This 4-Fund Strategy Crushed the S&P 500 | feat. Paul Merriman, acclaimed investor & wealth manager

[@paulmerriman2947]

I hope you find the information helpful. For the next couple of days I will be checking in to see if you have any questions.

[@rpshah79]

Thank you Paul and Paula!!

[@Kep19901]

Paul! What do you think of 50/50 AVUS/AVUV or would you recommend a reit fund in there or nah?

[@rpshah79]

@@Kep19901 my guess is yes. As for REIT, no in the taxable account.

[@xaldath4265]

I'm curious about the inclusion of SmallCap Blend within the portfolio, considering how poorly SmallCap Growth has performed both in return and risk-adjusted return. Did your team consider how a 3fund portfolio would perform using LargeCap Blend, LargeCap Value, and SmallCap Value? If so, was it backtested using various weightings to possibly allow the 50% weighting to SCV for similar results to this US 4Fund?

[@Kep19901]

@@rpshah79 it would be inside an hsa. I'm 34 years old

[@AgnesHarperq3x]

I am at the beginning of my "investment journey", planning to put 85K into dividend stocks so that I will be making up to 30% per year in dividend returns. Any advice?

[@MatthewAidan4ns]

Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.

[@TeddyAlexanderv6]

The issue is people have the "I want to do it myself mentality" but not equipped enough for a crash, hence get burnt. Ideally, advisors are reps for investing jobs, and at first-hand encounter, my portfolio has yielded over 300% since 2020 just after the pandemic to date.

[@NikolasMartine01]

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[@TeddyAlexanderv6]

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[@NikolasMartine01]

I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.

[@john00123]

Stocks as you mentioned has been so amazing, I personally diversify about $3m dollars into a 6 funds portfolio, I have been registered with a fiduciary, and my Portfolio is tremendous, now I have steady dividend income weekly depending on trade and its all Tax free. She is the best thing that happened to me as an investor. I honestly don't Let that little% bother me. 🥀❤

[@anthonypayne8106]

I am looking for how to venture into investing on a long term basis, I really seek to create an alternate source of income. how did you find a good Fiduciary?

[@john00123]

sincerely speaking i work with Essmildaa Morgan , and will continue to buy and trade. I will stick to her guides for as long as it works.

[@anthonypayne8106]

She has pretty decent credentials, left a well organized mail after going through her webPages & reviews. I found this very helpful, Thank you John.

[@jessicaknoll4700]

Just stumbled on this, Wow! I Grateful I got my act together and registered Essmildaa Morgan as my Portfolio Manager

[@veliadisrosasjr1647]

Congratulations on your breakthrough. Essmildaa Morgan is finally getting the popularity she deserves and this doesn't come as a surprise.

[@johncervantes5890]

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

[@Kep19901]

It's on his website. Etf recommendations. They have schwab, t rowe, Vanguard, fidelity, etc.

[@paulmerriman2947]

Hi John, I wrote a long response to your question but it was deleted by the KZbin editors. I will try one more time. We have commission free ETF recommendations for the 4 funds on our website

[@JohnWisconsin]

From what I recall after seeing him as a guest speaker 10 years ago, is that he's built his portfolios (all, but starting back with the Ultimate Buy and Hold -10 fund) for less volatility with the same expected return (or maybe a bit higher) as the S&P500. I think it used to be you could be closer to a 50/50 (stock/bond) portfolio vs being much more heavily weighted in equities. Hence, more bonds=less volatility in addition to having spread the equity risk over more stocks than just 500 cap weighted companies. For example: Looking at his fine tuning table for the US 4 Fund (100% S&P)=10.7% return and 17.1 Std Deviation (volatility). So you can now slide over to the left and find something close which is 70(4 funds)/30(bonds and get to a similar return of 10.8% but with a volatility of only 13.2. It's not always about returns.

[@kunlej123]

Thank you so much, Paul. I am currently reading your book: we are talking millions. I have made changes to my portfolio based on your recommendations. I have added small value cap funds as part of my portfolio.

[@paulmerriman2947]

I hope the investment works out well over the next couple of years. From my experience investors are more likely to keep a long term commitment if there is a good result in the early years. On the other hand, if you get a chance to pick up a bunch of cheap shares now, that could pay bigger rewards over the long term. I hope you will pass the free pdf along to friends and family.

[@Kep19901]

Paul is the best. Im doing 50% AVUS/50% AVUV in my hsa. Holding on for the next 30+ years. Thanks paul.

[@paulmerriman2947]

I wish I could be around for the next 30 years to see how it comes out.

[@Kep19901]

@@paulmerriman2947 however it comes out, I have the work of you and your team to thank for your help and support.

[@Kep19901]

@@paulmerriman2947 me too! But however it comes out, im sure it'll be a good outcome. Thanks for all that you and your team do and have done.

[@Kep19901]

@paulmerriman2947 youtube keeps deleting my response Paul! Thanks for all that you and your team do! Also, don't forget to vote!

[@MistyPursel]

Thanks for the great interview! The only small cap value available in my 401K is DFFVX which has an expense ratio of .30%. Is this expense ratio too high?

[@jenniferstarks4018]

I really enjoyed this show😊 Thank you both!

[@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 do 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.

[@jenniferstarks4018]

@@paulmerriman2947 Thanks for your guidance. I’m also impressed that Western Washington University is partnering with you to educate the upcoming generation. Are you participating in any in person engagements in the Tacoma, Seattle area this upcoming year? I would be interested in attending. Thanks, Jen Starks

[@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 😃 just need to add small cap blend to complete the portfolio. This episode came out a couple of days later so I took it as a sign that I’m going in the right direction!😅 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!

[@paulmerriman2947]

One more thought FIgirl! You have noted that you already have 3 of the 4 asset classes. I would like to know the names of those 3 funds. And I would also like to know if they are within a 401k or are you holding them in an IRA?

[@FIgirl2035]

@@paulmerriman2947 FXAIX, SCHD, VBR in a ROTH IRA. Looking to add VB to complete it. Would these be safe for a taxable account as well?

[@sabrinarizk6453]

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

[@Summerdee223]

Roth conversions if you don't have active earned income, or start a small business and contribute as a self-employed person.

[@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!

[@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) is 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.

[@milikapm]

@@paulmerriman2947 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?

[@paulmerriman2947]

​@@milikapm 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.

[@luisyanez7705]

Paula, thanks for another fantastic interview. I’m a big follower of Paul’s work and I thought I understood his Foundation’s approach to equity investing. But you were able to elucidate another aspect of why people should look beyond VTSAX and add some SCV. Thank you!

[@affordanything]

☺️ 🙏🏽 thank you for saying that! Glad you enjoyed it!

[@longfellowhouse6594]

You certainly dont need to add SCV. Three fund portfolio (total us, total international, total bond) is favored among bogleheads - he has some supporters for this method but majority don’t.

[@luisyanez7705]

@@longfellowhouse6594 You’re right, one doesn’t need to add SCV nor do they need international equities if the last 100years are any guide. Paul’s research shows significant historic returns with less volatility than a total market funds combo.

[@jorgevelasquez9955]

So good ! Thank you!

[@Twill2909]

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

[@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.

[@juicyfruit100x]

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

[@BB-cs3kk]

Simplification could be having VT as world stocks, small cap value and short to intermediate treasuries +TIPS ETFs for ballast and cover down years. Would like to hear more about bonds. How to optimize return and simplicity

[@Rick-s5d]

I think that is a great option for a two-fund portfolio. I was considering VT as well to recommend to my daughter, yet it seems it is heavily weighted toward S&P 500. For equities I am thinking about a 3-fund portfolio of US small cap value/S&P 500/VXUS (total international markets).

[@cecilemuggill9444]

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

[@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 it's all equities.

[@cecilemuggill9444]

@@paulmerriman2947Thank you very much!

[@BrianSchoedel]

Great info!

[@rufdymond]

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

[@paulmerriman2947]

You should be happy with the S&P 500. If you have total confidence in the S&P 500 you may be 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% and the risk is virtually the same as all S&P.

[@ArunRangarajan]

I was thinking the same way. Why complicate just 100% S&P 500? Then I realized it's not the simplicity of one fund that I liked, it's the S&P 500's recent returns I was really after - and that's recency bias in play. Just make sure you aren't sticking with the S&P due to recency bias.

[@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.

[@paulmerriman2947]

I think your 40/30/30 is a reasonable combination. I think it would also work well if the international is large cap value instead of large cap blend.

[@paulmerriman2947]

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 maybe you have started a great family tradition.

[@Rick-s5d]

@@paulmerriman2947 Thank you so much for the feedback. I really appreciate it!

[@Rick-s5d]

@@paulmerriman2947 Believe it or not, through your podcasts over the years you steered me into making this happen for my daughter! As for me, I did not have the same support when I was her age, yet something similar got me through some very difficult times. Story time: my grandfather was legendary investor in my opinion. He bought individual large cap stocks (maybe value?) over his lifetime (before they had index funds). He was born in the early 1900s, in the same farm house he passed away in almost 100 years later. He had a modest income running a farm. In his late teens and early twenties he started driving into town to buy stocks. He continued to do this throughout the Great Depression. Everyone thought he was crazy for doing that. He just kept buying and buying for the rest of his life, very rarely selling. Both him and my grandmother were VERY frugal (sometimes comically so). Their portfolio grew so much over the years, they didn't know what to do with it all. I wanted to live some of these values when I was young, yet I was delayed due to getting into a large amount of student loan and business debt. Finally at the age of 32 I was able to start fresh, and start buying. I have never looked back since!

[@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!!

[@paulmerriman2947]

I love your comment Peter. If you look at the quilt chart 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.

[@Rashad3000]

💪🏾💪🏾💪🏾

[@davecristdavecrist]

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

[@SP-ow9jl]

I need this explained as if I was 5 y/o 😂

[@paulmerriman2947]

Please read the free pdf of "We're Talking Millions." I can't suggest it is written for 5 year olds but many of the reviews on Amazon are from high school students.

[@Discursion-f8w]

LOL. All the latest advice from the 70s.

[@paulmerriman2947]

Actually a lot of our returns start in 1928. I know that a lot of people will think there is no connection between the world then and now. The actual return for the S&P 500 from 1929 through 1928 was almost the same as the return from 2000 through 2009. Our students were not surprised by that terrible 10 year period as they knew it could happen again. Those who were not aware of that history may have been shocked by 2000-2009 results and liquidated their positions close to the bottom of the decline. My goal is to help investors build realistic expectations in the hopes they will stay the course when the bad times come.

[@danmahoney8577]

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

[@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!

[@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. You want to diversify across UNCORRELATED assets. Gold, managed futures, CLOs, TIPS, treasuries, etc.

[@Rick-s5d]

Sounds like you don't believe different assets classes exist within the world of equities. That is false as he shows the equity slices "take turns" regarding which is the best performer. He also talked about bonds, an UNCORRELATED asset relative to equities. The kicker, which you are ignoring, is expected rate of return, and total portfolio volatility compared to how old you are. Why would a 25 year old want to hold GOLD when it's expected rate of return is less than equities, just so they can think they might have less volatility with the uncorrelated asset. They probably shouldn't care about volatility of their portfolio until at least 20-25 years into the future. Let it ride on equities when you are young. Focus on diversifying into uncorrelated assets like bonds when you get closer to being 50. Pretty sure Paul would say gold does not have an acceptable reward for its level of risk. Managed futures and CLOs: beware of alternative investments. I have heard lots of stories about wall street vultures preying upon the innocent pitching alternative investments. A very large public school pension fund in my area was almost bankrupted when "financial experts" advised them to sell out of stocks during the 2008 crash, and get into alternative investments like venture capital funds they offered, strange funds, and on and on.

[@michaeldbouck]

​@@Rick-s5d Merriman's approach is fine for accumulation-but not for distribution, in my opinion. Zooming out, Merriman essentially advocates moving from 100/0 (stocks/bonds) during accumulation (one return stream-stocks) to something like 60/40 in distribution (two return streams-stocks and bonds). This still leaves you highly concentrated in equities. While Merriman’s 60/40-ish strategy reduces volatility, it doesn’t provide sufficient diversification from truly uncorrelated assets. In retirement, you need additional return streams (e.g., gold, alternatives, commodities) to protect against deep, prolonged drawdowns that can devastate a portfolio. As for alts-sure, there are "bad apples." But the same is true for equity and bond funds. Due diligence applies to any asset you add to a portfolio.

[@michaeldbouck]

@@Rick-s5d Merriman's approach is fine for accumulation - not for distribution IMHO. At the end of the day, if we zoom out, Merriman is essentially advocating investing 100/0 (stocks/bonds) during accumulation (one return stream - stocks) which shifts into something like 60/40 (stocks/bonds) during distribution (two return streams). This means that in retirement, the risk you’re exposed to remains concentrated in equities. While Merriman’s 60/40-ish strategy (adding bonds) helps reduce volatility, it doesn’t provide sufficient diversification from truly uncorrelated assets which becomes paramount during distribution where deep and prolonged draw-downs can devastate a portfolio. What you want to do instead is to add additional uncorrelated return streams (e.g. gold, alternatives, commodities, etc.) so that the aggregate volatility of the portfolio is reduced and consistent compounding is maximized. Regarding alts - sure, there are "bad apples". There are also "bad apples" amongst equity and bond funds. Thorough analysis, et al. applies to any asset that is added to the portfolio.

[@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.

[@hagi2013]

Heads-up to Paula for your patience! 😊.

[@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.