Sound Investing

There can be big differences between asset class returns, as well as differences within asset classes. Why do some great funds look like dogs compared to their competitors?  How can there be over a 20% one year difference in return between two funds in the same asset class?  Paul examines these questions and recommends investors use the quilt chart constructed by Daryl Bahls to understand the randomness of short-term returns. He suggests reviewing any period of 10 to 20 years to see the movement from the best to worst from one year to the next. Link to Quilt Chart: https://paulmerriman.com/wp-content/uploads/2021/01/2020-Year-End-Podcast-Charts.pdf Article on 4 Fund Combo: https://paulmerriman.com/market-got-you-down-how-to-construct-a-comeback-portfolio/

In this podcast, Paul examines the outright lies made by industry leaders about the difference between index funds and active management.  They hope to skew your thinking to their advantage – not yours. Trillions of dollars in Americans' retirement savings are invested in large and small accounts managed by banks, brokerages, mutual funds, and insurance companies, which continue to fight the regulation of fiduciary responsibility. Whether your IRA or 401K will assure a safe retirement remains largely a gamble. In the documentary “The Retirement Gamble” – as true today as it was when made in 2013 – producers Martin Smith and Marcela Gaviria build on reporting from the groundbreaking series “Money, Power and Wall Street.” They reveal how fees, self-dealing, and kickbacks bring great profits to Wall Street while imperiling the prospects of a secure future for individuals. The documentary explores who has the consumer's best interests in mind, and whether there is a better way to manage our retirements. Paul’s book, Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor, looks at why the brokerage industry is not serving your best interests and includes extensive lists of questions you should ask – and services you should receive – from an advisor. In particular, Chapter 16, which he reads in this podcast, addressing how not to “get screwed" by emotional appeals. Watch the Frontline Documentary:  “The Retirement Gamble”:  https://www.youtube.com/watch?v=lkOQNPIsO-Q Get your copy of Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor. It is available for sale at Amazon and other online booksellers, which supports the work of The Merriman Financial Education Foundation, or download a free copy. Here is what others have written about this book: “Excellent book especially for a DIY investor or someone just learning about personal finance… There is a plethora of bad investment advice out there in the world… It is difficult to sort through all the nonsense and to determine the true from the false… Fortunately, for Merriman's readers, he takes them by the hand and leads them through the jungle of nonsense out there in the world and explains how to avoid being taken in.” - DN “As a teacher of community-based investing classes, [I found it] a very useful book… I will definitely be adding it to my recommended reading list! I particularly liked the 2nd half of the book (chapters 11-16) that contains real-life examples of the bad practices and bad products you'll run across in your interactions with securities and annuities sales people. I had to follow the investment industry for years to learn about the various schemes and deceptions that need to be avoided. But you can gain all that knowledge in a week by reading (and rereading a few times) this part of the book.” – AP “This easy to read and easy to understand book is consistent with the other 4 books of Paul Merriman's that I have now read… What I have liked most about each of his books, although they may be written about different aspects of investing and in different words, is that they provide a consistent philosophy and recommendation on how to invest.” – DD Correction- Get Smart or Get Screwed was published in 2012 and not 2011.

Paul talks with Barbara Friedberg, financial writer and former investment portfolio manager, about his popular 4 fund combo and how and why to implement it. Among their discussion is how the 4 fund combo strategy outperformed the S&P 500 over the last 92 years. From 1928 through 2020 the Merriman 4-fund portfolio earned an average annual return of 11.7% versus the S&P 500 average return of 10.00%. [This podcast is also available as a video at:  https://youtu.be/vMFtJLAxFhI]. The Merriman Financial Education Foundation Four Fund Combo – - Small Cap Value - Small Cap Blend - Large Cap Value - S&P 500 Sign up for free at M-1 Finance and create your own 4 Fund Combo: https://m1finance.8bxp97.net/aXrzb (Affiliate Link – If you fund an account for $1,000 or more, The Merriman Financial Education Foundation receives a one-time affiliate fee.) Watch our M1 finance video tutorial with Chris Pedersen https://www.youtube.com/watch?v=02_KIRvBbmo Barbara A. Friedberg, MBA, is a former investment portfolio manager and university finance and investing instructor. She currently owns and manages two Investing websites: Robo-Advisor Pros https://www.roboadvisorpros.com/ and Barbara Friedberg Personal Finance https://barbarafriedbergpersonalfinance.com

Paul gives listeners a taste of what he will be discussing Sept. 25, 2021 at the Puget Sound Chapter of the American Association of Individual Investors (AAII) and at AAII’s virtual Annual Investor Conference Sept. 30 and Oct. 1. The title of the Puget Sound Chapter talk is, "The Ultimate Buy and Hold Strategy—on Steroids!” and for the Investor Conference it is, “20 Things You Should Know About Small Cap Value.” Below in the notes, Paul asks for your feedback. For those attending the Conference, Paul invites you to join him Oct. 1 at 8:30 a.m. for a special Plenary Session wherein he will receive the James Cloonan Award For Excellence In Investment Education. While in a recent podcast, S&P 500 vs. Small Cap Value NEW Fine Tuning Table, Paul discussed a new Fine Tuning Table — showing the year-by-year returns, along with the associated risk, of 11 combinations of the S&P 500 and a Small Cap Value index — in this podcast he continues that conversation, explaining how you can also put it to work during the accumulation and distributions period of your life. He introduces another new Fine Tuning Table that reflects an equity portfolio that is equally divided between the S&P 500 and SCV, along with multiple percentages of fixed income.  He also compares a Table of Fixed Contributions using the S&P 500 and S&P/SCV as well as Fixed Distribution Tables reflecting the S&P 500  and 50/50 S&P 500/SCV.   Paul asks a favor of his listeners.  Please let him know: What combination of S&P 500 and SCV would be comfortable for you? Send your response to paul@paulmerriman.com and please include your age and retired vs. non retired status. Many thanks to Daryl Bahls, our Director of Analytics for these and more than 150 tables prepared for The Merriman Financial Education Foundation to help you be a better investor.

In this podcast, Paul talks briefly about his upcoming  2-1/2-hour workshop, “The Ultimate Buy and Hold Strategy — on Steroids!” for the Puget Sound AAII Chapter on September 25, as well as the September 30-October 1 virtual AAII National Conference. For more information and to register for the Conference, click here. Paul answers the following questions from subscribers to his free newsletter: Have you done a study to compare the long-term returns of an All Blend vs. All Value Portfolio? Will an actively-managed small cap value fund produce enough premium to be worth the higher expense ratio? Are you considering adding a Monte Carlo simulator to your calculator?  What about the ability to test 2 Funds for Life? Which of your portfolios do you recommend for investors who want to “swing for the fences?” He discusses this article from Morningstar,  “Why Fund Returns Are Lower Than You Might Think,” which includes the results of the annual “Mind the Gap” study.  Closing this gap may add several million dollars to the lifetime return of your portfolio.  The study also address the impact of dollar cost averaging vs. lump sum investing. Finally, Paul considers a blog by Ben Carlson titled, "What Have the Stock Market Taught Us Since 2010?" which highlights the challenges of drawing conclusions from short periods of time.  Many investors have probably learned exactly the wrong lessons, and lessons about bear markets may be some of the most painful lessons.

In the podcast, Paul introduces a new Fine Tuning Table that compares different combinations of two equity funds (S&P 500 and Small Cap Value), providing the best way to look at the risk and return implications of combining these two great asset classes.  For over 20 years we have produced these tables representing combinations of an equity asset class, or equity portfolio, and different percentages of bonds. The first table (Table 3) we produced many years ago compared the S&P 500 with bonds. Paul points out many ways to use this new table as a learning tool. The lessons focus on the range of returns and risk exposure an investor is likely to experience, as well as the emotional hurdles each combination may create. These tables have been the best educational tool we have to help investors understand the long-term relationship between risk and return. On Friday, Oct. 1, 2021, Paul will make a 60-minute presentation at the AAII Virtual Investor Conference, “20 Things You Should Know About Small Cap Value Funds,” during which he will discuss this new Fine Tuning Table, along with many other important aspects of the small cap value asset class . Paul asks listeners to suggest additional lessons they get from their review of the Table.  HE intends to review these responses in preparation for his presentation on October 1.  Please send your comments to paul@paulmerriman.com. Paul also discusses the broad range of topics that will  be covered at the  Conference.  Not only will Paul and Chris Pedersen be presenting separate topics, each of them will be on panel discussions.  Chris, along with Larry Swedroe and Jack Vogel, will discuss  Factor Investing, and Paul, along with Christine Benz and Craig Israelsen, will discuss Retirement Investing. For information on the the AAII Virtual Investor Conference speakers and topics, and to register, go to: https://invest.aaii.com/conference/

In response to the continued discussion on the Bogleheads forum asking, “Why Does Anyone Listen to Paul Merriman?" Paul takes this opportunity to "share a wonderful teaching moment" from the comments of those who follow the work of John Bogle. Particularly, Paul considers the criticisms leveled against him regarding the recent performance of small-cap value funds, which he has been recommending for almost 30 years. While some Bogleheads counter that recommendation based on short-term returns, Paul reminds listeners even the idea of investing in any kind of common stock was once considered very unpopular. He cites Edgar Lawrence Smith’s best selling book, Common Stocks as Long Term Investments (1924), which promoted the then-surprising idea that stocks excel bonds over the long-term. Notes from This Podcast: Here is a link to the introduction from Edgar Lawrence Smith’s best seller, Common Stocks as Long Term Investments. Copyright 1928 (originally published 1924) Smith highlights the belief that bonds were chosen as a better solution than stocks.  Stocks were seen only as a speculation and Bonds as an investment.  Bonds were seen as the best choice for the long term and many large investment accounts did not include any stocks. I imagine those investors were as sure in their belief in bonds as the Bogleheads who disagree with SCV are in theirs. During the podcast Paul references Table 4 from the 90 Years study, Table 3a from the study comparing 11 portfolios including the Bogleheads, and the new Lifetime Investment Calculator .

Paul addresses a long thread on Bogleheads.org forum asking, "Why does anyone listen to Paul Merriman?" and recommends listeners follow the Bogleheads site for a variety of perspectives, and especially Rick Ferri’s excellent podcast interviews. Then, taking a detailed look at the latest return data on the 11 "No-Nonsense Portfolios,” he compares the annual and decade returns of the portfolios. Much of this discussion is focused on Table 3a but the other tables (links below) are for investors who want to dig deeper. Also, Paul shares early feedback on the newly-released interactive Lifetime Investment Calculator, developed by Craig Appl and generously donated to The Merriman Financial Education Foundation to help investors enter their own data, dive deeper into the recommended Merriman strategies, and get more value from the Foundation’s work. Check out the references and links in this podcast: Paul’s work is largely based on the academic research of Drs. Eugene Fama (https://www.chicagobooth.edu/faculty/directory/f/eugene-f-fama) and Kenneth French (http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/curriculum_vitae.html).  You can also find out more about them on Wikipedia. "No-Nonsense Portfolios”: Table 1 Tables 2a and 2b Tables  3a and 3b Thanks to Daryl Bahls, Director of Analytics, for his creation of more than 150 historically-based tables. Lifetime Investment Calculator: https://paulmerriman.com/lifetime-investment-calculator/

The Merriman Financial Education Foundation Lifetime Investment Calculator is built from the 2021 fine tuning tables and includes enhancements like showing nominal vs. real returns, growth with contributions, fixed and flexible distributions. We don’t know the future, but the past contains many events that could happen again. The last 51 years include numerous wars, booms, busts, and periods of high and low inflation. We consider these last 51 years a sequence of returns and have chosen to loop through this 51 year sequence to support calculating up to 200 years of returns. The Merriman Educational Foundation creates numerous tables and charts, updated annually, to demonstrate the history of investment strategies, equity/fixed-income allocations, growth, and fixed/flexible distributions from 1970 until today. They are published at https://paulmerriman.com/ under “Best Advice.” We identified that the foundation’s community of individual investors, partner organizations, and stakeholders could benefit from an interactive version of these static assets. We built the Merriman Foundation Lifetime Investment Calculator to meet this need. The calculator aims to bring the annual Merriman Best Advice to life so that community members can enter their own analysis, dive deeper into the recommended Merriman strategies, and draw conclusions from the foundation’s work. The Merriman Financial Education Foundation Lifetime Investment Calculator is built from the 2021 fine tuning tables and includes enhancements like showing nominal vs. real returns, growth with contributions, fixed and flexible distributions. We don’t know the future, but the past contains many events that could happen again. The last 51 years include numerous wars, booms, busts, and periods of high and low inflation. We consider these last 51 years a sequence of returns and have chosen to loop through this 51 year sequence to support calculating up to 200 years of returns. Check out the The Merriman Financial Education Foundation Lifetime Investment Calculator at https://paulmerriman.com/lifetime-investment-calculator/ Watch Craig Appl’s videos showing how to use the calculator here.

In this podcast you’ll learn about a free online presentation for high school students and parents, the introduction of The Merriman Financial Education Foundation Lifetime Investment Calculator to be released Aug. 18, and the implications of investing in individual stocks. Paul begins with an invitation to an upcoming online presentation open to the public on August 16, 5-7 p.m. PT. What does the future hold for today’s high school students? Paul and Jeff Leinaweaver, a career exploration specialist, will deliver a two-hour on-line seminar on how Covid-19 is changing careers and education. They will discuss life-changing career decisions for the next generation, educational pursuits and financial options for now and in the future. Students and parents are encouraged to participate, as these decisions will impact the entire family. Sponsored by the Bainbridge Community Foundation. Register at:  https://tinyurl.com/k575wv29.  If you need help accessing the registration form, contact: dana@bainbridgecf.org He continues with next week's important release of the new Merriman Foundation Lifetime Investment Calculator produced for our foundation by Craig Appl. This interactive calculator allows investors at any stage in life to evaluate the likely future of their present portfolio vs. other solutions that might represent less risk and better returns. Finally, Paul addresses the concerns of many investors who feel left out of the huge returns that have been generated by technology companies like Amazon, Microsoft, Netflix, Tesla and others. He examines the implications of building a portfolio of individual stocks that have produced these outsized returns and references the blogs of Ben Carlson ("A Wealth of Common Sense”). The following articles and graphs are mentioned in his podcast. https://awealthofcommonsense.com/2021/08/simple-explanations-for-complex-topics/ https://awealthofcommonsense.com/2021/03/owning-the-best-stocks-is-hard/ https://awealthofcommonsense.com/2021/03/owning-individual-stocks-vs-owning-the-stock-market/