Thanksgiving, AAII Q&As. Retirement Portfolios, Value Tilts, International Diversification, and Investing a Lump Sum

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Nov 26, 2025

Join the host as they reflect on gratitude and provide practical investing insights. Discover the importance of transitioning wisely from accumulation to distribution in portfolios. Learn why a simple two-fund U.S. portfolio is favored and how international diversification can affect returns. Insights on investing a lump sum versus dollar-cost averaging are also shared, alongside a discussion on alternative investments. Plus, a preview of future topics ensures you'll stay informed and empowered in your investing journey!

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ANECDOTE

Thanksgiving Gratitude And Influences

Paul Merriman describes his annual Thanksgiving tradition of writing a fresh gratitude list each year.
He names institutions like Morningstar, Bogleheads, and AAII as influences on his investing education.

INSIGHT

Why Broad Equity Diversification Helps

Diversifying across many equity asset classes (large/small, value/growth, U.S./international, REITs, emerging) reduces the chance all holdings fall together.
Non-correlated assets like gold or commodities may not earn long-term returns, while bonds and T-bills produce income while waiting to see if they act defensively.

ADVICE

Avoid Overcomplicating Same-Asset Diversification

Diversifying between large cap and small cap value materially changes returns versus holding one cap-weighted fund.
Adding a second fund in the same asset class (e.g., DFA + Avantis) is fine but increases complexity without huge necessity for most investors.

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Recorded from our new home on Bainbridge Island and released on Thanksgiving, this episode is equal parts gratitude and practical investing help. I open with my annual tradition of writing a fresh Thanksgiving list—people, communities, and institutions that have shaped my life and this work. I’m especially thankful for you, the DIY investors who keep showing up to learn, ask thoughtful questions, and hopefully staying the course.

I also share appreciation for the resources that support disciplined investing—Morningstar, the Bogleheads community, and the American Association of Individual Investors (AAII). After a recent AAII presentation (over 150 attendees), we ran out of time for a live Q&A. I promised to respond to every legitimate question, so this episode kicks off a multi-part series answering them in depth.

Here are the first 12 AAII questions covered in today’s episode:

(9:42) What alterations in portfolio construction do you recommend in transition from accumulation to distribution in order to maximize diversification of uncorrelated assets, safe withdrawal rates, and spending? ⁠Table h2a
(21:21) I’m a huge fan of your U.S. two-fund portfolio. Why is diversification between large-cap growth and small-cap value so important, while diversification between VTSAX and AVUS (within the same asset class) is not? Should we diversify fund selection within the same asset class? Table K2b
(26:49) Have you considered creating a quilt chart for the Ultimate Buy-and-Hold portfolios with a 70/30 U.S./international split? Table K1a and H2a and H2b
(32:04) You appear to have avoided any mention of mid-cap. Should we be ignoring mid-cap funds?
(33:35) What do you think about adding alternative investments to the portfolio (for example, managed futures)?
(38:39) Are your recommendations for everyone, or does the game change when you have a pension for life?
(43:07) I was fighting with the Zoom link and arrived 25 minutes into the presentation. Will a video recording be available to participants?
(44:08) What would you expect the difference between the S&P 500 cap-weighted index (VFINX)and the S&P 500 equal-weighted index (VADAX) to be?
(49:53) The four-fund portfolios are equal-weighted across their asset classes, which results in a value tilt overall. Why weigh them equally?
(54:35) One might think that adding international large-cap growth and international small-cap value to the two-fund approach would improve results. Does international allocation mainly reduce volatility/drawdown length, or also increase returns? H2a and H2b
(56:26) Can you buy DFA and Avantis funds at Charles Schwab?
(58:40) What should you do if you have a lump sum to invest today, but current market highs make entry uncomfortable? https://awealthofcommonsense.com/2025/11/do-we-need-a-long-bear-market/