Sound Investing Can You Trust the Market? Equal-Weighted S&P 500 vs. Four-Fund Strategy
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Oct 8, 2025 Paul Merriman tackles the age-old question of trust in investing, illuminating why diversification is crucial to mitigate risks. He contrasts the performance of equal-weighted versus cap-weighted S&P 500 funds, revealing the benefits of investing in smaller companies. The discussion includes insights on the long-term advantages of a four-fund portfolio and analysis of historical performance across different market periods. Merriman emphasizes patience and consistent saving as key strategies for navigating market uncertainties.
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Young Saver Hoarding Cash Out Of Fear
- Paul met a young saver who kept all retirement money as physical cash and feared losing everything in markets.
- He used the conversation to explain risk and to reassure that diversification prevents total loss.
Use Long-Term Ranges For Expectations
- Do use long-term historical ranges (decades) to set realistic return expectations instead of short-term guesses.
- Paul Merriman shows 40-year S&P 500 returns ranged only from 8.9% to 12.5%, narrowing realistic outcomes.
Equal Weight Tilts Toward Smaller Stocks
- Equal-weighting shifts exposure toward smaller, out-of-favor firms and reduces concentration in mega-cap winners.
- That structural tilt explains why equal-weighted S&P often outperforms cap-weighted versions.