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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. 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!
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Today, we're diving into something super important for anyone interested in mutual funds: the SPIVA Report, it's a big deal, and we'll break down why.
But before we get to that, a quick note about August 4th. Chris, Daryl, and I are getting together that day to figure out how we can do even more to help you, not just now, but for the rest of your life as we all get closer to retirement. This is a huge goal, and we'd love your input! What can we do to improve our educational materials? Please email me your ideas at [email protected]. We're thinking about everything, from AI's role to helping you build a portfolio that truly lasts a lifetime, send your thoughts my way!
The SPIVA Report: Active vs. Passive Investing
Alright, let's talk SPIVA. This report has been around since 2002, tracking the performance of active versus passive mutual funds. They analyze virtually every actively managed fund, comparing them to appropriate market indexes. They go to great lengths to ensure fair, "apples-to-apples" comparisons.
A crucial aspect they address is survivorship bias. Many underperforming funds get merged or liquidated. If you were investing, these funds were part of your initial choices. SPIVA accounts for all funds, not just the ones that survived, giving a much more accurate picture. This is a key difference from other reports that only look at surviving funds, which can make active management look better than it is. They also track style consistency – ensuring funds stick to their stated investment approach, unlike some active managers who might "drift" in their investments.
What the Data Reveals: The Long-Term Advantage
While single years can show active managers doing okay, the real story unfolds over longer periods. Let's look at large-cap core funds (like those tracking the S&P 500):
· 1 year: ~76% underperform.
· 10 years: 96% underperform!
· 15 years: 97% underperform!
· 20 years: 93% underperform.
This is a powerful reason why I advocate for index funds. They're built on a formula, not on human managers trying to guess market winners. Across almost all equity asset classes, over 90% of actively managed funds underperform over 20 years.
Why? The first advantage for index funds is lower expenses. While active fund fees have come down, they're still a major factor. The biggest hidden risk, though, is manager's picks and timing. Active managers try to beat the market with individual stock selections, but the data shows it's incredibly risky. (By the way the report doesn’t address taxes on active funds and that can be another 1% drain annually.)
SPIVA's quartile data highlights this: for small-cap value over five years, the top 25% of active funds started at 10% or more. But the bottom 25% earned significantly less than 7.8%. This means you're taking on volatility and the risk of vastly underperforming your chosen asset class.
Survivorship & Patience
Another eye-opening stat: over 20 years, only 36% of all domestic funds are still in business. For large-cap growth, where the action has been recently, only 26% of funds from 20 years ago are still around. This suggests poor performance led to closures or mergers, hiding underperformance from investors.
In the end, you, the investor, are the hardest worker. Your discipline to stay the course during tough times is paramount.
The SPIVA report is a quality piece of research, factual and fair. While the future won't be identical to the past, it often "rhymes." The longer your investment horizon, the more likely choosing index funds (traditional or non-traditional) will lead to success, avoiding performance that may be more luck than skill. Patience is key, and we want you to have patience in owning funds with a very high probability of success.
WE ARE rooting for your investment success, not just for you, but for your children and grandchildren! So, good luck, and don't forget to send those suggestions for our August 4th meeting to [email protected].
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Join Paul Merriman, Chris Pedersen, and Daryl Bahls for a deep dive into questions facing today’s investors! In this episode, our team tackles a wide range of topics designed to help you make smarter financial decisions, whether you’re a seasoned DIY investor or just getting started.Main Topics Covered:1. Midcap Funds – Are They Necessary? 2:24We break down why midcap funds often get left out of recommended portfolios, the impact of fund overlap, and whether including them really adds value or just complexity.2. Listener Allocation Questions 12:49Hear real-life portfolio allocation questions from our listeners—including how to balance S&P 500, value, and midcap funds. The team discusses the pros and cons of various strategies and how to avoid unnecessary overlap.3. The Risks of Small Cap Growth 19:10Discover why small cap growth funds can be risky, the historical performance data, and why value funds may be a better long-term bet for most investors.4. Hourly Advisors & DIY Investing 22:41Thinking about ditching your advisor and going DIY? We discuss the benefits and challenges of working with hourly advisors, how to find one that supports your strategy, and the importance of sticking with a plan you understand.5. Capital Gains & Taxes 27:45Got questions about selling investments and minimizing taxes? While we don’t provide personal tax advice, our experts outline the key considerations and why consulting a tax professional is essential for big moves.6. Financial Freedom Mindset 30:05It’s not just about retirement—it’s about saving for freedom! Learn how reframing your financial goals can keep you motivated and focused for the long haul.7. Avantis vs. DFA Funds 31:15Curious about the differences between Avantis and DFA ETFs? Chris and Daryl compare these two fund families, explaining how their philosophies align, where they differ, and how to choose the best fit for your portfolio.8. AVGE for Granddaughter? 38:32Paul shares his personal approach to investing for his granddaughter, comparing AVUS, AVUV, and AVGE, and why teaching young investors about asset class behavior can be more valuable than just chasing returns.9. Should You Avoid Growth Funds? 45:53They explain why “growth” funds aren’t always what they seem, the pitfalls of chasing expensive stocks, and why a tilt toward value and small cap may offer better long-term results.10. The Rule of 72 – Power of Compounding 52:47Learn how to use the Rule of 72 to teach young investors (and yourself!) the massive impact of compound returns over time. It’s a simple math trick that can change your financial future.Daryl references this table- Sound Investing Portfolios 1970-2024- https://tinyurl.com/4xabhke5
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In this special episode, Paul Merriman reflects on six decades of financial evolution, sparked by his son's 60th birthday. He draws fascinating comparisons between life and investing in 1965 and today, offering invaluable insights for every investor.
What You'll Learn:
A Look Back at 1965: Paul revisits societal norms, income levels, and the investing landscape of 60 years ago, including startling facts about mutual fund loads and stock commissions.
The Evolution of Investing: Understand the monumental shift from individual stock picking to the dominance of mutual funds and the revolutionary impact of index funds since their inception.
Market Returns & Bear Markets: Gain perspective on historical S&P 500 returns, including adjustments for inflation, and a review of major bear markets over the past decades.
The Power of Low Costs: Discover how investment costs, from loads to commissions, have drastically reduced, making it easier and more affordable for today's investors.
Modern Investment Tools: Paul highlights the advent of crucial financial tools like IRAs, 401(k)s, and target-date funds that weren't available in 1965, empowering today's investors.
Academic-Driven Investing: Explore the rise of academic influence in investing, with a focus on firms like Vanguard, DFA, and Avantis, and why their approach offers a trustworthy path to your financial future.
The Role of AI in Your Financial Journey: Paul shares his perspective on how Artificial Intelligence can empower investors to make informed decisions and find reliable financial guidance.
Top Financial Education Resources: Learn about the highly recommended (and free!) "Rebel Finance School" by Alan and Katie Donoghan for new investors, and explore how to access financial literacy programs like iGrad.
The Importance of Financial Literacy: Paul emphasizes that financial literacy is often overlooked in traditional education and is essential for building a robust portfolio that will support you for a lifetime.
DIY Investing Philosophy: Paul reaffirms his core mission as a teacher, empowering listeners to "do it yourself" and build their financial future with confidence.
Truth Tellers: Paul asked our listeners for recommendations for Truth Tellers as well as providing the list of our Truth Tellers in the show notes.
Our Truth Tellers
William J. Bernstein
Ben Carlson, CFA
Jonathan Clements, Financial Writer/Author
Larry Swedroe, Author, Speaker, Chief Research Officer
Dr. James Dahle, MD and the founder of The White Coat Investor
Morningstar – Christine Benz and John Rekenthaler, Financial Writers
Stan The Annuity Man, Annuity Expert
George Sisti, Certified Financial Planner®
Rob Berger, podcaster, writer and author
Tim Ranzetta, ngpf.org
Two Cents
Tom Cock and Don McDonald Vestory
Ben Felix
Don't miss this insightful episode filled with historical context, practical advice, and forward-looking strategies for your wealth-building journey.
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Today I’ve got a lot to share: my recent trip to Western, new educational tables from Daryl Bahls, a must-read article by Ben Carlson, a fantastic free resource called Rebel Finance, and some takeaways from the latest Bogleheads meeting.
Last week, I spent two full days at Western, meeting with students, faculty, and staff. I gave presentations to graduating seniors, a personal finance class, and the Financial Management Association Club. These students were eager to learn about building a strong financial future, and it was inspiring to see so much enthusiasm.
To get students excited, I sponsored a $1,000 drawing—no strings attached. If the winner wanted, I offered to personally help them set up a Roth IRA and invest the money for long-term growth. The goal was to show how even a single investment can grow over a lifetime.
That brings me to two new tables created by Daryl Bahls. These tables make the power of compound growth real. The first table shows what happens if you invest $1,000 at age 22 in a Roth IRA and let it grow at 8%, 10%, or 12% annually. At 8%, that $1,000 could become $30,000 after 45 years—and even more when you factor in distributions and inheritance. At 12%, the total benefit can reach over $3 million! The second table looks at saving $100 a month for 45 years. With steady returns, this strategy can result in a retirement nest egg of hundreds of thousands—even millions—of dollars, plus generational wealth for your heirs.
A key lesson: with lump sum investing, the sequence of returns doesn’t matter much. But with regular monthly investing, buying more shares when prices are low can significantly boost your long-term results. This is especially true in volatile markets like small-cap value stocks.
Of course, many people face hurdles getting started—thinking it’s too complex, not having enough money, or fearing loss. My advice is: start small, stay consistent, and use the resources available to you.
Speaking of resources, I want to highlight Rebel Finance, a free 10-week course led by Alan and Katie, a couple who retired early and now teach others how to manage money and invest. Their sessions are interactive, practical, and archived on YouTube. If you—or someone you know—needs a supportive, step-by-step introduction to personal finance, Rebel Finance is a fantastic place to start.
I want to highlight the Merriman Financial Literacy Program at Western. This initiative is close to my heart and is designed to give every student—regardless of their background—the tools and knowledge they need to make smart financial decisions for life. Thanks to the program, all graduating students at Western receive free access to iGrad, a comprehensive suite of financial education tools and courses.
I also want to mention Ben Carlson’s article, “On the Inevitability of Bear Markets.” Carlson shows that bear markets are unavoidable—there’s a 77% chance you’ll experience one in any 5-year period, and a 95% chance over 10 years. But the longer you stay invested, the greater your odds for positive returns. Historically, holding the S&P 500 for 20 years has always resulted in gains.
Finally, I had the pleasure of attending a Bogleheads local chapter dinner. It was inspiring to meet others interested in index investing and financial education. We shared ideas, discussed financial planning tools, and talked about helping our families build wealth. I’ll also be speaking at the Bogleheads Conference in October—check the show notes for details.
Before I sign off, a quick note: AI is changing how we learn and teach about investing. I’m using it to organize my thoughts and create better presentations. If you have thoughts or experiences using AI in your financial journey, I’d love to hear from you.
Thank you for listening! If you found today’s episode helpful, please like, subscribe, and share it with someone who could benefit. Your support helps us reach more people and make a bigger impact. Good fortune, and happy investing!
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In this episode, Paul Merriman details his upcoming presentations at Western Washington University, where he will be connecting with students, professors, and staff about the critical importance of personal finance education. Paul also gives practical investing advice, including a hands-on guide to using Morningstar’s chart and comparison tools to analyze mutual funds and ETFs.
Special Feature: Free Online Financial Literacy Course
Paul spotlights a fantastic, free multi-week financial literacy course led by Alan and Katie Donoghan—nationally recognized educators from the UK. This course is perfect for first-time investors of any age, as well as anyone looking to build a solid foundation in personal finance.Course Dates:
The next session starts 2 June 2025 at 8pm UK time. Sessions run weekly throughout the summer.What’s included: Engaging lessons on investing basics, budgeting, mortgages, and money management—delivered in a fun, approachable style.Format: Live online sessions (with replays on YouTube), each followed by an expert Q&A.Who’s it for: Anyone—from college students to adults in their 40s or 50s—looking to take control of their financial future.Previous students give rave reviews: Over 15,000 people have enrolled, with glowing testimonials from participants who now feel confident and empowered about their finances.How to join: Register here for free and find the intro video and full schedule. All sessions are accessible worldwide.Morningstar Tools & Tables Referenced:
Paul walks listeners through using Morningstar’s chart and comparison features, specifically referencing the following funds and time periods:VFINX (Vanguard 500 Index Fund):
Time period: From August 31, 1976 to May 23, 2025Used to illustrate long-term S&P 500 performanceTESIX (Franklin Mutual Shares Fund):
Time period: From August 31, 1976 to May 23, 2025Compared side-by-side with VFINX to show how a value fund performed versus the S&P 500 over nearly 50 yearsDFLVX (DFA US Large Cap Value Fund):Time period: From 1993 to 2025Compared with TESIX and VVIAX for large cap value performanceVVIAX (Vanguard Value Index Fund):
Time period: From 1993 to 2025Used for comparison with DFLVX and TESIXDFSVX (DFA US Small Cap Value Fund):
Time period: From 2000 to 2025Compared with TESIX for small cap vs large cap value performanceAVUV (Avantis US Small Cap Value ETF):
Time period: From 2021 to presentCompared with DFLVX and VVIAX for recent small cap value performanceHow Paul Uses Morningstar:
On Morningstar, Paul suggests:
Navigating to the “Chart” tab for each fundSelecting “Max” to see the longest available performance historyEntering ticker symbols (like VFINX, TESIX, DFLVX, VVIAX, DFSVX, AVUV) in the “Compare” box to view multiple funds together- make sure any funds being compared to the primary fund have a track record from a date at least as long as the primary fundUsing Morningstar’s Chart and Compare tools:
Compare VFINX vs TESIX (1976–2025)Compare DFLVX, VVIAX, and TESIX (1993–2025)Compare DFSVX vs TESIX (2000–2025)Compare AVUV vs DFLVX and VVIAX (2021–present)PDF showing the above comparisons
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Prior to discussing his topic of the day, Paul shares his thoughts on a recent podcast featuring Truth Tellers Tom Cock and Don McDonald, joined by Weston Wellington from Dimensional Fund Advisors. Weston weighs in on some of the most critical issues facing investors right now.
Here are the topics on the podcast with Tom Cock and Don McDonald-
0:53 Weston Wellington on volatility and market uncertainty
2:47 Why volatility is the “price we pay to play”
3:32 The media’s role in investor anxiety
4:57 Should investors act on daily financial advice?
6:15 Portfolio changes should reflect personal changes, not headlines
7:24 Spam vs. Motorola: A lesson in stock picking
9:44 Dimensional’s stance on individual stock ownership
10:02 Diversification as “the closest thing to a free lunch”
11:07 Are alternative investments the new magic bullet?
12:43 Mutual funds vs. ETFs—what works best and when
15:27 Industry evolution: from 8% loads to indexing dominance
18:29 Where Dimensional fits in the modern fund landscape
21:01 AI vs. “aggregated intelligence” in managing portfolios
24:04 How regular people can find real financial advice
25:34 The key to success: Temperament, not timing
26:44 Weston’s side gig as a roving birthday singer
27:58 Why Weston hasn’t been invited lately (and he's lonely)Next, Paul highlights a recent article by another Truth Teller, Ben Carlson. In “60/40 Portfolio Corrections, Bear Markets and Recoveries,” Ben breaks down the differences in returns during bear markets and the bounce-back that follows. Inspired by this, Paul explores a question that doesn’t get much attention: What’s the impact on a portfolio when you apply a 4% fixed withdrawal rate to the nine Sound Investing equity portfolios, each with a 60/40 equity-to-fixed income split? The results may surprise you!
Paul notes there’s more to come on this topic, as these findings could have a real impact on how investors choose their retirement portfolios.
As promised, here are the links to the Sound Investing Portfolios:
50% U.S. / 50% International
70% U.S. / 30% International
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Being a do-it-yourself investor can be both rewarding and challenging. In this episode, we explore the essential mindset and strategies needed to succeed in the long term.
Drawing from academic research, historical data, and decades of experience, this episode covers:
Why short-term returns are often just noise and how to focus on the bigger picture.The importance of a 20-30 year horizon for small-cap value investments.How to avoid emotional decision-making and set realistic expectations.Insights into the performance of small-cap value vs. the S&P 500 over 25+ years.The role of faith, patience, and discipline in building a successful investment portfolio.Paul also provides a step-by-step guide to help investors analyze the numbers referenced in this episode. Follow these steps to compare small-cap value funds and the S&P 500:
Steps to Analyze Performance on Morningstar:
Open morningstar.com.Enter DFFVX in the search box at the top of the page.Open the Chart option located next to the Quote.Select MAX next to the Start Date to view the full performance history.One by one, enter the following ticker symbols into the Fund Chart Compare search box and hit return after each:This process allows you to visualize and compare the performance of these funds over time and gain a deeper understanding of the data discussed in this podcast.
Whether you're 25 or 81, this episode is packed with actionable insights and encouragement to help you stay the course and achieve your financial goals.
Listen now for expert advice and a fresh perspective on long-term investing!
Links that Paul uses in this podcast-
Bootcamp #1 - Biggest Decision of All: Stocks vs. Bonds
Avantis Quilt Chart
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"Buy and hold investors don’t just win on average returns— they win by avoiding the behavioral landmines that sabotage long-term success.” Paul Merriman
In this podcast Paul addresses one of the most important investment decisions a do it yourself investor will make.
Paul opens the discussion with comments from a Forbes article from 2008 that discusses Warren Buffett’s market timing decision he made to get totally out of the market in 1969 and back aboard in 1974.
The podcast (with the help of Chatgpt, includes a list of 10 common reasons market timing doesn’t work for amateur investors.
1. Missing the best days
2. Emotional decision-making
3. Perfect timing is impossible
4. Higher costs and taxes
5. Volatility is high during recovery
6. Recency Bias
7. Focus on noise, not timing signals
8. Overconfidence
9. Loss of Compound Growth
10. Data shows long-term investing wins
Paul challenges AI that there are many emotional disadvantages with timing.
The most important performance and non performance hurdles:
1. Decision-making: Timing requires lots of work and buy and hold almost none.
2. Mistakes: Market timing suffers lots of mistakes and buy & hold rarely wrong in the long term.
3. Emotional Toll: Timing has lots of emotional challenges and buy & hold is more peaceful.
4. Behavioral Risks: Timing has lots of behavioral risks and buy & hold is simple.
5. Time Commitment: Timing takes time and action and buy & hold is rarely touched.
6. Expenses: Costs and taxes are both lower with buy & hold.
7. Timers must be more resilient with many decisions being wrong.
8. Financial Results: A few timers may perform well but all buy & holders are likely to have “won”.
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April is Financial Literacy Month, and to help us celebrate we brought in a returning guest, Paul Merriman. Paul has been on the show before to discuss investment portfolios, but today he talks with us about some extraordinary strides he's making as a financial literacy advocate through his nonprofit, The Merriman Financial Education Foundation. We also share some of our favorite financial literacy resources.
RESOURCES MENTIONED ON THE SHOW🌐 Visit Catching Up to FI website
https://catchinguptofi.comPaul's Website
https://www.paulmerriman.comMerriman Financial Literacy Program at Western Washington University
https://financialliteracy.wwu.eduIGrad
https://www.igrad.com/Next Gen Personal Finance
https://www.ngpf.orgWhite Coat Investor
https://www.whitecoatinvestor.comThe John C. Bogle Center for Financial Literacyhttps://boglecenter.net
TIMESTAMPS / CHAPTERS
00:00 📣 Introduction and Financial Literacy Impact
01:09 👋 Welcome and Guest Introduction
01:35 🤝 Paul Merriman's Nonprofit and Financial Literacy Story
02:33 💡 The Importance of Financial Literacy
06:59 🏫 Nonprofit Initiatives and University Programs
16:15 🏋️♀️ Bootcamp and Investment Decisions
18:07 🌐 Other Financial Literacy Organizations
22:09 🏛 State-Level Financial Literacy Education
25:55 ✨ Final Thoughts and Encouragement
31:27 🙏 Conclusion and Farewell
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This updated discussion of the Ultimate Buy and Hold Portfolio highlights the advantages of equity asset allocation and worldwide diversification. The presentation was presented to members of the Washington State Society of CPAs.
At the end of the presentation Paul adds his list of 15 million dollar decisions that all investors will make in their lifetime.
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Join me on Catching Up to Fi l with Rick Ferri to discuss key investing topics like asset allocation and the pros and cons of small-cap value vs. total market funds.
TIMESTAMPS / CHAPTERS
00:00 ⛓️ Understanding Bonds and Young Investors
02:31 🌟 Introduction to Financial Literacy Titans
03:12 🎓 Paul Merriman's Financial Education Foundation
04:18 🧠 Rick Ferri and the Bogle Center for Financial Literacy
12:09 ⚖️ The Importance of Asset Allocation
23:11 🌍 Debating International vs. US Stocks
35:12 🗓️ Target Date Retirement Funds: Pros and Cons
45:55 📈 Exploring Small Cap Value Investing
49:34 🧩 Understanding Non-Traditional Index Funds
50:28 🔍 Small Cap Value Performance Analysis
52:56 👨👩👧👦 Generational Wealth and Portfolio Management
53:54 🧬 Diverse Value Factors in Investing
55:55 🚧 Challenges of Small Cap Value Investing
57:33 🧭 The Philosophy of Long-Term Investment Strategies
01:01:11 🧪 Debating the Evidence-Based Investing Approach
01:12:46 🛡️ The Importance of Staying the Course
01:22:05 🎤 Final Thoughts and Recommendations
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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 strategiesMarket timing vs. buy-and-hold approachesSimplicity vs. complexity in portfolio constructionThe role of faith vs. evidence in investment decisionsWhile 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.
Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.
(0:00) Debate intro: small cap value vs index funds
(4:01) Merriman: small cap value offers premium returns
(9:40) Jeske: small cap value underperformed since 2006
(18:20) Historical performance data significance
(25:15) Stakes: difference of millions over time
(33:08) Diversification vs added volatility debate
(41:45) Risk-adjusted returns comparison
(49:08) Questioning true diversification benefits
(57:40) Value traps and actively managed funds
(1:05:08) Technology stocks vs value investments
(1:13:45) Data selection bias in studies
(1:19:40) Faith vs science in investment decisions
(1:29:20) Personal risk tolerance considerations
(1:36:08) Closing arguments on investment strategies
(1:42:08) Paula declares the debate a draw
Watch video here
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If a retired investor has the ability to use a flexible distribution strategy it will likely produce one of the best financial outcomes in retirement.
Before discussing flexible distributions Paul lists the reasons he believes that 99% of successful long term depends on defensive steps. After listing 18 defensive decisions he explains why flexible distributions are better than fixed distributions for those who have over said.
The presentation includes 16 distribution tables that can be found in this pdf for the presentation.
In each case Paul compares the difference in returns and risk between the fixed and flexible distribution strategies. The discussion compares returns and total distributions for two of the 9 sound investing portfolios: one using the S&P 500 and the other the U.S. 2 Fund Portfolio (50/50 S&P 500Small Cap Value).
Other links noted in the presentation:
Sound Investing Portfolios
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The move from the accumulation to distribution period of an investors lifetime includes some very important decisions.
What asset allocation between equities and fixed income?What combination of equity asset classes in the equity portion, as well as fixed income asset classes?What amount of distribution will be made annually?Will the payments be monthly, quarterly or annually?Will payments be adjusted for inflation and how often?Will the distributions be based on a fixed distribution with regular adjustments for inflation (the topic in this presentation) or on a flexible basis (the topic of the next segment)?In this podcast Paul uses 15 slides to address the questions above. It is recommended the viewer print out the PP presentation to make it easier to follow the numbers.
Many may find it is easier to follow the information on Paul’s video on the same topic.
If you have questions about the presentation please leave comment or question in the comment section of the video or email [email protected]. For those sending an email please let us know the topic of the Boot Camp presentation.
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Watch video here
Young and first time investors have to address a number of monumental decisions.
How much money to save for the futureHow much they should invest in equities and bonds How much of the equities should be in large, small, value, growth, U.S. and international asset classesHow much to increase the investment each yearThis podcast/video helps the investor address those decisions. For those listening to the podcast here is a link to the pdf of all of the tables referenced in the presentation. He only focuses on a handful of tables but here is a link for those who want to review the entire set of tables.
Paul discusses the accumulation process from the viewpoint of an investor as well as a small business owner.
If you have questions please send them to [email protected] or leave them in the comment section below.
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Here is the video link-
This is the 4th in a series of 9 Boot Camp videos/podcasts.
The previous three segments covered :
Stocks vs. BondsThe Ultimate Buy and Hold Portfolio Sound Investing Portfolios.In this presentation Paul focuses on the differences between the risks and returns of different percentages stocks and bonds. He also discusses one table that mixes different percentages of the S&P 500 and small cap value.Here are a couple of videos that focus on small cap value.
$13.83 Million? Yes Please! Paul Merriman’s Small Cap Value Strategy
The one asset class you must own
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Watch Video here
Chris Pedersen updates his recommendations and describes his selection process in an interactive presentation with Paul and Daryl along for the ride.
This "Best In Class ETFs Recommendations" presentation is the 9th in the Boot Camp Series. (We have not completed some of the earlier presentations due to the high interest in Chris' Best In Class Recommendations).
The focus of each the Boot Camp presentation is to help investors make the best of what we consider to be the biggest long term decisions they will make.
Of course we cannot know the ETFs that will produce the highest returns but we can measure the likely impact of the factors that Chris discusses during his presentation.
On behalf of all of the people who find this work helpful, as well as Daryl Bahls and myself, I want to thank Chris Pedersen for all he has done to help us understand the potential long term advantage of his analysis. It is our hope that his work will give investors the confidence and commitment to “stay the course" in the normal ups and downs of the market.
00:00:00 - Intro
00:07:15 - Changes
00:12:31 - Factor Basics
00:18:00 - Selection Criteria
00:20:21 -- Quantifying Differences
00:24:32 -- Comparing in an Asset Class
00:31:10 -- More than just numbers
00:32:12 -- BIC ETFs on Website
00:33:05 -- US Large Cap Blend
00:34:33 -- US Large Cap Value
00:37:40 -- US Small Cap Blend
00:42:30 -- Int'l Large Cap Value
00:43:30 -- Int'l Small Cap Blend
00:44:15 -- Em. Mkts Small Cap Blend
00:44:50 -- Portfolio Configurator
00:46:25 -- Roboadvisor ETFs
00:51:06 -- Versus Russell 2,000?
00:54:00 -- Avantis & DFA Advantage
01:03:36 -- Analysis Timeframes
01:04:44 -- Closing Remarks
Links:
Best-in-Class ETF Recommendations Page
Portfolio Configurator
Sound Investing Portfolios Bootcamp Page
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The 2024 numbers are finally in and we have produced the #1 investment decision in the Bootcamp series. There is no question that the biggest lifetime decision an investor makes is the choice between the safety of bonds and the potential long term growth of stocks. Here is a link to the pdf of the set of slides Paul uses in the presentation. The presentation includes the updated 1, 15 and 40 year returns tables along with the quilt charts for the 1928 to 2024 period.
Our thanks to Daryl Bahls who has put together most of the tables in the Bootcamp series.
If you have questions please send them to [email protected]. Please put Bootcamp #1 in the subject line.
Watch video here.
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The purpose of this podcast/video is to help investors understand the likely risk and return parameters of small cap value, S&P 500, 2 Fund Portfolio (50% each SCV/S&P) and 4 Fund Portfolio (25% each SCV/S&P/SCB/LCV). In each case the best, worst, and average 1, 2, 3, 5, 10. 15, 20, 25, 30, 35, 40 year returns are listed.
The following tables are discussed:
S&P 500 Historical Risk and ReturnUS SCV Index Portfolio Historical Risk and Return
US 2 Fund Index Portfolio Historical Risk and Return
US 4 Fund Index Portfolio Historical Risk and Return
Also the risk and return page from the Sound Portfolios is referenced.
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