Sound Investing

On February 22, before the recent bear market and during the very early days of the Coronavirus, I was scheduled to speak at Vestory’s Annual Retiremeet.  I went a day early so I could interview two very good friends I'd worked with for more than 10 years, Tom Cock and Don MacDonald. The three of us used to do a weekly radio show together.  It was always fun and we had great guests like John Bogle, Knight Kiplinger, Larry Swedroe, Scott Burns, Robert Kiyosaki and Joe Granville, to name a few. In 2009 Tom and Don left the Merriman firm to found Vestory  a registered investment advisory firm. In this podcast we discuss the challenges of helping the do-it-yourself investor.  While Don mentions the importance of staying in front of the investors on a regular basis, they felt one of the most difficult decisions for DIY investors is determining their risk tolerance. They offer an interesting risk tolerance test that I took. It has some very good questions. I suggest you give it a try as it is more specific than most. Questions I ask: How can you tell if you are working with a fiduciary? What do tell investors about expectations for long term returns? Why are stocks a good investment for the long term? How much should young people be investing? How can mutual funds offer funds without any expense? What do you look for in a good investment advisor? Don MacDonald is also author of Financial Fysics: How Money and Investing Really Work. For those who know Don’s outspoken mistrust of stock brokers, you will be shocked that I tricked him into saying something nice about stockbrokers. Tom and Don do a weekly radio/internet show, "Talking Real Money", as well as a daily podcast of the same name.  I hope you enjoy this podcast and check out their daily podcast. In fact, they have a call-in phone line where you can leave a question anytime. Give it a try: Call 855-935-TALK. Join more than 25,000 savvy investors who subscribe to our free twice-a-month newsletter at paulmerriman.com

In this podcast, Paul answers recent questions from his readers, video viewers and podcast listeners including how best to enter the market in these uncertain times, which equity asset classes to hold. small-cap value strategies and more. 1. In your book, “First Time Investor: Grow and Protect Your Money,” you write (page 49), “Don’t bother with target-date funds.”  In your video titled, “2 Funds for Life: A Simple Strategy to Maximize Your Retirement Investments,” you included target-date funds on your list of “The Three Greatest Investment Products.” Why have you changed your views on target-date funds? :30 In this answer Paul references an important new study from the Wharton Pension Research Council, “Target Date Funds and Portfolio Choice in 401(k) Plans.”  (For more on target date funds see Paul’s website, Best Advice, Target Date Funds) 2. What are you opinions of lower cost target date funds at Fidelity and Schwab? 20:15 3. I am 43 years old and have about $90K in a CD that matures at the end of the month and want to know: how would best get it into the market with so much uncertainty with the economy/covid/social unrest? I know it’s bad to time the market but… 2:10 4. I am 35 and have several hundred-thousand in retirement accounts and a few hundred-thousand in a taxable account. Which equity asset classes should I have in each portfolio? 35:54 5. In you Best-in-Class ETF recommendations, you have DLS for international small-cap value. I notice 31% of the fund is invested in Japanese companies. That seems very risky.  Please explain, why did you chose this fund? 40:46 6. Do you still recommend small-cap value for your strategy that turns $3000 into $50 million?  43:30 7.  For someone in a high tax bracket do you recommend a short-term tax-exempt or corporate bond fund? 52:30 8.  You mentioned you and your wife hold a portfolio of both U.S. and international stock funds in the equity part of your portfolio.  I would like to stick with a U.S.-only portfolio.  How much difference should there be in the portfolio returns of the 4-fund combo and the 10-fund Ultimate Buy and Hold Portfolio?  56:35 Note:  This article includes the ETFs and mutual funds we recommend for the 4-fund combo. Whether an #investor starting out or in #retirement, you’ll finds hundreds of articles, podcasts, Q&A’s, videos, #portfoliorecommendations, #freeebooks and much more at paulmerriman.com. Join more than 25,000 savvy investors by subscribing to Paul's free twice-a-month newsletter.

On May 9, 2020 Chris Pedersen and Paul Merriman addressed the San Diego American Association of Individual Investors (AAII) via Zoom. Chris, director of research, presented “2 Funds for Life” and Paul, founder and president of The Merriman Financial Education Foundation, presented “The Ultimate Buy and Hold Strategy.” After the presentations Daryl Bahls, director of analytics, joined Chris and Paul to respond to questions. Daryl also prepared Tables for the Q&A. When the meeting concluded there were a number of unanswered questions submitted by the attendees. The following are 12 of the 24 questions. The remaining 12 will be answered in a future podcast. Watch the video here- https://www.youtube.com/watch?v=rk3uMwD1Okc How do long term returns for small and large cap growth indexes compare to long term returns for small and large cap value indexes? 1:10 How do required minimum distributions fit into your distribution tables? 6:15 Am I right in assuming the 4 Fund Comboand Ultimate Buy and Hold strategies can be used at any age? 7:46 How does an investor put together a portfolio when their 401k does not have all of your recommended asset classes in either the 4 Fund Comboor the Ultimate Buy and Hold strategies? 15:12 I would like to move to the Ultimate Buy and Hold strategy.  Should I sell everything and just start over or dollar cost average over time? 20:40 I want to use the 2 Funds for Lifestrategy but I’m 62 and not sure it will have much impact. What do you suggest?  See the article, “Making The Most of Your Target Date Funds Before and During in Retirement”. 24:00 Instead of a Vanguard target date fund, what about building a portfolio of individual ETFs representing the Total U.S. Stock Index, international stock index, international and U.S. bond indexes?  See a new study from Wharton,Target Date Funds and Portfolio Choice in 401(k) Plans 29:50 What are your thoughts on an all-value portfolio that is 1/3 each large-cap value, small-cap value and international value asset classes? 38:00 Is there any magic in the way you have built up the 10 and 4 fund strategies? 40:25 Do you have any studies that assume taking a higher rate than the safe 4% distribution to allow me to delay drawing Social Security so I can maximize my Social Security payments? See Table. 44:05 What asset classes do you recommend for the bond portion of your portfolio?  The Vanguard Portfolios show the bond funds we recommended. See: Vanguard mutual fundsand Vanguard ETF portfolios. 51:02 With bond returns so low, has that altered your thinking on the percentage of the portfolio devoted to bonds? 54:49

Paul Merriman responds to a podcast listener who wrote: “I am convinced your 4-Fund Combo is a portfolio I want to add to my portfolio. My question is, how confident are you in the past performance of these four asset classes from 1970-2019 AND how confident can we be about any performance?" Before digging into the specifics of the 4-Fund Portfolio, I re-read a 2015 MarketWatch article (written with Rich Buck) entitled, 10 things you should know about portfolio performance. To help investors get a sense of how difficult it is to pin down future returns, I looked back at the period from 1928-1969 to see what an investor might learn about risk and return from these 4 asset classes. Questions to which I sought answers were: What were the nominal returns of the S&P 500 and 4-Fund Combo? What were inflation adjusted (real) returns? What were tax rates in 1969 compared to 2019? What were the 1929-1932 losses of the S&P 500 compared to the 4-Fund Combo? Is the commitment to build the portfolio for future income, build the portfolio for present income, or build the portfolio for family and charities after your death? I hope you will forward this link to friends and family, leave a comment or like at whatever site you are accessing this podcast, and support The Foundation in continuing our commitment to helping investors. If you’ve not yet subscribed to Paul’s free twice-a-month newsletter, why not do it now?

In May, Paul Merriman, founder of The Merriman Financial Education Foundation, and Chris Pedersen, director of research, were guest presenters at two ChooseFI online events, via Facebook Live on May 9 and Zoom on May 16. On May 9 Chris and Paul made separate presentations: Paul on “12 Investment Decisions Guaranteed to Change Your Financial Future" and Chris on “2 Funds for Life.”  They were joined by Chief Analyst Daryl Bahls to answer questions. In a recent video/podcast Paul, Chris and Daryl addressed 15 questions that had not been answered during the presentation. In this video/podcast the trio address 17 more questions from the two presentations. 1. During retirement should you take money from the  target date fund or the more risky small cap value fund? 2:34 2. My wife wants to know, why don’t you recommend mid-cap funds? 5:08 3. How should I invest RMDs if I don’t need the money to live on? 9:04 4. What is the best strategy for investing for my 4 children, ages 17, 5, 5 and 3? 11:47 5. Is the Vanguard High Yield (VWEAX) fund still a good retirement fund choice?  13:55 6. The media reports the stock market remains overvalued in spite of the recent crash. Why should I want to buy now if the the market is expected to drop even more? 16:36 7. Is there a reason REITS would not be part of the 4 Funds Strategy? 21:26 8. When do you think you will be updating the Best in Class ETFs for the Ultimate Buy and Hold? 23:57 9. Is the 4-Fund Strategy appropriate for a 60 year old investor? 27:00 10. If target date funds are funds of funds, does that mean they have two sets of fees? 32:38 11. When you say Vanguard is investor owned, what does that mean?  36:38 12. Is the comeback portfolio the same as the 4 fund combo? 40:00 13. Could you use a TDF plus the 4 Fund Combo instead of small cap value? How would that strategy likely perform? 41:16 14. Is the TDF based on retirement age or your life expectancy? 44:55 15. Given that  small caps may struggle for the foreseeable future (due to the recent pandemic) should one focus more on large caps or is this the time to rebalance more heavily towards small caps as they are selling at a larger discount. 47:57 16. In any of your distribution scenarios in retirement, are you withdrawing cash to cover 2-3 years of expenses or simply withdrawing cash for current year living expenses? 53:54 17. I am intrigued by your 4-fund portfolio However, my respectful criticism of that portfolio is that it does not have any international exposure. There is a contributor on the Boglehead's forum who has supposedly done a series of backtesting and shown that the following combo has an identical long term returns as the UBH portfolio. The holdings: US LGB + US SCV + Intl LGV + Intl SCB. What are your thoughts on this portfolio? 59:26

While it is easy to show young investors how to make an extra million dollars over the course of 50 years or more, it’s not so easy to do for retired investors looking at 10 to 30 more years. But there are ways! Here Paul suggests 10 different ways to add a million dollars or more to the portfolio of an investor near or in retirement. Paul references Fine Tuning Your Asset Allocations and Fixed and Flexible Distributions in Retirement. The following tables are part of the presentation: Table 1: Fine Tuning Your Asset Allocation: S&P 500 4-Fund Combo Equity Portfolio Table Fine Tuning Table: 4-Fund Combo Equity Portfolio Table 7:     Fixed Distribution Schedule S&P 500 ($30,000/yr + inflation) Table 8:     Fixed Distribution Schedule S&P 500 ($40,000/yr + inflation) Table 9:     Fixed Distribution Schedule S&P 500 ($50,000/yr + inflation) Table 8a:   End of Year Fixed Distribution Schedule S&P ($40,000/yr + inflation) Table 27:   Flexible Distribution Schedule S&P 500 (3%/yr + inflation) Table 28:   Flexible Distributions Schedule S&P 500 (4%/yr + inflation) Table 29:   Flexible Distributions Schedule S&P 500 (5%/yr + inflation)) Table 54:   Fixed Distributions Schedule 4-Fund Combo ($30,000/yr + inflation) Table 55:   Fixed Distributions Schedule 4-Fund Combo ($40,000/yr + inflation) Table 55a: End of Year Fixed Distribution Schedule ($40,000/yr + inflation) Table 58:   Flexible Distribution Schedule 4-Fund Combo (3%/yr) Table 59:   Flexible Distribution Schedule 4-Fund Combo (4%/yr) Table 60 Flexible Distribution Schedule 4-Fund Combo (5%/yr) Check out new videos at paulmerriman.com  including Paul’s “12 Million-Dollar Decisions Guaranteed to Change Your Financial Future” and Chris Pedersen's “Two Funds for Life in Pre and Post-Retirement”. AND subscribe to Paul’s free newsletter!

In this podcast (also watchable as a YouTube video), Paul Merriman, along with Director of Research Chris Pedersen and Chief Analyst Daryl Bahls get together on a Zoom call to answer additional questions submitted during the ChooseFI Facebook Live event, for which time did not permit on the original recording. The event was hosted by Jen Mah on May 9, 2020. Below are the list of questions. For an archive of hundreds of other investment-related questions and answers, see Ask Paul. What are the 2 funds you use in the 2 Funds for Life portfolio? 3:56 How do you think Vanguard Total Stock Market and Total Global Market will perform in the future? 7:10 For people taking early retirement, how does the possibility of a serious decline affect the sequence of risk returns?  (See Distributions). 9:34 You have many allocations of stocks and bonds setup as pies at M1 Finance. What’s an easy way for people to get started? (See M1 Finance and Our About M1 Finance). 21:00 What information on your website should help me determine what should be my distribution between equities and bonds? Is there a rule of thumb for specific ages? (See Fine-Tuning Your Asset Allocation). 25:14 What has been the long-term difference in returns for the 2 fund vs the 10 fund portfolios?  31:27 How much of your recommended portfolio is in international stocks? (See the Ultimate Buy and Hold strategy). 38:43 What are your thoughts on future returns for Small Cap Value? (For more on SCV, click here).  43:43 You mentioned the impact of setting aside $1/day for a child early on. Where is the best place to be doing this? 529s? UTMAs? Bank of Mom? (See “Turn $3,000 in $50 million”). 48:52 Is value's fall from grace related to the increase in the influence of mutual funds and ETF's? 55:27 If already retired, what target date fund do you choose? Do you choose the target date fund of the year you retired? (See Target Date Funds).  01:01 Your portfolios are used by many people to create their path to retirement. Do you suggest adjusting stock/bond allocations as you near retirement age, much like you would with a target date fund, or select one portfolio based on your risk tolerance and ride it out the entire way?” 01:04 Where to add a SCV fund for taxes? Taxable, tax deferred or tax free? 01:08:20 Momentum and Quality are additional factors that historically produced outsized returns. Did you consider adding to the Ultimate Buy and Hold portfolio index funds that track these factors? (See Best In Class article).  01:10:13 I would like to also do market timing with half of my investments. How do I find someone to do that for me?  (See Merriman Wealth Management and Camria Funds). 01:15:16

While the coronavirus pandemic has changed everyone’s life — and hopefully without illness or loss — for The Merriman Financial Education Foundation it has been a huge game changer, in a very good way. In this podcast Paul shares some new ways he’s able to serve more investors and he answers seven questions from his listeners and readers. 1. Can you discuss the funds to hold in different types of investments, like Roth and regular IRAs, 401ks and taxable accounts? 5:00 2. I have several accounts. Should I try to build your Ultimate Buy & Hold portfolio in each account or build it with 3 or 4 funds per account? 12:35 3. As a 28-year-old investor with a 40-year time horizon, why shouldn’t I put all my investments into more volatile funds, like U.S. and international small cap value and emerging markets, rather than all 10 asset classes in the Ultimate Buy and Hold Strategy? 15:20 4. Many academic studies, as well as your advice, show strong correlation between low expense ratios and mutual fund performance. Your mutual fund and ETF recommendations largely include funds with low expense ratios, however the "International Small Cap Value" asset class ETF (DLS) has a higher expense ratio (0.58%) than I would like. In order to minimize investment expenses, would you recommend substituting another similar investment with a lower expense ratio? I am considering international small cap (VSS - 0.11% ER) or Vanguard Total International Index Fund (VTSNX - 0.08% ER) as a substitute. 18:00 5. Why should we think that HISTORY is the best source of guidance for asset class allocation? Your recommendations for both the "Ultimate Buy and Hold" and the “Two Funds for Life" look to history for efficient asset class weightings. The other source that could be looked to is THE MARKET. It seems that The Market includes all the historical information, as well as the wisdom and knowledge of Paul Merriman, Warren Buffet, all the academic research, all the hedge fund managers, all the mathematicians with supercomputers, etc. Also, in some instances, The Market seems to give a more credible answer than History. For example, history shows bonds returned 6% annually, but the market shows bonds will return about 1.5% going forward.   23:05 6. How can you justify investing in a market that is highly likely to go down due to the coronavirus, coming recession, 30% unemployment, historically high P/E ratios and sky high debt? 37:50 7. What are the likely losses investors must expect in the market? 48:55 Mentioned in this podcast: "Your Complete Guide to a Successful & Secure Retirement by Larry Swedroe and Kevin Grogan Choose FI Seattle Zoom Meetup, Saturday May 16. link to Kelly Cannon’s list of topics Join 20,000+ savvy investors and receive Paul’s free twice-a-month newsletter. Sign up now Plus visit Paul's website for NEW VIDEOS: “12 Million-Dollar Decisions Guaranteed to Change Your Financial Future” and Chris Pedersen’s “Two Funds for Life”.

"Many people, including myself, tend to consider the bad things that might happen before considering the good outcome that is more likely to happen,” " says Paul Merriman. "That challenging state of mind requires having a "little house” plan... just in case the list of catastrophic events actually happens.  The massive loss of employment means a lot of people have experienced loss of employment for the first time in their life.  Even those who are retired, and have more than they likely need, have reason to consider what that “little house” plan looks like in retirement, as my wife and I recently discussed. On this podcast I touch on the long list of possible adjustments we can make if we have to reduce our retirement lifestyle.” Paul also talks about new tables, developed by Daryl Bahls, that make the numbers-heavy tables easier to use. Daryl’s Tables will be shared as part of a Free Zoom presentation. See details below. Free Zoom presentation Saturday, May 9, 9 a.m.-11 a.m. PDT, hosted by the San Diego Chapter of AAII. Paul Merriman and Chris Pedersen will address the two best buy and hold strategies they know, including 2 Funds for Life and the Ultimate Buy and Hold Strategy, as well as 12 million-dollar investment decisions. Daryl Bahls will join Paul and Chris to answer your questions.  For more information on this free webinar and to register, go to: https://www.aaii.com/chapters/Meeting?mtg=4817&chapterid=13 In another Free Zoom Event later in the day, May 9, 4 p.m.-7 p.m. EDT, with ChooseFI, Paul will present "12 Million Dollar Decisions Guaranteed to Change Your Financial Future," and Chris will present "Two Funds for Life”. Their sessions will be followed by Q&A. This event is live, free and open to all, hosted by Jennifer Mah of Choose FI (Financial Independence). For more info: https://www.facebook.com/events/249958663036416/ Join Paul Merriman in these Zoom events and join 20,000 savvy investors to receive his free twice-a-month newsletter. Go to paulmerriman.com

For the past eight weeks, Paul focused on what he considers among the most important decisions an investor is likely to make in a lifetime. In this podcast he quickly reviews those key decisions through the articles, podcasts and tables that were recently created to help investors be the best they can be. And he discusses the topics contained in his website's “Best Advice”, which include: The Ultimate Buy and Hold Strategy (2020 Update) Fine Tuning Your Asset Allocation (2020 Update) Distributions in Retirement (2020 Update) Fixed Contributions  Target Date Funds 4 Fund Combo All About Small Cap Value All Value Equity Portfolio Turn $3,000 Into $50 Million 90 Years of Performance  Get notified of PAUL’S FREE ZOOM SESSIONS by visiting  PaulMerriman.com and subscribing to Paul's free newsletter.