Sound Investing Paul Merriman

Paul opens with information on the Oct. 11 AAII presentation.  Here is the link to sign up.There was a time when Paul was very critical about target date funds.  But important circumstances made him more accepting of the important value of target date funds.  He discusses why he changed his mind but explains why he still thinks you should build the glide path on your own.He also responds to Ken Fisher’s comments about the small cap and large cap historical returns. In the discussion Paul recommends listeners take a look at the quilt charts that show individual asset class and portfolio annual returns.

Tom Cock and Don McDonald record a daily podcast Talking Real Money and a 2 hour radio show on KNWN (previously KOMO) each Saturday afternoon from 12 to 2.  Last Saturday Don was taking a day off and Tom asked me to join him.  While I was in their studio I asked Tom to join me for a discussion about the challenges of educating  investors as well as giving some advice to  those interested in building a career as a financial advisor.  Here are a few of the topics we discussed:


How to teach investors to develop realistic expectations for risk and return
Best advice for first time investors
Major changes in the financial planning industry
How advisors bill for investments under management and those "held away”
Robo advisory services
Advice to young and older adults who want to get into the financial planning industry

Working with Tom is always fun!

Watch the video here.



Chris Pedersen and Daryl Bahls join Paul to answer questions from investors of all ages. 

1:  I hold a REIT fund in my tax deferred account but have found other funds include REITS.  Am I overweighted in REITS and what should I do about it?

2:  Are all total market index funds created equal?  Should there be meaningful differences in returns? Chris compares the returns of 4 total market funds using Portfolio Visualizer.

3.  I am a 79 year old retiree who wants to use your 2 Funds for Life strategy.  How do you recommend I put my portfolio together? 

4.  How would I establish an expected rate of return for the U.S. 4 Fund Portfolio? 

5. I’m a young investor with a Worldwide All Value Portfolio.  As I age should I start to transition to a lower risk equity portfolio? 

6.  The Avantis funds use a quality factor to produce better returns.  Why don’t all small cap value funds use the quality factor in their selection of companies? 

7.  How have real returns of equity asset classes compared to theoretical returns? 

8.  I want to carefully build my portfolio to work within my risk limits. My challenge is to decide what period of time represents the kind of losses I’m willing to accept.  If I use the information starting in 1928 or in 1970 the loss exposure is very different.  Which period should an investor use to match their asset allocation to their risk tolerance? 

9. Chris, Daryl and Paul discuss the long term implications of the risk and return of a 60% equity and 40% bonds using a  combination of equal percentages of the S&P 500 and small cap value.

During the presentation Daryl and Chris reference a new 1928-2022 Fine Tuning Table for an equity portfolio of 50/50 S&P 500 and Small Cap Value. 

Daryl introduces a new table that compares the returns from 1928-1969 with 1970-2023 

Financial Feast Pod is a new podcast  focused on simplifying personal finance, with each segment dedicated to understanding and implementing the most important financial decisions.  In this podcast Zach and Kevin interview Chris Pedersen about “2 Funds for Life”.

Not only will you learn about Chris’ book but the hosts ask a lot of questions about the Foundation and Chris’ favorite food.

Topics:

2 Funds for Life explained

Risk and return of 2FFL

How to use 2FFL in a 401k

To rebalance or not to rebalance

Conservative, moderate and aggressive portfolios

Why not put all in small cap value

What about international small cap value

Advantages and disadvantages of hiring an investment manager



If you haven't signed up for our weekly Sound Investing newsletter, click here to sign upand for a copy of  2 Funds for Life and We’re Talking Millions



Orange County AAI video- (Chris' presentation starts at the 5:20 mark)

On July 22, 2023 Chris Petersen made a 2 hour presentation to over 650 AAII members and our Foundation members.  The following is the AAII announcement of Chris’ topics:

As investors, we all want to get the best return we can with the least possible risk. We often think of this as an asset allocation problem. Although there is some truth in that, it can only go so far. We still have to take some risk to get a reasonable return, and select specific funds in which to invest. And then, we're still left with the risk of our emotions and behavior. In this presentation, Mr. Pedersen will discuss how portfolio asset allocation, fund selection, and investor behavior impact the returns we get for the risks we take. He'll also show some practical approaches to help us all come closer to being best-in-class in all three of these areas.

Attend Mr. Pedersen's discussion and you will learn:


How various types of equities and bonds interact to impact risk and reward
An objective approach to choosing best-in-class funds for equity asset types
The impact investor behavior has on risk and reward, and ways to mitigate or improve it.



Chris Pedersen is Director of Research at The Merriman Financial Education Foundation and creator of the 2 Funds for Life investing approach to augmenting target-date funds. He is an engineer by training, and a new opportunity finder by nature. In his work for the Foundation, he develops and maintains a set of best-in-class exchange-traded fund (ETF) recommendations, the customizable Merriman Aggressive Target Date glidepath calculator and regularly contributes to articles and podcasts.  Like the rest of the Merriman Foundation staff, his work is motivated by a genuine desire to learn and help, free of any financial incentives or conflicts of interest.

I hope you will forward this presentation to friends and family that are looking for better ways to invest.

The podcast opens with a heads up on an exciting AAII presentation on October 11 at 6:30 EST.  Paul will make a one hour presentation on "The Case for Small Cap Value:  The Good, the Bad and the Ugly.” This presentation will include some interesting new tables that give a new perspective to this productive equity asset class.

After Paul speaks, Chris’ presentation will focus on 2 Funds for Life in retirement and how to select the Best In Class ETFs.One of Paul’s favorite Truth Tellers, Ben Carlson, has recently written, "The Luckiest Generation”.  Paul reads highlights from the article.  It turns out “The Luckiest Generation”  faced a lot of serious headwinds.  Then Paul suggests the steps we should take if we aren’t so lucky.

The annual SPIVA Report is one of the most important studies in the industry on mutual fund performance.  While many may wish to read the whole report, Paul focuses on the tables on pages 9, 10, 13, 14, 17 and 19.Those who take the time to review this information will hopefully reconsider holding any actively managed funds in their portfolio.  

The podcast opens with Paul reading and discussing Ben Carlson’s recent article on the collapse of bonds,“Everything  & Everyone Underperforms Eventually.”   Paul references a table of returns that compares Short, Intermediate and  Long Term Treasures.   Paul also references a table of Fixed Income Returns during years with S&P 500 loss.  The following short article is referenced in a discussion of Bill Miller and Legg Mason Value Trust's 15 year record of returns ending in 2005.Russel Kinnel Jan 3, 2006 

"Bill Miller has done it again, but it was a close call. Miller's  Legg Mason Value (LMVTX) extended its winning streak against the S&P 500 Index to 15 straight years, with a 2005 return of 5.32%. The S&P 500 returned 4.91% for the year.

Miller's aversion to commodity producers, specifically energy stocks, meant he had an uphill climb in 2005. In addition, duds like Tyco International   and  eBay (EBAY) added to the challenge. However, big bets on  Google (GOOG) and  UnitedHealth Group (UNH) won the day.

Those stocks nicely illustrate Miller's style. He believes that you have to stick your neck out on controversial or at least misunderstood names to beat the market. EBay and Google are bold bets because their multiples are so steep that they need nearly flawless execution to produce good returns for shareholders. Yet, Miller will also buy fallen growth stocks where controversy has frightened off less-secure money managers. Hence, Tyco and UnitedHealth.

While his streak against the S&P 500 is a fun way to keep score of Miller's accomplishments, his goals revolve around long-term success versus the market. The consistency of his record helps to keep investors in, but his 10-year return is more impressive. The fund has gained an annualized 15.19% over that period, which is about 6 percentage points per year better than the index. For more perspective on the streak, read Chris Traulsen's Fund Spy column from November 2005."

The Long Term Investor – Episode 62 – Investing for Higher Returns with Eduardo Repetto  

Rational Reminder – Eduardo Repetto : Deep Dive with Avantis Investors’ CIO – 11/24/2022 

Paul recommends investors listen to the following interviews with Eduardo Repetto, the Chief Investment Officer of Avantis Funds.         Bogleheads on Investing (the one w Rick Ferri)  - Episode 43: Eduardo Repetto on factor investing