Sound Investing

In this podcast, you’ll learn about the long-term impact of using regular Fixed Contributions and our updated Tables for 2022. For young investors, this can mean adding millions to your retirement. Before listening to this podcast, Paul suggests you review the YouTube 2022 updates on The Ultimate Buy and Hold, Fine Tuning Your Asset Allocation, and No-Nonsense Portfolios. There are 9 Tables that investors can use to compare the long-term results of using each of these different equity combinations, with the addition of bonds for more conservative investors. The purpose of the tables and this podcast is to help young investors understand the long-term impact of a small monthly investment along with 3% annual increases. The corresponding Fine Tuning Tables are used for return calculations. Paul compares the decade returns of the S&P 500 only with a 50/50 split between the S&P 500 and small-cap value. Doubling in value: Paul highlights the extra risk of having all the money in one asset class. In the 10 years ending 2009, the S&P 500 declines in value, even including additional investments. Meanwhile, the more diversified 50/50 S&P/SCV doubled in value for the same period. In fact, almost every other portfolio doubled over that 10 year period. The sequence of return can mean a $1.5 million difference.  Paul shows another situation (Tables C8 and C9) where two portfolios had almost the same compound rate of return, but one beats the other by about $1.5 million. It points to how important the sequence of return is. Use The Merriman Lifetime Investment Calculator to test different beginning dates to see the impact of different sequences of return. Interestingly, the annual result of regularly adding new money seldom leaves the portfolio with less value than the previous year.  For example, in the case of the S&P 500, there were only 7 years out of 52 that the following year wasn’t higher than the last.  In the case of the 50/50 S&P/SCV, there were only 5 years that the following year wasn’t higher. Hopefully, this knowledge will help you consider building different portfolio combinations with unique parts of your long-term investments.  For example, you could segregate one smaller account that is all small-cap value for the entire period, another in the U.S. 4 Fund Portfolio, and yet another in a Worldwide 4 Fund Portfolio.

In this podcast and video, Paul Merriman, Chris Pedersen and Daryl Bahls discuss the 2022 update of "No-Nonsense Portfolios" Tables along with new tables used in a recent presentation at the 2022 White Coat Investor Conference. That presentation was entitled “The Inside Story of 150 Portfolios Better Than Yours.” The two tables compare the risk and return of 20 different portfolios.   Those listening to the podcast should review the tables before listening. Lessons learned: For each of the 20 portfolios the tables compare: 1. The annual, decades, and total returns from 1970 through 2021 2. The number of up and down years and average of each 3. The growth of $10,000 (range from $1.9 to $9.5 million) 4. The most popular portfolios earned less than 1/3 of the two most profitable The discussion covers many important lessons in the tables: · There are many ways to measure risk · Higher returns can be achieved at less risk · The risk of having too much of a portfolio in one asset class · The importance of combining small and value with traditional large-cap blend portfolio · Rebalancing of an equity portfolio can increase the long-term return · A portfolio can never score well during the decade periods but end up #1 for the whole period · The portfolio that grew to $9.5 million was less risky than the one that grew to $1.9 million After the discussion of the tables, Chris, Daryl and Paul talk about the portfolios they would recommend.

The idea began more than 25 years ago: Use tables to show the risk and reward of different equity asset classes — along with different combinations of equity and fixed income — so that investors gain a firm understanding of the relationship between long-term return and short-term risk, and make their investment decisions accordingly.  At that time, there were two tables — one for the S&P 500 (as the equity position) and a second for the Ultimate Buy and Hold combination of 10 different equity asset classes. Since then, we have added more combinations of these asset classes equity combinations. We call these the Fine Tuning Tables. In this podcast Paul discusses and reviews 9 different combinations of equity asset classes from the stand-alone S&P 500 to the 10-fund Ultimate Buy and Hold Portfolio. To get the most out of this podcast, Paul suggests you revisit the previous one, (Ultimate Buy and Hold Strategies: 2022 Update) and this table (Table A1). He begins with a quick review of the previous podcast and then looks at the 9 different equity asset classes that are the basis of the 9 Fine Tuning Tables. (Table A2: Alternative Equity Portfolio Table).  Then he reviews Table B1 for the S&P 500 and bond combinations. The goal is to alert users to the many risk and return lessons on this table.  Following this table, he reviews the Tables B7 through B14 that represent the different portfolio combinations that can be built with the 10 funds in the Ultimate Buy and Hold Portfolio. Those include: Ultimate Buy and Hold Worldwide 4 Fund U.S. 4 Fund Worldwide All Value U.S. All Value Worldwide All Small Cap Value All U.S. Small Cap Value S&P and Small Cap Value (50/50) Next week’s podcast will be a discussion about the 9 different equity asset class combinations. Paul will be joined by Chris Pedersen and Daryl Bahls to help Sound Investing investors select from the variety of strategies.

Since 1995 Paul has been writing and teaching Do-It-Yourself investors about the Ultimate Buy and Hold Portfolio. In this 2022 update he uses the UBH table (70-30) and UBH tables (50-50)  to make the case for 10 equity asset classes he thinks investors should consider owning in the equity portion of their long-term investments. The key takeaways: The S&P 500 can easily be “beat” without taking more risk. The impact of adding just 10% of another equity asset class can improve long-term returns. The impact of even .1% more return can be life changing over long periods of time. Adding more risky asset classes can substantially reduce risk. Diversification of equity asset classes is as important as diversification of individual stocks. Rebalancing is not about higher returns but is about limiting risk. Adding international equities can have a meaningful impact on long-term returns whether you add 30% or 50% to the portfolio. There is not risk in the past, we always know what we should have done. The UBH Portfolio is not designed to get the best return, but is designed to get a better return than the S&P 500 without substantially more risk.

What are the most important attitudes and habits of successful investors? In this podcast, Paul examines this question through the lens of “hard work,” or what is often called “grit.”  He references a special 6-minute TED talk by Angela Lee Duckworth, a psychology professor at the University of Pennsylvania. The video is about the importance of “grit” in your life. While the hard work and the passion of grit may make people more successful in their daily life, Paul makes the case that it may lead to worse outcomes as an investor. In fact, the grit for an investor is to remain still and let your investments take care of themselves. Since the grit is largely a matter of habits and attitude, Paul reads chapter 11 from Financial Fitness Forever. He discusses the importance of trust, resilience, perspective, patience and common sense, plus six productive habits that seem to favor investors over the long term. He also suggests you watch his the video or audio, “Habits and Attitudes of Successful Investors,” from the 2016 Vestory Retiremeet Conference. https://paulmerriman.com/habits-attitudes-successful-investors/

Paul shares the dire predictions from several gurus and includes a list of reasons a sharp decline could happen.  He includes history of corrections and bear markets since 1950.  https://awealthofcommonsense.com/2021/02/a-short-history-of-u-s-stock-market-corrections-bear-markets/ Question:  Is the 60/40 portolio “in danger?”  Paul uses 'Fine Tuning Table 3' to show investors how to figure out the risk of Vanguard Wellington and Vanguard Wellesley Funds, as well as other similarly built funds.  https://paulmerriman.com/wp-content/uploads/2021/02/Fine-Tuning-Tables-50-50-2020.pdf Paul is outraged by what he learned from a recent report by "The Motley Fool" on what Gen Z, Millenials and all investors 18 to 40 years old have made.  https://www.ngpf.org/blog/question-of-the-day/question-of-the-day-what-percent-of-18-24-year-olds-own-individual-stocks/   The Motley Fool newsletter is advertising very high returns.  Are they real?  The best source of real newsletter returns is hulbertratings.com.  Paul references the 20 year results: hulbertratings.com/20-yearscoreboard/. Question:  They say small-cap growth is the black hole of investing: high volatility, low reward.  Should we keep small-cap blend if the growth companies will continue to pull returns down? Question:  What do I have in my portfolio to protect against a market crash?

This podcast (also a video) answers questions from our listeners, viewers and newsletter subscribers, and updates you on our upcoming projects. Paul Merriman, founder and president of The Merriman Financial Education, is joined by Chris Pedersen, Director of Research and author of 2 Funds for Life — A quest for simple & effective investing strategies, and Daryl Bahls, Director of Analytics. Topics: What’s on the trio’s to-do list over the next few months?  Chris will update the Best-In-Class recommendations. Daryl will update all of the important tables, including: Ultimate Buy and Hold, Fine Tuning Your Asset Allocation, Accumulation and Distributions and the No Nonsense portfolio tables. [Currently found at: https://paulmerriman.com/best-advice/].  Also, Paul will create a new presentation with a discussion of the "White Coat Investor" article, “150 Portfolios Better Than Yours.” Review of 2021 returns. How Chris selects the best ETFs. The two layers of unnecessary costs when hiring an advisor who recommends actively-managed funds. How to decide between an inexpensive index fund in a less-productive asset class and a more-expensive fund in a more-productive asset class.  In this case, VSCIX (small cap index) and GSSIX (a small cap value fund). How to invest a $200,000 inherited IRA when the proceeds won’t be used by the present owners in their lifetime. An investor asks if it’s OK to invest in a group of asset-class funds that are not the same as the recommended portfolios on our website.  Spoiler alert: Investor puts together a reasonable portfolio. How to invest a big hunk of money when the market looks like it is going to go down or should go down or might go down… who knows? Does Chris’ evaluation include leveraged ETFs?  Are they worth considering? What to do about large positions in a company that is your employer?

In this review of 2021 investment results, Paul shares 10 lessons he thinks will be of interest to you following our advice. 1.  How many up and down days did the market produce and how that compares to longer-term profitable vs. losing periods? 2.  The market reached 70 new highs during the year.  Is that good news or bad? 3.  The biggest drawdown for the year was 5.1%.  How does that compare to past years? 4.  Commodities, oil and Bitcoin were among the big winners in 2021.  But why do the reported returns of the S&P and other equity asset classes understate their actual returns? 5. Paul focuses on a short report from Dimensional Funds:  When It’s Value vs. Growth, History is on Value’s Side https://www.dimensional.com/us-en/insights/when-its-value-versus-growth-history-is-on-values-side.  This study highlights the high volatility in the difference between these two asset classes.  Bottom line average advantage to value is more than 5%. 6.  Sometimes investing results can be hard to explain.  Paul reviews the 2021 small and large value and growth returns in U.S., international and emerging markets.  Investors may be surprised to see the huge differences from what might be considered similar asset classes. 7. In our Best In Class ETF recommendations  our Director of Research, Chris Pedersen, works hard to identify the ETFs that should be among the best.  Paul reviews the results of his recommendations compared to the returns of the average ETF in each equity asset class. 8.  Many investors struggle to make the decision Best In Class ETFs or all Vanguard all the time.  Paul compares the returns of the BIC ETFs portfolios (U.S. 4 Fund, Worldwide 4 Fund and Worldwide All Value and more) to similar portfolios with Vanguard ETFs.  Paul also compares BIC with similar DFA portfolios.  Investors have to decide whether those differences will be similar in the future or 2021 was an aberration. 9.  Many investors have chosen the Total Stock Market over the S&P 500.  Paul discusses the reasons their historic returns are almost the same and why the S&P 500 way outperformed the TMI in 2021. 10.  While equity is considered the gas for growth in a portfolio, bonds are considered the brakes.  Paul explains why he doesn’t recommend international bonds to stabilize a portfolio and why international bonds lost more money than U.S. bonds in 2021.

If you know anyone in their teens, you can make a significant difference in his or her life. We know that the earlier a person gets started saving and soundly investing, the more they will have for retirement and to leave to others. As a group, teenagers are at a phase where they are seeking independence, moving from childhood to adulthood, and are eager to exercise their freedom, which comes with increasing self-responsibility. Therefore, the best way to teach them about investing is to involve them in selecting and opening a long-term investment account. In this video/podcast discussion Paul suggests the young investor find a partner (parent, grandparent, uncle, aunt, godparent, etc.) to match $50 a year for 10 years. (This could be done with $10) and what that will mean to them over the years. This presentation includes a set of 24 tables that can be used to investigate many of the choices the investor has (see pdf below). Watch this as a video. For information on  Custodial Roth IRAs include a link to Schwab Custodial IRA https://www.schwab.com/ira/custodial-ira?src=SEM&ef_id=CjwKCAiA8bqOBhANEiwA-sIlN2MT3u5rQ88ibNnybVheXC-EFqyvlmYK1VsOqo8E_ofYodnmseoaYBoCBDEQAvD_BwE:G:s&s_kwcid=AL!5158!3!495093339246!p!!g!!custodial%20ira%20charles%20schwab!651813075!33944985558&keywordid=kwd-194438821700&gclid=CjwKCAiA8bqOBhANEiwA-sIlN2MT3u5rQ88ibNnybVheXC-EFqyvlmYK1VsOqo8E_ofYodnmseoaYBoCBDEQAvD_BwE and Fidelity Custodial IRA https://www.fidelity.com/learning-center/personal-finance/retirement/turbocharge-childs-retirement https://paulmerriman.com/wp-content/uploads/2022/01/100-per-year.pdf

Jacek Lempart, the Belguim-based host of System Trader “The craft of investing,” interviews Paul Merriman in this extraordinary in-depth conversation, unlike others you may have heard. It has been divided into two parts. You’ll learn: Who’s Paul, and what’s the story of his careers? How have markets changed over the years? Why is Paul a big fan of academic/scientific knowledge? What should we do to feel satisfied and have a happy life? How to adjust strategy so that it has an appropriate level of risk? Where’s the border between passive and active investing? A systematic approach to investing vs. discretionary The philosophy behind the Ultimate Buy & Hold portfolio? What does Paul think about holding a bit of cryptocurrency as another asset class? Gold and commodities