"Prediction is very difficult, especially if it's about the future.” Nils Bohr, Nobel Laureate in Physics

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In this week’s podcast and video release we have sent our subscribers links to an interview with Paula Pant. Paula’s Afford Anything podcast and website is aimed at educating young adult investors.

She presently has over 74,000 loyal subscribers who count on her for financial advice. If you have young people in your family who find our site a little to heavy in statistics I suggest you introduce them to Paula.

Small Cap Value Showdown Between Financial Legends — (This Could Add Millions To Your Retirement!)

Paula has fun with what she does. A good example of that fun is the introduction to this interview with Karsten Jeske and me regarding the pros and cons of small cap value funds. Here are the opening line from her website: "In the left corner, we have Paul Merriman, the seasoned finance veteran weighing in at 183 pounds. In the right corner, Dr. Karsten Jeske, the scrappy newcomer at 208 pounds. The bell rings, and the small cap value debate begins.This episode features a financial boxing match between two investment heavyweights with dramatically different perspectives. Paul Merriman champions diversification through the efficient frontier, which means adding small cap value to your portfolio. Dr. Karsten Jeska has "thrown cold water" on this approach, favoring simpler strategies like "VTSAX and chill." The stakes are high — we're talking potentially millions of dollars in your retirement account over decades.”

I hope you enjoy the discussion and pass it along to others you think might have the patience to sit through this long discussion. For those who might want to get to a specific topic Paula has given you links to 15 of the most meaningful moments in the long interview.

Below you will also find a group of comments and my responses to many of the comments that were offered below the YouTube presentation.

What You Can Do to Help Us Reach More Students?

Over the years I have been contacted by podcast hosts (including Paula Pant) because their listeners thought our work would be of interest to their followers. Access to these new listeners, for small podcasters like our Foundation, is a golden way to expand our work. Since the last time I was on Paula’s podcast she has attracted over 47,000 opens on YouTube and likely a similar number from her podcast. We may only get 100 new subscribers from that exposure but that’s important for the future. Among those 100 will be some we can help get their portfolio together and a very few who will continue to spread our information to others.

If you have a favorite podcaster that you think would be interested in interviewing Chris Pedersen or me, please send them an email with a link to our site and/or podcast. I think it is best to send a link where we are being interviewed by others so they can judge our ability to educated their listeners. I think it would be helpful to give them at least one line about the help we have been to you.

Thanks for your help.

Paul’s responses to comments and questions following the Paul Pant interview:

Comment:
BIG ERN's work (in addition to Kitces) has been pivotal in improving my understanding of the SRR, and put me in a strong position to understand and manage the risks of early retirement. I'm very grateful to Karsten for publishing the SWR series (which was a fantastic read, and re-read) and the SWR toolbox, which has been a fantastic tool to cross check my own calculations. The SWR series is a brilliant piece of work.

Paul’s response:
I think it's wonderful you have confidence in the research Karsten has provided in helping you make some of the most important financial decisions of your life. Today I will be recording 2 upcoming podcasts. One is about taking distributions on a fixed basis, with inflation adjustments and the other is using flexible or variable distributions without concern for inflation. I find it fascinating the impact the stocks vs. bond percentages have long term, as well as the difference in percentage distribution and what combination of equity asset classes is used. Just a 10% change in how much you have in equities, and a one percent change in distributions and the addition of a 10% position in SCV can mean millions more for the next generation.

Comment:
Awesome conversation. Results are... you could listen to either and I suspect you'll do great. I think both got some good punches in, and supported their thoughts. I do think "faith" is the right word when looking to the future. But, these two are definitely using the facts of the past in a logical way. Rematch!

Paul’s response:
Wonderful comments Kevin! I think most teachers and advisors think the key to long term success is the ability to "stay the course" with a well balanced portfolio. Jim Dahle, at the White Coast Investor has a wonderful article entitled, "150 Portfolios Better Than Yours." His point is any of the now over 200 portfolios would probably do better over a lifetime than the continued hunt for the best portfolio most investors seem to pursue. Of course none of those portfolios suggest actively managed mutual funds or putting all of your investments in a couple of great companies.

Question:
Wonder when this was recorded. I’m willing to bet it was before this new stock market downturn. Paul says “unless the market Completely crashes”.

Paul’s response:
Paula answered about the recording date: Recorded on Tuesday, February 25

Paul’s response:
I think it's important to remember there is historically an average 15% difference in annual return between the S&P 500 and SCV. Our Tables H2a and H3a MARGIE PLEASE INCLUDE LINK) make it easy to compare the good and bad times for both equity asset classes. Since 1970 we have had 3 periods that the markets have been down more than 50%. For those who think we have seen a crash recently, I think they should check out the historical market return graphs and tables by Ben Carlson of A Weatlth of Common Sense.

Question:
I'm thinking 90% VTI and 10% Small cap value. Thoughts?

Paul’s response:
If you look at our table G1b (LINK) you can see the impact of every extra 10% SCV you might add to your equity portfolio. The table also shows the additional risk you will be accepting. The addition of 10% small cap adds about .4% a year with virtually no additonal risk. If fact the standard deviation goes down by a meaningless amount. I suspect that the addtional risk of 20% would seem acceptable to investors who can take the risk of the S&P 500.

Comments without response:
One thing I like about many of Paul's charts on his website is that they show rolling 20, 30, 40, etc. year periods. To me this helps decrease the recency bias of looking at 2025 and going back x number of decades. The S&P 500 has done really well over the last 15+ years, of course that skews the numbers a bit. If we were having this conversation in 2005, it may skew the other way (I don't have charts in front of me so I'm spit-balling years here). Love the debate, thanks Paula!

Great debate. Legendary performance by Paula Pant refereeing. CNN and Fox can learn a lot from her. It's a shame this podcast is not more popular.

Latest Podcast- Small Cap Value Showdown Between Financial Legends — (This Could Add Millions To Your Retirement!)

In the left corner, we have Paul Merriman, the seasoned finance veteran weighing in at 183 pounds. In the right corner, Dr. Karsten Jeske, the scrappy newcomer at 208 pounds. The bell rings, and the small cap value debate begins.

This episode features a financial boxing match between two investment heavyweights with dramatically different perspectives. Paul Merriman champions diversification through the efficient frontier, which means adding small cap value to your portfolio. Dr. Karsten Jeska has “thrown cold water” on this approach, favoring simpler strategies like “VTSAX and chill.”

The stakes are high — we’re talking potentially millions of dollars in your retirement account over decades.

Merriman argues that history shows clear evidence for small cap value’s premium. From 2000 to 2009, small cap value outperformed the S&P 500 in all but one year, compounding at 10 percent while the S&P 500 returned negative 1 percent. He believes this pattern will continue, creating a powerful diversification effect when combined with broader market indexes.

Jeske counters that small cap value’s outperformance is mostly “front-loaded” in history, happening before anyone knew about it. Since 2006, small cap value has underperformed. He argues that once an advantage becomes widely known, it disappears in an efficient market. Adding small cap value might even be “di-worsification” — increasing complexity without improving returns.

The debate expands beyond small cap value to touch on:

Active vs. passive investing strategies
Market timing vs. buy-and-hold approaches
Simplicity vs. complexity in portfolio construction
The role of faith vs. evidence in investment decisions

While both experts disagree about small cap value’s future, they agree on fundamentals: invest early, stay invested for the long term, and understand that no one can predict markets with certainty.

What starts as a technical debate evolves into a philosophical discussion about evidence, probability, and the limits of our knowledge — all with millions of retirement dollars hanging in the balance.

Latest MarketWatch - Are you ready for a big stock-market drop?

I don’t know — any more than you do — what’s just ahead for the stock market. But the first quarter of 2025 has given investors plenty of reason to be nervous.

The traders and algorithms that move the market up and down like to possess at least some idea of which way the winds are blowing.

Lately, those winds seemed to be unusually hard to predict.

Wall Street has not been happy, and the stock market has been on a wild ride this year amid increasing fears of a recession and the effects of higher tariffs. Read More.

Youtube Testimonial

Thank you sincerely Paul for the great clarifying and educational questions, Daryl for your hard-earned reputational support, and to Chris for an amazing presentation of data-driven analysis and recommendations which I have been waiting for to prop me up with my own portfolio decisions and also help plan porfolios for my two 20-something nephews, in this swirling and grave uncertainty of our times. The high value and generosity that you three gentlemen give us time and again, is immeasurable and greatly appreciated!

This is a comment under this video: Bootcamp Episode #9 - Best-in-Class ETF Recommendations

Small Cap Value Showdown Between Financial Legends — (This Could Add Millions To Your Retirement!)

Are you ready for a big stock-market drop?

In This Edition Something You Can Do to HelpPodcastMarketWatchTestimonial

In This Edition
Something You Can Do to Help
Podcast
MarketWatch
Testimonial