - Fixed Contributions: S&P 500 Equity Portfolio⁠   ⁠Table C14 - Fixed Contributions: US 2-Fund Equity Portfolio⁠ ⁠ Table C11 - Fixed Contributions: US All Value Equity Portfolio⁠  ⁠ Table C8 - Fixed Contributions: WW 4-Fund Equity Portfolio (50% US/50% Int'l) Topics of discussion How the Fixed Contribution Tables are constructed How to use the tables to select the best equity portfolio How the addition of fixed income will impact the accumulation period The importance of using a combination of more than one equity asset class The long term impact of every additional 10% equity The importance of young investors maintaining good behavior Why declining markets helps during early years of investing

This podcast is the third in a series of seven podcasts that are designed to help do it yourself investors learn how to maximize their return, minimize their risk and increase their peace of mind.  It will be beneficial to listen to The Ultimate Buy and Hold  and Sound Investing Portfolios: The History of Risk and Return (link)  podcasts before listening to this podcast.In this podcast Paul discusses why the Fine Tuning Your Asset Allocation Tables were built and how they can be used to build a portfolio that combines the appropriate equity portfolio for growth with the appropriate amount of bonds to stabilize the portfolio during severe market declines.  While the following link includes Fine Tuning Tables for  all 9 portfolios his discussion focuses on tables B1, B11 and B14.The discussion guides the listener through several very important lessons on each table: The increase of return with additional percentages of equities The higher short and longer term losses likely with adding more equities The much higher  returns and slightly higher risks of portfolios adding value and small cap asset classes. In the discussion Paul references Table H2 for the returns of a $10,000 investment for all 9 portfolios.In the coming podcasts the returns of the 9 Fine Tuning Tables will be used to discover the impact of dollar cost averaging into the portfolios, as well as taking out money to live on in retirement.

In this presentation Paul explores the risk and returns of 8 Sound Investing Portfolios and the S&P 500 for the period 1970 to 2022.   He references 2 sets of tables for portfolios built with all U.S. equity asset classes as well as worldwide portfolios that are 50% each U.S. and international  and 70% U.S. and 30% international.The goal is to help DIY investors understand the likely returns of these portfolios in the good times as well as what to expect when they are out of favor.For those who did not listen to the Ultimate Buy & Hold 2023 Update podcast or view the video it is suggested they do that before listening to this podcast.  For those who have the ability to watch the video it should be easier to follow the numbers.  Plus on the video Chris Pedersen and Daryl Bahls join Paul in the discussion. The tables referenced in the podcast can be found at the following links: https://paulmerriman.com/wp-content/uploads/2022/12/Tell-Tale-Charts-US-SCV-Sep-2021-upd.pdf https://paulmerriman.com/wp-content/uploads/2023/04/7-Sound-Investing-Portfolios-50-50-2023.pdf  https://paulmerriman.com/wp-content/uploads/2023/04/17-Sound-Investing-Portfolios-70-30-2022.pdf