Sound Investing How to Bake a Cake: An Asset Allocation Mashup | Rick Ferri & Paul Merriman
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Apr 16, 2025 
Join Rick Ferri, a leading expert in low-cost investing and host of the Bogleheads on Investing, along with Paul Merriman, founder of the Financial Education Foundation. They dive into essential topics like the pros and cons of small-cap value versus total market funds. Discover the significance of asset allocation, the challenges of target date funds, and the value of including international equities in a portfolio. They also share insights on maintaining a disciplined investment strategy amidst market volatility and the importance of informed decision-making for young investors.
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Aggressive Equity Allocation for Youth
- Young investors should allocate more to equities and less to bonds to maximize long-term growth.
- Stay within your risk tolerance to endure market volatility and maintain your allocation.
Avoid Bonds Early On
- Young investors should avoid bonds to prevent reducing returns by about 0.5% annually per 10% bond allocation.
- Combine an S&P 500 or total market fund with small cap value, adjusting small cap value based on risk tolerance.
Simple US/International Index Mix
- Use low-cost index funds tracking US and international markets for broad equity exposure.
- Allocate approximately two-thirds to US stocks and one-third to international stocks for diversification and growth potential.