Sound Investing

On this special Q&A episode—recorded July 29 2025—Paul Merriman gears up for his August 2 keynote at the Garrett Planning Network Retreat, where he will address more than 100 hourly financial advisors about the future of financial literacy. He invites listeners to email questions for the panel (paul@paulmerriman.com [paul@paulmerriman.com]) and then dives into ten wide‑ranging listener questions that benefit investors of every age and stage. What you’ll learn * Adding QQQ to the 10‑Fund “Ultimate Buy‑and‑Hold” portfolio: upside vs. hidden downside. * Toughest markets Paul has faced—from the 1966–1981 whipsaw to the 1987 crash—and the timeless lessons they teach. * Global diversification in 2025: 50/50 vs. 70/30 U.S./international and why volatility, not return, drives the decision. Table B4 [https://irp.cdn-website.com/6b78c197/files/uploaded/Fine+tuning+Table-B4.pdf], Table B3a [https://irp.cdn-website.com/6b78c197/files/uploaded/Fine+tuning+Table-B4.pdf] and Table B3b [https://irp.cdn-website.com/6b78c197/files/uploaded/Fine+tuning+Table-B3b-d15b621f.pdf] * Small‑Cap Value vs. S&P 500 performance: 1975‑1999’s 5 % premium, 2000‑2025’s 2.6 % edge, and what it means going forward. * Avantis + DFA split for deeper diversification (cost, holdings, tracking error). * Risks of an all‑Small‑Cap‑Value portfolio and when a worldwide all‑value approach makes more sense. * Using DFA International Small‑Cap Value (DFISX) inside a 403(b) for a Two‑Fund strategy. * Vanguard STAR vs. Vanguard Wellington: balanced‑fund showdown and why Wellington’s 60/40 mix wins in the long run. * Rebalancing at age 62: tax‑smart moves, asset‑location tactics, and simplifying with target‑date or balanced funds. * Anatomy of the Ultimate Buy‑and‑Hold strategy [https://www.paulmerriman.com/ultimate-buy-hold-update-2025#gsc.tab=0]: 10 equity asset classes, why it started in 1994‑95, and how four‑ and two‑fund variations stack up. Sound Investing Portfolio Returns (1970-2024) 50/50 [https://irp.cdn-website.com/6b78c197/files/uploaded/-Sound-investing-portfolios-50-50-2025-0bac4535.pdf]  and  Sound Investing Portfolio Returns (1970-2024) 70/30 [https://irp.cdn-website.com/6b78c197/files/uploaded/70-30-Soundinvesting-portfolios-2025.pdf] Paul backs every takeaway with real‑world data—from DFA, Avantis, Vanguard, and Russell indexes—illustrating how disciplined asset allocation can tame the brutal drawdowns that crush performance when investors chase recent winners. You’ll hear why trend‑following protected clients in 1987, how dividends rescued returns in the 1966–1981 “go‑nowhere” market, and why low‑cost indexing plus global value exposure remain his bedrock recommendations. Got a question for Paul’s hourly‑advisor panel? Email it before July 31 and help shape the conversation on transparent, client‑first advice. Listen now to sharpen your strategy—whether you’re building wealth, 20 years from retirement, or fine‑tuning a 50/50 portfolio in your 60s.

In this episode, Paul Merriman shares insights into upcoming events, including his presentation at the Garrett Planning Network Retreat, as well as his reflections on asset allocation, government bond strategies, and the benefits of various portfolios for different life stages.  Tune in for a deep dive into how different funds and asset classes perform over the long term, and how to optimize your investment strategy, regardless of age or risk tolerance. Key Topics Covered: 1. Long-Term Returns Comparison Paul compares two small-cap value funds: the Vanguard Small Cap Value Fund (VSIAX) and the DFA Small Cap Value Fund (DFFVX). To find long-term returns for these funds, Paul uses Morningstar’s chart function, which allows users to view the maximum (MAX) historical data for any given fund, helping to compare the performance of these funds since their inception  2. Best Asset Allocation for Retirees The best asset allocation for retirees typically depends on individual factors, such as risk tolerance and life expectancy. Generally, Paul suggests a moderate equity allocation of 40-60% in stocks, with the rest in fixed income, for retirees who have enough saved up to comfortably fund their retirement . 3. Asset Allocation for an 83-Year-Old Retiree For an 83-year-old retiree, Paul discusses a more conservative portfolio with two-thirds in bonds and one-third in equities. This conservative approach, which mirrors the allocation in Vanguard’s target-date funds, aligns well with retirees who are less reliant on aggressive growth but still need some equity exposure to combat inflation . 4. Why Use Three Government Bond Funds? Paul advocates for a diversified bond strategy that includes TIPS (Treasury Inflation-Protected Securities), short-term government bonds, and intermediate-term government bonds. This combination offers a balance of safety, growth potential, and reduced volatility compared to using just one bond fund, and provides a more stable return over time. 5. How the Worldwide 4 Fund Portfolio Works The Worldwide 4 Fund Portfolio is structured with 25% in large-cap blend (U.S), 25% in large-cap value (INTL), 25% in small-cap blend (INTL), and 25% in small-cap value (U.S.), giving you a diversified mix of U.S. and international equities. This approach optimizes for both size and value, ensuring a balanced exposure to market growth, volatility, and global investment opportunities. 6. Should a 26-Year-Old Use the 2 Funds for Life Portfolio Yes, a 26-year-old could benefit from the 2 Funds for Life Portfolio, which typically includes the A TARGET DATE FUND and a small-cap value fund. This strategy allows young investors to focus on equity growth, benefiting from the long-term appreciation potential of small-cap value stocks while minimizing risks associated with bonds at an early stage 7. Managing the 2 Funds for Life Portfolio with S&P 500 & Small-Cap Value  For someone using only the S&P 500 and small-cap value fund, Paul suggests a flexible allocation approach. You might start with a 50/50 split, or adjust according to your risk tolerance. The small-cap value fund tends to be more volatile but offers higher returns over time, while the S&P 500 provides more stability with lower volatility . 8. Can There Be a 3 Funds for Life Portfolio? Yes, a 3 Funds for Life portfolio could include the S&P 500, large-cap value, and small-cap value. Paul suggests mixing these three equity asset classes to achieve a balanced portfolio that offers growth potential without overexposing yourself to risk. ⁠ Resources: 1928-2024 Quilt Chart (K1a)⁠ [https://irp.cdn-website.com/6b78c197/files/uploaded/(K)_Quilt_Charts_(1928-2024)_-_2024_Returns_(1).pdf] ⁠Sound Investing Table (H2a)⁠ [https://irp.cdn-website.com/6b78c197/files/uploaded/H2a-soundinvesting-1119f9ad.pdf] Chris Pedersen’s 2 Funds for Life Table: For more detailed insights, visit ⁠Chris Pedersen’s 2 Funds for Life table⁠ [https://www.paulmerriman.com/best-in-class-etf-recommendations-2025#gsc.tab=0].

In November 2020 The Merriman Financial Education Foundation released “We’re Talking Millions!  12 Simple Ways to Supercharge Your Retirement.”  The purpose of the book was to focus on a series of very simple steps any investor might take to improve their financial future.   "Understanding how to invest wisely for your future can be daunting. Many people never get started for fear of making mistakes. Others make choices based on hearsay and hope, sold on hype or risk aversion. In "We're Talking Millions!" you will learn why and how to make a handful of smart choices that can turn modest regular savings into a secure future. You'll discover "12 Small Steps with Big Payoffs," each of which can add $1 million or more to your retirement nest egg if you start in your 20s or 30s. These steps are well known.” The book has had a huge impact on an untold number of readers.  The numbers are unknown because the Foundation offer the book free as a pdf [https://irp.cdn-website.com/6b78c197/files/uploaded/Were-Talking-Millions.pdf], as well as a free link to the audio version [https://soundinvesting.com/talking-millions-audio.mp3]  (LINK) that was read by Truth Teller Don McDonald. While the book has had almost 400 online Amazon reviews (averaging 4 1/2 stars), the approximately 100 written reviews have over 95% 5 star ratings.  Here is one from a young student (age 19 at the time) who is now in medical school!   5.0 out of 5 stars Life-changing book for young people interested in investing [https://www.amazon.com/gp/customer-reviews/R3A0228MQ732EY/ref=cm_cr_dp_d_rvw_ttl?ie=UTF8&ASIN=1736119605] Reviewed in the United States on December 17, 2020 Format: Paperback Verified Purchase [https://www.amazon.com/gp/help/customer/display.html/ref=cm_cr_dp_d_rvw_avp?nodeId=G8UYX7LALQC8V9KA] "We're Talking Millions" was a life-changing book. I am a 19 year-old college student who was directed toward Mr. Merriman's book as a great resource for first time investors. His book was the perfect resource for someone with little to no prior knowledge about investing. It starts by outlining the twelve steps to boost a retirement fund, listing tips and tricks along the way. One of the most helpful parts for me was that all of the investment lingo was clearly defined and explained, and I could get a very clear sense as to how each of these small steps fits into the overall puzzle. The book then outlines how to get started: explaining the "Two Funds for Life" investment plan, what investment companies are best to use, and suggesting specific investment funds. I cannot recommend this book enough!! I feel confident about my investment plan after reading this book, and I plan to share it with as many of my peers as possible. I have already given it to my sister and best friend. If you are looking for information about investing and don't have the energy to read a long, dense investing book, then "We're Talking Millions" [https://irp.cdn-website.com/6b78c197/files/uploaded/Were-Talking-Millions.pdf] is the book for you! It is interesting, short, and extremely informative, and I hope that it helps you as much as it helped me. Now Paul has recorded this podcast and video [https://youtu.be/UTOUN46EDBM] to discuss the 12 steps.  The video was produced as part of a special offering to introduce Western Washington University alumni to The Merriman Financial Literacy Program [https://foundation.wwu.edu/wwu-merriman-financial-literacy-program] that is working to educate all WWU students on the personal finance topics that will be an important part of their future. Our hope is you will pass along these links to others in your life who might benefit from this free educational information. Is there someone in your life you think could benefit from the discussion of these 12 huge decisions? Here are several ways to access this information:  The following link is to a free pdf of our book, "We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.”  [https://irp.cdn-website.com/6b78c197/files/uploaded/Were-Talking-Millions.pdf]  A second and third link takes you  to a 2 hour video [https://youtu.be/UTOUN46EDBM]  and podcast on the 12 million dollar decisions.  And finally a very short (12 minute) podcast [https://irp.cdn-website.com/6b78c197/audio/12-steps.wav] or video review of the 12 decisions [https://youtu.be/mdDmfc_m7Yo].

Many of you have been submitting thoughtful questions through our AI chat, particularly on fund selection, asset allocation, and broader investment strategy. It’s encouraging to see this level of engagement with the core principles that shape long-term financial success. While the AI generally provides sound and efficient guidance, there are times when its responses lack the nuance or clarity that experience can bring. To provide deeper context and help you make more informed decisions, I’ve selected several recent questions to address—drawing from the AI’s suggestions where appropriate and adding insights based on decades of research and practice. One brief correction from a recent update: I previously mentioned a resource for ETF investors in Canada, Europe, and the U.S., but misspoke on the name. The correct website is ETFAtlas.com. Jack, the developer behind it, is creating a valuable tool for globally minded investors. Your candid feedback—what’s working well and what could be improved—will be essential as he continues building out the platform. Look for additional features to roll out in the months ahead. 1. What Sound Investing Portfolio does Paul use and why? 3:02 2. What funds should I use to set up a Roth IRA account for a 21-year-old? 13:06 3. Do you think Vanguard funds will get lower returns than Avantis and DFA ETFs?  21:46 4. Is there a table that represents using the S&P 500 and Aggregate U.S. Bond Index rather than your 3-fund bond portfolio?  26:51 5. I am 45, hoping to retire by 55-60. Is 25% in bonds too little? 31:04 6. Does it make sense to have non-taxable bonds in an IRA? 34:34 7. Your quilt chart (1928-2024) shows a 2-fund portfolio with 50% each small cap value and large cap value. Isn’t that too much in small cap value? 35:39 8. How often should I rebalance?  38:09 9. In your podcasts you talk a lot more about the 4-fund portfolios (WW and U.S.) than you do the all-value portfolios. The all-values have higher returns but you recommend them less often. Why? 40:19 10. Are there conditions where the all-value portfolios will underperform the more balanced portfolios?  40:19. (Answer is integrated with previous question) 11. I’m 57. How much should I have in bonds?  49:30

On this week's podcast, we dive into my fascinating six-month journey with AI, exploring how tools like ChatGPT are revolutionizing access to information and informed guidance. Drawing inspiration from Seth Godin's insightful piece, "Education is Free, Learning is Expensive," we'll discuss why true learning demands commitment and effort, especially in today's information-rich world. I've discovered AI's power extends far beyond simple fact-checking. It's a game-changer for understanding diverse perspectives, even helping me tailor advice to different generations. My goal is to help you leverage this incredible tool to build a better financial future. We'll also gain some valuable perspective on investment returns, especially after the unique first half of the year. While six months isn't a long-term indicator, it's certainly given us plenty to discuss! Many are wondering if now's the time to jump into international equities, especially as they've shown unexpected strength. Understanding Diversification and Long-Term Investing I'll share my philosophy on successful long-term investing as a buy-and-holder: identifying equity asset classes that offer a premium for risk and grow faster than inflation. We'll examine the "ultimate buy and hold portfolio," which strategically blends U.S. and international equities, and analyze its performance over the past six months, comparing it to other popular strategies from Vanguard and DFA. You'll be surprised to see how closely Avantis and DFA ETFs performed, despite some significant individual fund differences. We'll also delve into the fascinating relationship between the U.S. dollar's value and international equity performance. For a deeper dive, I highly recommend checking out this illuminating table from Brandes Investment Partners: https://www.brandes.com/insights/chart-of-the-week/us-dollar-and-international-equities-03312023 [https://www.brandes.com/insights/chart-of-the-week/us-dollar-and-international-equities-03312023]. It clearly illustrates how the dollar's strength and weakness correlate with international returns, offering historical examples of how these trends ebb and flow. Chasing returns isn't the answer, but a diversified, buy-and-hold approach can significantly reduce volatility and smooth out your equity returns—a major advantage, especially for retirees. The Allure and Nuance of Long-Term Returns We'll then shift our focus to long-term performance data, specifically looking at the last 15 years through June 2025. You might be surprised to learn how the S&P 500, growth stocks, and even Berkshire Hathaway have compounded over this period, and how these returns compare to historical averages and expectations. While U.S. growth has been a clear winner recently, we'll discuss why historical norms suggest a different long-term outcome for value and small-cap stocks. I'll also address the popular Total Market Index and offer a candid take on whether it truly outperforms the S&P 500 for those not seeking broader diversification. We'll explore why, in some cases, a simpler approach might be just as effective, or even more so. The Power of Information and Future Tools Finally, I'll emphasize how today's access to free information from sources like Morningstar empowers you to conduct research that was unimaginable just decades ago. Plus, I'll give you a sneak peek at a new, exciting, and largely free tool coming soon from AtlasETF.com, which will allow you to easily test different portfolio strategies. Join me as we explore these crucial topics and continue to empower you on your journey to becoming a more successful long-term investor. What are your thoughts on using AI for financial planning? We'd love to hear from you!