“Far more money has been lost by investors trying to anticipate corrections than has been lost in the corrections themselves." Peter Lynch

In This Edition
New Address
Bogleheads Conference 2025 October 17-19
Latest Podcast
Testimonial

My wife and I moved to Portland to be near to our youngest daughter last year. Please note our new address is - 2445 NW Westover Rd. #311 Portland Oregon, 97210

Bogleheads Conference 2025 October 17-19

I look forward to seeing many of you at the Bogleheads Conference in San Antonio. I hope you will stop me and spend a few minutes talking about how we can better serve you and your family. i would also like to discuss an important change I’m considering for the Best In Class ETF project. Yes, Chris is the mastermind behind that project but I’m hoping he will be in favor of the change.

Another Asset Class That Could Grow at 12% over the Long Run

I have had a lot of our followers ask me why I don’t recommend a fund in the technology sector. These wise investors rightly make the case that it represents an asset class that doesn’t move up and down with many of the major equity asset classes that we track . The technology sector, like small cap value, has long periods of underperformance, along with higher than S&P 500 returns in the long term.

I suspect my reluctance to recommend the sector is not trusting investors when they say they are willing to withstand the periods of 80% losses. But wait a minute. I’m the one that highlights the advantages of young investors dollar cost averaging into equity asset classes that can sustain large losses for extended periods but are likely to provide good returns in the long term.

So let’s take a look at the history of the technology sector.

Fortunately we have an easy real time result to track this sector/asset class. The Fidelity Select Technology Fund (FSPTX) started their fund in July 1980. Morningstar started tracking their performance as of July 31, 1980.

Before I share the real time performance of FSPTX I would like to share what investors had learned about the NASDAQ in the years leading up to 1979. From its beginning in 1972 until 1979, the NASDAQ had compounded at 3.6%. Not a track record that would have motivated to “chase” its performance.

Starting on 7/31/1980, in five year periods, is the return of a lump sum investment of $10,000.

7/31/1980 $10,000
7/31/1985 $21,332
7/31/1990 $23,534
7/31/1995 $83,570
7/31/2000 $456,829
7/31/2005 $202,870
7/31/2010 $248,513
7/31/2015 $516,588
7/31/2020 $1,560,445
7/31/2025 $3,686,136

Without investigating the best and worst days, months, quarters or years we can see what a challenge an investor might have faced to “stay the course” with FSPTX.

At the end of the first 10 years the compound rate of return was 8.9%. There were plenty of other investments that would have performed better during that period. The Fama-French Small Cap Value Index and S&P 500 compounded at about twice the FSPTX rate of return.

At the end of 20 years your mindset likely changed as the compound rate of return was 21.1% for FSPTX while the SCV and S&P 500 trailed by a couple of percent a year.

But then the biggest problem of all challenged FSPTX owners. Notice that the next 10 years FSPTX lost 5.9% a year, while the SCV compounded at over 12% and the S&P 500 almost breaking even.

Certainly the 45 year return of 14% for FSPTX made the investment a big success. While the returns for the Fama-French Small Cap Value and the S&P 500 were similar, we know the FSPTX investor is likely very happy with the long term result.

The question investors ask today is, how will these funds do if the market goes through a substantial bear market. Will technology spend 5 to 20 years trailing SCV and the S&P 500? Of course nobody knows but it may be the reason many investors may keep their technology exposure in balance with other equity asset classes that have a history of doing better than technology stocks during major bear markets.

Would I be okay with a young investor adding a percentage of a technology fund as part of their portfolio? Sure. Would it be FSPTX? No, the fund is not a low cost index fund but several possibilities are QQQ, ONEQ and VGT.

Latest Podcast- Chris & Paul October 2025 Q&A: Best-in-Class ETFs, Equal-Weight vs. Cap-Weight, and How Much Small-Cap Value?

In this October Q&A, Paul Merriman and Chris Pedersen dive into your most-asked topics: simplifying portfolios, selecting best-in-class ETFs, the trade-offs of equal-weighted funds, and how much small-cap value to include. They explain why factor exposure (size, value, quality, profitability, momentum) matters, why reversion to the mean is real, and what it means to invest like an owner—not a speculator.

Highlights

ETF Selection That Ages Well: No one can predict next year’s winner. Instead, look for persistent factor exposure, low expenses, broad holdings, sound trading/turnover, and tax efficiency.

Equal-Weighted vs. Cap-Weighted: Equal-weight can increase small/value exposure, but typically with higher turnover and tax drag. Many investors may achieve similar exposure more efficiently via large-cap blend + small-cap value, rebalanced on their schedule.

Right-Sizing Small-Cap Value: There’s no one “correct” number. For S&P-500-centric investors, Chris outlines a spectrum from 10–20% (easier to stick with) up to 50% (for those who fully buy into the premium and can tolerate tracking error).

Indexing, Quietly: Systematic managers like DFA and Avantis apply rules-based approaches without telegraphing rebalance dates—helping avoid front-running and potentially improving long-run results.

Owner Mindset: Markets can drop 50%, but underlying earnings rarely fall that far. Over decades, earnings power drives returns. Act like an owner of businesses, not a trader of tickers.

Chapters
00:00 – Intro & Mentors
05:07 – Portfolio Simplification
10:13 – Work-Life Balance
11:39 – Which ETFs will outperform?
20:15 – Importance of Quality
22:45 – Equal-Weighted Funds
26:14 – History: how long is enough?
29:58 – Cost of public indexing
33:30 – Equal-weight fund tax vs. ETF
35:21 – How much small-cap value?
39:47 – Why three EM ETFs?
42:28 – “All Avantis” risk?
49:45 – Technology sector history & mean reversion
53:00 – Be an owner, not a speculator
55:27 – Outro

Listeners Questions-

Which ETFs will outperform? We can’t know—but we can tilt the odds by targeting factors with strong academic support and consistent implementation.

“Equal-weight or market-cap weight?” Over very long horizons, equal-weight can shine, but mind turnover and taxes. There may be cleaner, cheaper ways to boost small/value exposure.

“How much small-cap value?” Start where you can stick with it—often 10–20% paired with a broad market or target-date core; some investors choose 30–50%.

“Is ‘all Avantis’ risky?” Your funds are held by a custodian for your benefit. Manager risk is low; the bigger risk for investors remains market volatility.

Recommended Resources

Best-in-Class ETF Recommendations (2025): factor-aware, low-cost choices across asset classes.https://www.paulmerriman.com/best-in-class-etf-recommendations-2025#gsc.tab=0

Sound Investing Portfolios, Returns & Risks: see the two-fund, four-fund, worldwide, and more—plus long-term return/risk tables.
https://www.paulmerriman.com/sound-investing-portfolios#gsc.tab=0

“Tune Out the Noise” (DFA Documentary): a great primer on disciplined investing.
https://youtu.be/T98825bzcKw?si=kFMugnSSCn2E76sI

Youtube Testimonial

Recently found Mr. Merriman in a joint interview with JL Collins and have since been reviewing his website. What a fantastic resource for diy investors like me! I have been adjusting my 401k every 3 months based on returns for years, but now I’m ready to stick to the 4-fund international plan outlined on his site. Thank you so much for all your hard work, Paul!! @jacobpace9239

Chris & Paul October 2025 Q&A: Best-in-Class ETFs, Equal-Weight vs. Cap-Weight, and How Much Small-Cap Value?

How to retire with more money and greater peace of mind

In This EditionNew AddressBogleheads Conference 2025 October 17-19Latest PodcastTestimonial

In This Edition
New Address
Bogleheads Conference 2025 October 17-19
Latest Podcast
Testimonial