Sound Investing

In this podcast, Paul talks briefly about his upcoming  2-1/2-hour workshop, “The Ultimate Buy and Hold Strategy — on Steroids!” for the Puget Sound AAII Chapter on September 25, as well as the September 30-October 1 virtual AAII National Conference. For more information and to register for the Conference, click here. Paul answers the following questions from subscribers to his free newsletter: Have you done a study to compare the long-term returns of an All Blend vs. All Value Portfolio? Will an actively-managed small cap value fund produce enough premium to be worth the higher expense ratio? Are you considering adding a Monte Carlo simulator to your calculator?  What about the ability to test 2 Funds for Life? Which of your portfolios do you recommend for investors who want to “swing for the fences?” He discusses this article from Morningstar,  “Why Fund Returns Are Lower Than You Might Think,” which includes the results of the annual “Mind the Gap” study.  Closing this gap may add several million dollars to the lifetime return of your portfolio.  The study also address the impact of dollar cost averaging vs. lump sum investing. Finally, Paul considers a blog by Ben Carlson titled, "What Have the Stock Market Taught Us Since 2010?" which highlights the challenges of drawing conclusions from short periods of time.  Many investors have probably learned exactly the wrong lessons, and lessons about bear markets may be some of the most painful lessons.

In the podcast, Paul introduces a new Fine Tuning Table that compares different combinations of two equity funds (S&P 500 and Small Cap Value), providing the best way to look at the risk and return implications of combining these two great asset classes.  For over 20 years we have produced these tables representing combinations of an equity asset class, or equity portfolio, and different percentages of bonds. The first table (Table 3) we produced many years ago compared the S&P 500 with bonds. Paul points out many ways to use this new table as a learning tool. The lessons focus on the range of returns and risk exposure an investor is likely to experience, as well as the emotional hurdles each combination may create. These tables have been the best educational tool we have to help investors understand the long-term relationship between risk and return. On Friday, Oct. 1, 2021, Paul will make a 60-minute presentation at the AAII Virtual Investor Conference, “20 Things You Should Know About Small Cap Value Funds,” during which he will discuss this new Fine Tuning Table, along with many other important aspects of the small cap value asset class . Paul asks listeners to suggest additional lessons they get from their review of the Table.  HE intends to review these responses in preparation for his presentation on October 1.  Please send your comments to paul@paulmerriman.com. Paul also discusses the broad range of topics that will  be covered at the  Conference.  Not only will Paul and Chris Pedersen be presenting separate topics, each of them will be on panel discussions.  Chris, along with Larry Swedroe and Jack Vogel, will discuss  Factor Investing, and Paul, along with Christine Benz and Craig Israelsen, will discuss Retirement Investing. For information on the the AAII Virtual Investor Conference speakers and topics, and to register, go to: https://invest.aaii.com/conference/

In response to the continued discussion on the Bogleheads forum asking, “Why Does Anyone Listen to Paul Merriman?" Paul takes this opportunity to "share a wonderful teaching moment" from the comments of those who follow the work of John Bogle. Particularly, Paul considers the criticisms leveled against him regarding the recent performance of small-cap value funds, which he has been recommending for almost 30 years. While some Bogleheads counter that recommendation based on short-term returns, Paul reminds listeners even the idea of investing in any kind of common stock was once considered very unpopular. He cites Edgar Lawrence Smith’s best selling book, Common Stocks as Long Term Investments (1924), which promoted the then-surprising idea that stocks excel bonds over the long-term. Notes from This Podcast: Here is a link to the introduction from Edgar Lawrence Smith’s best seller, Common Stocks as Long Term Investments. Copyright 1928 (originally published 1924) Smith highlights the belief that bonds were chosen as a better solution than stocks.  Stocks were seen only as a speculation and Bonds as an investment.  Bonds were seen as the best choice for the long term and many large investment accounts did not include any stocks. I imagine those investors were as sure in their belief in bonds as the Bogleheads who disagree with SCV are in theirs. During the podcast Paul references Table 4 from the 90 Years study, Table 3a from the study comparing 11 portfolios including the Bogleheads, and the new Lifetime Investment Calculator .

Paul addresses a long thread on Bogleheads.org forum asking, "Why does anyone listen to Paul Merriman?" and recommends listeners follow the Bogleheads site for a variety of perspectives, and especially Rick Ferri’s excellent podcast interviews. Then, taking a detailed look at the latest return data on the 11 "No-Nonsense Portfolios,” he compares the annual and decade returns of the portfolios. Much of this discussion is focused on Table 3a but the other tables (links below) are for investors who want to dig deeper. Also, Paul shares early feedback on the newly-released interactive Lifetime Investment Calculator, developed by Craig Appl and generously donated to The Merriman Financial Education Foundation to help investors enter their own data, dive deeper into the recommended Merriman strategies, and get more value from the Foundation’s work. Check out the references and links in this podcast: Paul’s work is largely based on the academic research of Drs. Eugene Fama (https://www.chicagobooth.edu/faculty/directory/f/eugene-f-fama) and Kenneth French (http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/curriculum_vitae.html).  You can also find out more about them on Wikipedia. "No-Nonsense Portfolios”: Table 1 Tables 2a and 2b Tables  3a and 3b Thanks to Daryl Bahls, Director of Analytics, for his creation of more than 150 historically-based tables. Lifetime Investment Calculator: https://paulmerriman.com/lifetime-investment-calculator/

The Merriman Financial Education Foundation Lifetime Investment Calculator is built from the 2021 fine tuning tables and includes enhancements like showing nominal vs. real returns, growth with contributions, fixed and flexible distributions. We don’t know the future, but the past contains many events that could happen again. The last 51 years include numerous wars, booms, busts, and periods of high and low inflation. We consider these last 51 years a sequence of returns and have chosen to loop through this 51 year sequence to support calculating up to 200 years of returns. The Merriman Educational Foundation creates numerous tables and charts, updated annually, to demonstrate the history of investment strategies, equity/fixed-income allocations, growth, and fixed/flexible distributions from 1970 until today. They are published at https://paulmerriman.com/ under “Best Advice.” We identified that the foundation’s community of individual investors, partner organizations, and stakeholders could benefit from an interactive version of these static assets. We built the Merriman Foundation Lifetime Investment Calculator to meet this need. The calculator aims to bring the annual Merriman Best Advice to life so that community members can enter their own analysis, dive deeper into the recommended Merriman strategies, and draw conclusions from the foundation’s work. The Merriman Financial Education Foundation Lifetime Investment Calculator is built from the 2021 fine tuning tables and includes enhancements like showing nominal vs. real returns, growth with contributions, fixed and flexible distributions. We don’t know the future, but the past contains many events that could happen again. The last 51 years include numerous wars, booms, busts, and periods of high and low inflation. We consider these last 51 years a sequence of returns and have chosen to loop through this 51 year sequence to support calculating up to 200 years of returns. Check out the The Merriman Financial Education Foundation Lifetime Investment Calculator at https://paulmerriman.com/lifetime-investment-calculator/ Watch Craig Appl’s videos showing how to use the calculator here.

In this podcast you’ll learn about a free online presentation for high school students and parents, the introduction of The Merriman Financial Education Foundation Lifetime Investment Calculator to be released Aug. 18, and the implications of investing in individual stocks. Paul begins with an invitation to an upcoming online presentation open to the public on August 16, 5-7 p.m. PT. What does the future hold for today’s high school students? Paul and Jeff Leinaweaver, a career exploration specialist, will deliver a two-hour on-line seminar on how Covid-19 is changing careers and education. They will discuss life-changing career decisions for the next generation, educational pursuits and financial options for now and in the future. Students and parents are encouraged to participate, as these decisions will impact the entire family. Sponsored by the Bainbridge Community Foundation. Register at:  https://tinyurl.com/k575wv29.  If you need help accessing the registration form, contact: dana@bainbridgecf.org He continues with next week's important release of the new Merriman Foundation Lifetime Investment Calculator produced for our foundation by Craig Appl. This interactive calculator allows investors at any stage in life to evaluate the likely future of their present portfolio vs. other solutions that might represent less risk and better returns. Finally, Paul addresses the concerns of many investors who feel left out of the huge returns that have been generated by technology companies like Amazon, Microsoft, Netflix, Tesla and others. He examines the implications of building a portfolio of individual stocks that have produced these outsized returns and references the blogs of Ben Carlson ("A Wealth of Common Sense”). The following articles and graphs are mentioned in his podcast. https://awealthofcommonsense.com/2021/08/simple-explanations-for-complex-topics/ https://awealthofcommonsense.com/2021/03/owning-the-best-stocks-is-hard/ https://awealthofcommonsense.com/2021/03/owning-individual-stocks-vs-owning-the-stock-market/

In this podcast, Paul Merriman answers 10 questions recently submitted by his listeners and readers at paulmerriman.com. See additional links referenced below. What changes would you recommend to your 10-fund portfolio at retirement when you need the money to live on? 0:30 What should a late starter do to get caught up?  What do you recommend for investors who don’t have any experience?  I just turned 35 and I haven’t started saving for retirement. 3:45 Did I read that you and your wife not longer have any equities in your portfolio? I ask because I am 80 years old and am confused over what I thought you said and what you are saying now. 7:30 Should investments in a Roth IRA be in your tax-deferred portfolio?  You recommend VTMSX but Vanguard warns against using that fund inside a retirement account and recommends VSMAX. 9:30 Do you agree with many experts who say a lump sum investment is better than dollar cost averaging? 14:00 How should we prepare for a catastrophic market — all investments in government bonds directly or through Vanguard? 18:00 What do you think of using a simple 2-fund portfolio that is U.S. large-cap blend and small-cap value? 22:00 Which investments should I own in taxable accounts and which in tax-deferred or tax-free accounts? 24:15 What is your opinion of Northern Trust Mutual Funds? 26:00 What do you think of the combination of total market U.S. and International funds Tom Cock and Don McDonald reference in their "Talking Real Money" podcast? Plus some small-cap value?  28:30 For more about ROTH IRAs, see http://www.mypersonalfinancejourney.com/should-my-mutual-fund-be-held-in-roth/ For the new “no brainers” Table of Long-Term Results, visit this link. Click for Table 3a – No-Nonsense Portfolios for Sound Investing: Annual Returns

How much and what equity asset classes will investors choose for their portfolios? While this podcast is aimed at young investors, it also has implications for older investors who have a portion of their portfolio invested for younger heirs. Daryl Bahls has produced two new tables that give us a long-term view of the implications of the proportion of your portfolio that is committed to equites and the selection of equity asset class. One table titled, “Which 2 million dollar decision is right for you?” compares 6 different combinations of 90% bonds with 10% equities.  The equity combinations include 5% and 10% positions in the S&P 500, small-cap blend and small-cap value. Compared to an all bond portfolio, the lifetime impact of adding these 10% equity positions ranges from 2 to 10 million dollars. The second table, “Which 10 million dollar decision is right for you?” reflects the aggressive decision to invest in an all-equity portfolio with all or part of your portfolio.  In other words, you may only put 20% of you portfolio in equities but that position is left to grow without rebalancing. Paul suggests young investors think of investing as if you are starting a company that you want to grow over the long term. The following tables are also referenced during the podcast:  https://paulmerriman.com/wp-content/uploads/2021/06/2-4-fund-combo-2020.pdf Table 9 in this series of tables found at https://paulmerriman.com/wp-content/uploads/2021/02/Fine-Tuning-Tables-50-50-2020.pdf Get your free copy of We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement. Please share it widely!

Please note our free offer at the end of these podcast comments. In this podcast, Ed Fulbright, CPA, PFS, a fee-based advisor and host of Mastering Your Money™ radio show, talks with Paul Merriman about such topics related to financial freedom as: · Why is saving more important than spending? · What is the power of starting to invest early versus later? · Why are is small-cap so important to a person's portfolio? · What is the best advice you have ever received? · What do you want our listeners to remember? · Why are you giving away your latest book, We're Talking Millions! 12 Ways to Supercharge Your Retirement? Get your free copy of We’re Talking Millions! at: https://paulmerriman.com/wp-content/uploads/2021/01/Were-Talking-Millions.pdf

Don, Tom, and Paul Merriman get together again to discuss the pros and cons of owning stocks and the stock market.