Paul, Daryl, and Chris are back together to discuss plans, priorities, investing lessons, and listener questions. In this lively roundtable, the trio opens up about what’s next for The Merriman Financial Education Foundation—from simplifying tools like Best-in-Class ETFs and Two Funds for Life, to making the website and Boot Camp Series easier to navigate for new learners.
They also share candid insights about long-term investing, the patience it takes to stick with small-cap value, and the legacy they hope to leave through programs like the Merriman Financial Literacy Initiative at Western Washington University.
Listeners will hear how Chris and Daryl’s analytical engineering backgrounds continue to shape the Foundation’s data-driven resources and calculators, and how Paul’s lifelong focus on financial education and behavioral discipline remains the cornerstone of their mission.
Key Topics:
What’s changing at The Merriman Financial Education Foundation
Future plans for ETF recommendations (Avantis & DFA funds)
Boot Camp Series updates and website improvements
Lessons from small-cap value’s long history
Market timing realities and long-term investing behavior
Teaching the next generation through financial literacy
Referenced Resources:
Listen at Paulmerriman.com — where education meets experience.
Visit paulmerriman.com for free calculators, articles, and videos designed to help you make the most of your financial future.
In this practical and inspiring ETFatlas podcast episode, host Jack Lempart welcomes Paul Merriman for a return conversation focused on the biggest mistakes beginner investors make—and how to avoid them.
The discussion reveals why most investing errors are emotional, not technical. Paul emphasizes that successful investing is usually simple, though almost never easy.
Paul Merriman draws on decades of experience as an educator, advisor, and founder of the Merriman Financial Education Foundation to spotlight key pitfalls:
Paul’s conversation goes further, sharing actionable tips:
You’ll also hear why academic research has shaped today’s best investment practices. Paul strongly advocates:
Listeners receive clear advice on keeping investing simple, avoiding high fees, and building portfolios designed to withstand uncertainty.
The episode closes with tips for further reading—including free educational resources and helpful links—to support every investor’s learning journey.
Agenda
Paul Merriman and Chris Pedersen tackle your biggest questions—from simplifying portfolios and picking best-in-class ETFs to understanding equal-weighted funds, tax efficiency, and how much small-cap value to own. They dig into factor investing (size, value, quality, profitability, momentum), why reversion to the mean matters, and how to think like an owner—not a speculator. Plus: mentors, work-life balance, and the real risk investors face.
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
Key Takeaways
“Best” ETF ≠ next year’s top performer—seek consistent factor exposure, low costs, broad holdings, and tax efficiency.
Equal-weighting boosts small/value exposure but can increase turnover and tax drag; pairing large-cap blend with small-cap value can be more efficient.
Decide small-cap value allocation by temperament (common range: 10–50% of equities when pairing with S&P 500/target date).
Index approach vs. index label: DFA/Avantis are systematic and rules-based without telegraphing rebalances.
Think like an owner: over decades, earnings—not sentiment—drive returns.
Resources
• Best-in-Class ETF Recommendations (2025): https://www.paulmerriman.com/best-in-class-etf-recommendations-2025#gsc.tab=0
• Sound Investing Portfolios, Returns & Risks: https://www.paulmerriman.com/sound-investing-portfolios#gsc.tab=0
• “Tune Out the Noise” (DFA Documentary): https://youtu.be/T98825bzcKw?si=kFMugnSSCn2E76sI
In this week’s episode, Paul Merriman shares lessons from a lifetime of investing—prompted by conversations with students, longtime collaborator Rich Buck, and questions from new investors about trust and risk.
Paul dives deep into the data behind his favorite long-term strategies, including the equal-weighted S&P 500 and the classic Four-Fund Portfolio, comparing 25-year results across multiple time periods.
He explains why no one can predict short-term returns, but how history can still guide your long-term strategy. Using decades of data, Paul shows how diversification across size and value has rewarded disciplined investors—even when recent performance has lagged.
Referenced Tables & Data:
40-Year Returns (1928–2024): S&P 500 best 12.5% / worst 8.9%
25-Year Periods (1950–1974, 1975–1999, 2000–2025)
Equal-Weighted S&P 500 (VADDX/RSP) vs. Cap-Weighted (VTSAX, S&P 500)
DFA Small Cap Value (DFSVX and DFFVX)vs. Russell 2000 Small Cap Value (IWN)
Four-Fund Portfolio (S&P 500, Large Cap Value, Small Cap Blend, Small Cap Value)
Two-Fund Portfolio (S&P 500 + Small Cap Value)
From 2000–2025, the S&P 500 compounded at 8.3%, while the equal-weighted version earned 9.9%, and small-cap value reached 11.1%. Paul explains why this premium persists and why patience—backed by data—is an investor’s greatest advantage.
Full tables and charts available at PaulMerriman.com
In this final episode of our four-part series, Paul Merriman compares three powerful approaches for a lifetime of investing:
100% S&P 500: high-risk, high-reward growth.
60/40 mix of S&P 500 and bonds: a defensive balance.
100% U.S. Four-Fund strategy: large-cap blend, small-cap blend, large-cap value, small-cap value.
Paul uses 55 years of data (1970–2024) to show how these portfolios performed during both accumulation and retirement distributions. Paul highlights the following critical tables from the Bootcamp series.
Table B1 - Fine Tuning Table: S&P 500 Equity Portfolio
Table B4 - Fine Tuning Table: US 4-Fund Equity Portfolio
Table C4 - Fixed Contributions ($1,000/yr): US 4-Fund Equity Portfolio
Table D4.4 - Fixed Distributions (Conservative-$40,000/yr): US 4-Fund Equity Portfolio
Table H2 – Sound Investing Portfolios (100% Equity)
Table H2A – Sound Investing Portfolios (60/40)
Table D1.4 – Fixed Distributions ($40k + inflation)
Did diversification deliver higher returns without extra risk? Or was the classic S&P 500 enough?
Get the numbers, the tables, and the takeaways to help you decide.
Paul Merriman continues our series on radical lifetime investment strategies—comparing an all-equity S&P 500 portfolio to a balanced 60% equity/40% bonds portfolio.
After two episodes focused on the accumulation phase, this third installment shifts to retirement distributions:
How much income could each portfolio provide?
How did they hold up during major market crashes?
What role did bonds play in protecting withdrawals during tough years?
Using 55 years of historical data (1970–2024) and key tables B1
Paul shows the real-world impact of these strategies when you’re living off your investments.
Listen now to see why adding bonds can be a lifesaver in retirement—even if you love the growth potential of stocks.
At FinCon, Chuck Gaffe- moneylifeshow.com sat down with Paul for a wide-ranging conversation about investing and financial independence.
Paul shared insights on the rise of index funds, the FIRE movement’s “one-fund-for-life” approach, and how small portfolio adjustments can boost long-term returns. He also discussed timeless investing principles like staying the course, understanding risk, keeping costs low, and diversifying wisely.
At FinCon, Paul reflected on everything from the rise of index funds to the FIRE movement’s “one-fund-for-life” strategy. His message was clear: while simple investing solutions can work, small, thoughtful adjustments—like adding different asset classes—can meaningfully improve long-term returns.
Paul also emphasized timeless investing principles:
Stay the course. Don’t bail when markets turn volatile.
Understand your risk. Know how much you can afford to lose before the storm comes.
Avoid unnecessary costs. A fraction of a percent in fees can add up to millions over a lifetime.
Diversify wisely. A broad mix of assets offers protection and opportunity across market cycles.
Whether discussing crypto, ETFs vs. mutual funds, or portfolio allocation strategies, Paul’s advice always comes back to one goal: helping investors achieve financial independence with confidence and peace of mind.
You can explore his free resources, podcasts, and articles at paulmerriman.com
In Part 2 of this 4-part series, Paul Merriman compares the accumulation results of the U.S. 4-Fund Portfolio against the S&P 500, using both all-equity and 60/40 strategies.
Paul analyzes five decades of data, showing how diversification affects returns, volatility, and long-term wealth creation.
Paul also highlights the tables you’ll want to download and follow along with as he explains the numbers:
Next week: We'll look at the distributions in retirement using the S&P 500 in both the 100% equity and 60% equities/ 40% bonds.
This is the first of a series of 4 podcasts focused on the decision to have all of your investments be all equities vs. a balanced portfolio of equities and fixed income. In this presentation Paul uses the S&P 500 in both the all equity and the 60/40 stock/bond portfolio. He uses the following tables during his presentation.
Table B1 Fine Tuning Table: S&P 500 Equity Portfolio
Table H2a Sound Investing Portfolios (these portfolios are all 100% equities)
Table H2 Sound Investing Portfolios (these portfolios are all 60% equities/40% fixed income) (NEW)
Table C1 Fixed Contributions ($1,000/yr: S&P 500 Equity Portfolio
In the next presentation he does the same analysis using the U.S. 4 Fund and Worldwide 4 Fund Portfolios for the equity portion of the portfolio.
Paul starts this letter beginning with a letter from a listener. The letter ends with the reason why our work has had more impact than John Bogle and Benjamin Felix (Both Truth Tellers).
The rest of the podcast is focused on a recent article- The Evolution of Financial Advice, by Ben Carlson. The focus is on the math, history and psychology of investing.
Paul concludes that most steps to successful investoring are well documented. But two areas are still open for fine tuning: Portfolio construction and fund selection. To help in that Paul recommends three Boot Camp Presentations: Fine Tuning Your Asset Allocation, Fixed Contributions and Fixed Distributions.
On this podcast, Paul Merriman dives into three big investor questions: Why would anyone add bonds to their portfolio—even in retirement? How has the Ultimate Buy and Hold Portfolio performed in 2025? And how much Small Cap Value should an investor add to VTSAX? Along the way, Paul explains why diversification and balance matter just as much as chasing higher returns.
During the podcast Paul references Table G-1b, Fine Tuning Table: S&P 500 vs. US SCV Equity Porfolio - Out-Performance and Table H2a - Sound Investing Portfolios: Comparison Data , Quilt Chart K1a. He also points to Chris Pedersen’s Best In Class ETF Recommendations and his 2 Funds for Life returns table. These resources provide valuable context for comparing U.S. vs. international returns, equity vs. bond allocations, and how small-cap value can enhance a long-term strategy.
Paul Merriman is looking ahead to the 2025 Bogleheads Conference (October 17–19), one of the premier gatherings for long-term investors. The lineup includes Vanguard CEO Salim Ramji, Christine Benz, Bill Bernstein, Rick Ferri, Alan Roth, Jim Dahle, and more. Paul will be there for all three days to connect with listeners, share new projects, and learn from some of the best minds in the field. Even if you can’t make it, all sessions will be available later on the Bogleheads YouTube channel.
In this episode of Sound Investing, Paul also revisits key lessons on building lasting portfolios. He explains why small-cap value has historically outperformed the S&P 500, how the Four-Fund Strategy makes diversification simple and effective, and why tax-efficient investing matters for 401(k)s, IRAs, Roths, and taxable accounts. He also highlights the importance of financial education for young people, pointing to NGPF.org’s Question of the Day as a powerful way to spark conversations about money. And, of course, Paul shares a reminder about the risks of hype-driven assets through the story of Bitcoin Pizza Day.
To close, Paul adds a lighter touch by reading a poem about cryptocurrency—written in the playful rhythm of The Music Man.
I had never heard of Erin Moriarity before she contacted me about having a conversation with her on “Erin Talks Money.” When I visited her Youtube channel I immediately realized what a powerhouse she is. She has over 200,000 subscribers to her Youtube channel and her videos are terrific. She has over 800 videos on topics most young investors or beginners at any age need to see. 36 videos on budgeting, 133 on retirement, and much more. Recently she started interviewing old experienced “experts." Her first two guest interviews were Ed Scott and Bill Bengen. I felt honored to be a part of a team who want to help teach her followers. Plus, if you read the comments on the YouTube video it’s obvious she has a large group of loyal followers. By the way, her followers made me feel very welcome.
"Erin, that was an absolute Masterclass in investing! Thanks for bring Paul to your channel. I enjoyed seeing how comfortable you and the guest were and how the conversation naturally flowed between topics. I’m going to make sure my kids view this. Advice and insights for LIFE!"
"Excellent video, Erin! How do we know Erin is a force in investing advice? Look at the people she's had on her channel! I'm thankful to Erin not only for the great advice, but she is someone I can show my daughters, ages 21 and 25, and go "Look at Erin. If she can invest and make good choices w her money, so can you!". This means the world to me for them to see someone they can relate to, who disseminates complicated ideas and concepts in an understandable way. And BTW, I confirmed I'm subscribed to her channel “
0:00 Introduction & Meet Paul Merriman 2:14 The Power of Starting Early (For You & Your Kids) 7:14 100% Equities for Young Investors & Avoiding Overexposure to the S&P 500 14:02 Predicting Future Returns, Compounding & Patience 22:27 Market Cycles, Psychology & Preparing for Bad Times 25:12 Choosing the Right Portfolio Complexity (Levels 1–3) 34:08 Traditional vs. Non-Traditional Index Funds & Vanguard Loyalty 41:34 Why We Own the Whole Market & The Case for 60/40 46:19 Staying the Course, Chasing Returns & Capturing Extra Gains 57:00 How Investing Has Changed & Automatic Enrollment Benefits 1:01:45 Knowing When You Have Enough & The Rise of Hourly Advisors 1:08:44 The 3 Things Every DIY Investor Should Do & Closing Thoughts
What’s holding investors back from building real wealth?
Talking Real Money, hosts Don McDonald and Tom Cock take aim at the 10 most damaging myths, lies, and mistakes that cost investors big—often millions.
You’ll learn:
Why "having a guy" isn’t a strategy—it's a setup
Why predicting the market is like calling a psychic
How starting too late can cost you over half a million
The hard truth about individual stocks, expensive advisors, and false promises of risk-free wealth
Why diversification, low costs, and understanding your real risk profile actually work
Don McDonald, a 34-year financial talk radio veteran, and Tom Cock, the former host of Serious Money on PBS, join forces to cut through financial jargon and expose what really works. In every episode, they solve real money problems, share smart long-term strategies, and bring clarity to the complex financial issues that affect all of us.
Talking Real Money is designed to give you the real help you need for a really great financial future—and yes, it’s actually fun to listen to.
Bonus shoutout: Don McDonald also generously donated his time to narrate the audiobook version of Paul Merriman’s bestselling book, “We’re Talking Millions!” His voice brings the content to life with clarity, energy, and heart. He’s not only a brilliant communicator—he’s also a phenomenal reader. Listen to the audiobook here.
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) and then dives into ten wide‑ranging listener questions that benefit investors of every age and stage.
What you’ll learn
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)
Sound Investing Table (H2a)
Chris Pedersen’s 2 Funds for Life Table: For more detailed insights, visit Chris Pedersen’s 2 Funds for Life table.
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, as well as a free link to the audio version (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
Reviewed in the United States on December 17, 2020
Format: Paperback Verified Purchase
"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" 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 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 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.” A second and third link takes you to a 2 hour video and podcast on the 12 million dollar decisions. And finally a very short (12 minute) podcast or video review of the 12 decisions.
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.
What Sound Investing Portfolio does Paul use and why? 3:02
What funds should I use to set up a Roth IRA account for a 21-year-old? 13:06
Do you think Vanguard funds will get lower returns than Avantis and DFA ETFs? 21:46
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
I am 45, hoping to retire by 55-60. Is 25% in bonds too little? 31:04
Does it make sense to have non-taxable bonds in an IRA? 34:34
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
How often should I rebalance? 38:09
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
Are there conditions where the all-value portfolios will underperform the more balanced portfolios? 40:19. (Answer is integrated with previous question)
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. 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!
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 paul@paulmerriman.com. 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 paul@paulmerriman.com.
