"Hurdle number five: As an investor, you must recognize the monsters that populate the financial industry. They're very talented chameleons; they don't look like monsters; rather, they appear in the guise of a cousin or an old college friend. They are also self-deluded monsters; most "finance professionals" don't even realize that they're oral cripples, since in order to function they've had to tell themselves a story about how they're really helping customers. But even if they're able to fool others and often themselves as well, make sure they don't fool you."

If You Can How Millennials Can Get Rich Slowly- William J. Bernstein

In This Edition
Quilt Charts Beat Ultimate Buy and Hold!
Latest Podcast
Q&A's with Paula Plant
Testimonial

There was a time when our Ultimate Buy and Hold table was the most popular of all our tables. For those who are not familiar with it here is a link to the table and a brief description of what the table is trying to teach those who are following our work.

The above study assumes the balance of U.S. and international is 50%/50%. While we have not written about the 70% U.S. and 30% international asset allocation, here is a link to that table.

Don’t be grumpy about taking RMDs — you’ve got lots of options

In the last year a couple of newer tables have become the ”most popular.” Table K1a and K2a are now the most opened. In the this link you can access these tables as well as another 18 quilt chart tables that show return ranking for 5, 10, 15, 20 and 25 year periods.

I suspect the new tables most of you will find of interest are tables K6a and K7a. These tables include the results of the U.S. only Sound Investing Portfolios.

Latest Podcast/Video with Paula Pant The 4-Fund Strategy That Beats the S&P 500

Watch the video here.⁠

Paul Merriman, a former wealth manager turned financial educator, joins us to share investing wisdom that could reshape how you think about your money. We kick things off talking about portfolio diversification. Paul suggests a simple four-fund strategy that includes large cap, small cap, and value stocks. He says this mix has historically beaten the S&P 500 with lower risk.

We then dive into international investing. Paul explains that while adding international stocks doesn't necessarily boost returns, it can help smooth out the ride. He keeps half his equity portfolio in international stocks, even at age 81.

Got kids? Paul's got some advice for you too. He tells us about putting money aside for his new granddaughter, aiming to fund her Roth IRA as soon as she can earn income. He breaks down how investing just a dollar a day from birth to age 21 could turn into millions by retirement age. It's a powerful lesson in starting early and the magic of compound interest.

We also chat about some common investing mistakes. Paul stresses that young investors often underestimate the power of stocks over bonds for long-term growth. He shares some eye-opening numbers: $100 invested in bonds since 1928 would have grown to about $12,000, while the same amount in small cap value stocks would be worth nearly $15 million.

Paul wants you to think of investing as a partnership with businesses. When you buy a mutual fund, you're becoming a senior partner in thousands of companies. At first, your contributions drive most of the growth. But over time, market returns take over, and you become the junior partner to a much larger fortune.

We wrap up with Paul sharing his excitement about a 40-hour financial education program he helped create at Western Washington University. It's designed to teach students essential money skills throughout their college years, from budgeting as freshmen to understanding 401(k)s as seniors.

Throughout our chat, Paul's message is clear: start early, stay diversified, and think long-term. He believes that with the right education and mindset, anyone can build a solid financial future.

⁠4 Fund Combo Guide⁠ ⁠

Table Numbers⁠ ⁠

Quilt Charts⁠

⁠Historical Risk and Return Tables⁠ ⁠

Portfolio Configurator⁠

Timestamps:

Note: Timestamps will vary on individual listening devices based on dynamic advertising run times.

0:00 Intro to Paul Merriman and podcast topic

0:57 Two-fund portfolio strategy

3:55 Four-fund portfolio strategy explained

5:31 Large cap performance concerns

7:06 S&P 500 vs Total Market Index

10:59 AI impact on large companies

14:43 Market trends and historical performance

20:41 International equity in portfolios

25:26 ETFs vs index funds

29:41 Non-US investor asset allocation

38:41 Setting up kids financially

43:57 Early investing importance

48:37 Common investor mistakes

50:25 Investing as business partnership

52:51 Evolving financial education landscape

For more information visit the show notes.

Q&A's with Paula Plant

Question: @jenniferstarks4018

I really enjoyed this show. Thank you both!

Answer: @paulmerriman2947

Thanks Jennifer! I really enjoyed working with Paula. There is no question in my mind that she is trying to help you do the right thing. The challenge is there are so many possible ways to slice and dice your investments. The key is for you to find a path that you will be able to maintain over a lifetime. The industry makes money by getting you to buy what they have to sell so it is no wonder that it can be confusing. As a teacher, my job is to find simple solutions that investors are likely to maintain through good times and bad.

Question: @milikapm

I am completely new to thinking about directing my 401k. I just contribute & forget about it. Really appreciate Paul & Paula for the insight. I am trying to figure out how to follow the thought process. Would either of you recommend more on information on how I might adjust my 401k or educate myself. Thanks to you both!

Answer @paulmerriman2947

For most 401k investors who are completely new to investing I suggest starting with a target date fund. Half of my free book (We're Talking Millions) LINKis dedicated to target date funds. I think you would make more money if you put 10% or 20% of your money in a small cap value fund with 90% to 80% in the target date fund but you should be fine if you just stick with the target date fund.

Question: @johncervantes5890

Paul, what index funds would you recommend from Fidelity to achieve your 4 fund portfolio. Also, how often would you recommend rebalancing? Thanks for your great work!

Answer: @paulmerriman2947

The Best In Class ETF recommendations are all available commission free through Fidelity, Schwab and Vanguard. The return studies are rebalanced annually. If you rebalance more often the volatility and the return go down in most cases. We hope to have some studies on rebalancing less often available in the coming months.

Question: @rufdymond

I’m not looking to beat the S&P 500….I’m more than happy with the returns I get from it.

Answer: @paulmerriman2947

You should be happy with the S&P 500. If you have total confidence in the S&P 500 you may be able to “stay the course” and also willing to invest more money into your accounts. My gentle suggestion is add 10% small cap value and you will have a chance for an extra .5% return and the risk is virtually the same as all S&P.

Question: @sabrinarizk6453

Paul, you mentioned saving money that would eventually go into your grandchild’s ROTH IRA. My understanding is that Roth Contributions require earned income, so how do you get around that?

Answer: @paulmerriman2947

The account that will eventually feed the Roth IRA is being managed by her parents. When she has earned income the taxable investments will fund the Roth. It could also be used to fund a Roth 401k ---especially to take advantage of the company match if it's available.

Question: @cecilemuggill9444

Paul, how do you rebalance annually if you are in the aggressive (all equity asset class) portfolio?

Answer @paulmerriman2947

If you use M1 or Fidelity you can rebalance with the click of a button.. Otherwise you have to figure out how to sell some of the better performers and buy some of the under performers. You don't have to do it every year. Every 2 to 3 years will probably work for most investors---especiaily if the portfolio is all equities.

Question: @BB-cs3kk

Would like to hear more about bonds. How to optimize return and simplicity.

Answer @paulmerriman2947

Our portfolios use mostly U.S. Government bond funds, diversified across short, intermediate and TIPs. The purpose of the bonds is to reduce losses during major market declines. The Fine Tuning Tables show the risk vs. return for many different combinations of stocks and bonds.

Question: @davecristdavecrist

For what it’s worth, using backtesting his proposed 4-fund portfolio does not do better than 100% VTI or 100% VOO.

Answer: @paulmerriman2947

It depends on the period of time you consider. Look at the period 2000-2009 and you will see the blend outperformed the S&P 500 by over 6% a year. Our studies include results for the last 54 and 96 years. On table H2 you can compare the last 5 decades performance. Note the U.S. 4 Fund Portfolio outperformed the S&P in 3 out of the 5 decades, plus added more than a one percent return. The bad news is the future will not look like the past. The good news is that while the sequence of returns will not be the same, the general direction will probably be up.

Question: @peterpayne557

Some great information here from a master. However, can anyone find 4 funds in each of the 4 categories that beat the S&P ‘cause I cannot!!

Answer: @paulmerriman2947

Great comment Peter! If you look at the quilt charts that Paula and I discussed you will see that the S&P 500 has been a big winner over the last 5-10 years, as it has many times in the past. We have listed the recommended ETFs on our website.

Question: @Rick-s5d

Hi Paul. I've been helping my 17 year old daughter with her Roth IRA for a few years and am now going to help her with her 401k when she turns 18. Her Roth IRA had been 100% US small cap value. She just bought VXUS to get international exposure. Her 401k is set to buy S&P 500 when it starts (lowest fee fund offered by her plan). What do you think about shooting for an all-equity 40/30/30 portfolio of US small cap value/S&P 500/Total International market? I want her strategy to be very aggressive and globally diversified, yet simple so I can trust she will manage it well over her lifetime without my help. I personally emulate your World Wide Ultimate Buy and Hold strategy (for equities), but feel it would be very unrealistic for her execute.

Answer: @paulmerriman2947

I think the 40/30/30 returns will be similar to 40/60 (SCV/S&P). I think it would also work well if the international is large cap value instead of large cap blend fund. By the way, I'm thrilled you are helping your 17 year old daughter get on a path that is likely to serve her well for the rest of her life. I wish someone would have done that for me when I was 17! Did someone do it for you Rick? If not I hope you have started a great family tradition. Those early year contributions should be golden in 50 years.

Question: @Twill2909

Would you accomplish similar performance results by setting up a strategy using sector diversification vs asset class diversification?

Answer: @paulmerriman2947

A portfolio using sector diversification will usually be much more volatile than one based on large, small, value, growth U. S. and international equity asset classes. The higher risk might lead to higher returns but just as likely lower returns. All of the sectors will be part of the equity asset classes.

Question: @hagi2013

Heads-up to Paula for your patience!

Answer: @paulmerriman2947

I had the same thought as I watched the interview. I talked too much and Paula patiently waited for me to wind down before we moved on. I keep trying to keep it short but at 81 years of age I doubt I will overcome the challenge.

Question: @FIgirl2035

This was a great episode! I really enjoyed it. Thank you for sharing this investing strategy. I like it because it’s backed by tons of research and it’s simple. I had just learned of Paul Merriman’s 4 fund portfolio early last week and I was pleased discover that after doing a little research beforehand, I had already included funds in 3 of the 4 asset classes that Paul suggests need to add small cap blend to complete the portfolio. Would having a small allocation to international and real estate (REIT ETF) have a significant impact on returns? Would you recommend having 6 funds for a beginner with a small portfolio? Thank you Paula and Paul!

Answer: @paulmerriman2947

Adding the international and REIT asset classes to your tax free or tax deferred account will add to your diversification, and potentially reduce your volatility a bit, but will not likely lead to higher returns. I hope you will review the risk and return of all our portfolios on the Sound Investing Portfolio page.

Question: @michaeldbouck

The problem with Merriman's approach is that he is just slicing-and-dicing equity beta vs. true diversification. Merriman presents SCV as a different "asset class" however it's still equity beta and highly correlated to your other equity assets.

Answer: @paulmerriman2947

I discussed the 1928-2023 quilt chart with Paula. I hope you will take a look at the huge annual differences in the annual returns of the S&P 500 and small cap value.

Question: @danmahoney8577

This guy has been pushing small cap value and underperforming for years. Now it’s value. Sorry no thanks.

Answer: @paulmerriman2947

I'm not pushing small cap value. I am pushing diversification beyond more than large cap growth. I'm 81 and I have large and small, value and growth, U.S. and international, along with enough in bonds to address my willingness to lose money in a severe bear market. And I have been pushing this combination for over 30 years. In the 2000-2009 bear market the combination made about 7% a year vs. a loss of 1% a year in the S&P 500. On the other hand there were long periods the S&P 500 made more money. The reality is no one knows what the market will do so I like the idea of more, rather than less, diversification. Good luck Dan!

Question: @milikapm
thank you for that insight! Would love to read read your book! Thanks for the info on target date funds. I will look into that! Also, you said you teach at a university? Without taking your class (I would actually like too) does your book cover the same things?

Answer: @paulmerriman2947
The book covers the basics but for those wanting to know more our Boot Camp Series takes you into more details about the biggest investment decisions you will make. It is also free.

Testimonial from Paula Pant Interview

"Great video!! Love hearing Paul's investing philosophy and the work he's doing. Thanks for the episode." @juicyfruit100x

The 4-Fund Strategy That Beats the S&P 500

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In This EditionQuilt Charts Beat Ultimate Buy and Hold!Latest PodcastQ&A's with Paula PlantTestimonial

In This Edition
Quilt Charts Beat Ultimate Buy and Hold!
Latest Podcast
Q&A's with Paula Plant
Testimonial