April 27, 2016


Dear Friends,

I retired a little over four years ago and started looking for a way I could help share my investing knowledge with all levels of investors. If possible, I wanted to reach first-time investors, those getting ready for retirement as well as those already in retirement. Teaching others how to invest on their own was how I built our investment advisory practice, but now it was time to teach without any other goal than to help people make more money, take less risk and find greater peace of mind in the investing process.

As with most endeavors – like investing – there have been times when my efforts and those of my team seemed to make little headway, and others where an accelerated period of creativity and opportunity yielded amazing results… like the time that one of our articles was read by over 150,000 on Marketwatch.com.

I am delighted to report some exciting new projects and ask your help in getting our subscriber base over the 10,000 mark, which we could reach this week if you’d share this newsletter with one friend and ask them to go to my website and sign-up.

Having started with a small mailing list of 200 friends and family, reaching 10,000 subscribers (free of course) represents a very broad group of savvy investors.

Hopefully, our articles and podcasts have helped our readers and listeners accomplish their financial goals with greater peace of mind and understanding of how successful investing works. Thank you for being on this journey with me!

At the homepage, you’ll find a new video, “The Habits and Attitudes of Successful Investors.” This is from my presentation at the RetireMeet Conference in February, hosted by Vestory. You can download the handouts and follow along as if you were at the conference.

Since then, I addressed the Association of Certified Public Accountants and a video is being produced that will soon be available for sale to CPAs for continuing education credit and, by special arrangement, to our readers. We’ll keep you posted.
Meanwhile, we continue to produce weekly articles forMarketWatch, weekly podcasts, and monthly live chats atScutify where I answer your questions. In addition to questions, I enjoy hearing how our work is benefitting you, as from this young reader: “I look forward to your weekly podcast as I take my four-month-old daughter for a walk each Saturday morning. Thanks much for all you do to teach and educate!”
We are planning to focus more attention on young and first-time investors by introducing some new classes later this year. In addition to my teaching quarterly at Western Washington University in Bellingham, I’m pleased to add Western’s satellite campus in Poulsbo – just a 15-minute ride from my home on Bainbridge Island.
Here are a few quotes from students who took the WWU course last quarter, Personal Investing 216, which my foundation continues to underwrite: “This class really made me want to start saving and investing today.” “Professor Laborde truly wants her students to succeed. It was so awesome. She is teaching us life lessons and that is so vital.” “Made me consider taking finance as a major. Loved this class!”, and I especially liked this one:  “I like the class but I had no idea there would be SO much math.”

And, as if I’m not busy enough, I will to be teaching at Edmonds Community College (part of the Creative Retirement Series) plus giving workshops on behalf of Bainbridge Community Foundation, of which I’ve recently become a member of the board of directors. I am grateful to have the financial freedom (and health) to engage in these sorts of activities that I enjoy. My goal is to help you ensure a financially secure retirement, whether you’re just getting started in the process or well into your retirement.

I am sorry I’ve gotten so far behind on answering your questions sent to info@paulmerriman.com. I’ll be doing the next “Ask Me Anything” on May 18 at 1:00 p.m. EST at Scutify.com. I encourage you to leave your questions there – or join me live at that time – and I’ll try to answer all of them during that day. Please remember not to leave any personal information or ask questions of a personal nature as there will be lots of people attending the Q&A session.
The Q&As below are from emails you have sent me over the last couple of months. If you wish to read the “Ask Me Anything” session from April 20, click here.
To your success,
Q: I have everything at Vanguard but can access additional asset classes at Ameritrade and am wondering: is worth moving my money there?
A: Assuming you are following my recommendations, it turns out that Fidelity has better asset class exposure than Ameritrade and Schwab has good asset class exposure but with lower fees.
Q: A Forbes article compares the expenses of Fidelity (.25%), Schwab (.40%) and TD Ameritrade (.20%). Why do you suggest investors use Schwab since they are so much more expensive?
A: It’s not about the average fee of all commission-free ETFs, it’s about the average fee of the ETFs I recommend. In my article on ETFs I noted that the Schwab ETFs I recommend have the lowest average fee compared to my recommendations at Vanguard, Fidelity and TD Ameritrade.
Q: Do you have any problem with the fact that ETFs often split fees with the brokerage firms like TD Ameritrade, Schwab and others?
A: Whether they split the fee or keep it all to themselves does not matter to me. Firms like Schwab and TD Ameritrade can’t offer commission-free trades if they don’t get income from somewhere. From what I read, there is no split on the very cheapest ETFs. The ETF providers have to grow the ETFs if they are going to be viable long term, so they are smart to split fees as an incentive to help them gather assets.
Q: I just read your “Ultimate Retirement Distribution Strategy” article. Always good reading, but you start at 1970 and I’m not counting on living 46 years after retirement. Could you please put your excellent data and computers to work and start at 2010, or better yet at 2000? I would feel more comfortable with that comparison.
A: You can always compare the progress in my table based on any period. You can compare the value of the portfolio at the beginning and end of any period to see how the portfolio held up. For example, the value of the 50/50 flexible 5% distribution on Dec. 31, 1999 was $4.7 million. At the end of 2015 the value of the portfolio was $5.1 million. That was one of the worst 16 years since 1970. The 50/50 investment produced an income of $237,000 in 2000 and $276,000 in 2015. That’s not the home run of the more profitable periods, but not catastrophic.
Q: Do you recommend a separate investment in healthcare funds or ETFs as you do with REITs?
A:  I recommend REITs as they are not included as part of the other asset classes in my portfolios. On the other hand, companies in the health industry are part of the large, small, value, growth and international asset classes. For example, 15% of the S&P 500 is in healthcare companies as well as 11% of large cap value companies.
Q: I don’t know if you include this factor in your analysis, but I was looking into SLYV, for example, and apparently Schwab does not have a way to automatically dollar cost average (DCA) into the fund.  I’m told they have it for their own funds but not for non-Schwab funds. This came as a major disappointment as having it setup automatically is a big deal so that I do not forget… if I forget each month to make the transaction, it’s pretty worthless!
A: As you discovered, it is not possible to use a traditional DCA strategy with ETFs as you can’t buy partial shares – even at Schwab, according to the person I spoke to. Given this challenge, I suspect it will be easier for investors to save up to invest quarterly, or every 6 months. By the way, the Vanguard, Fidelity, Schwab and TD Ameritrade commission-free programs allow you to reinvest dividends in partial shares.
Q: I see that Hulbert is no longer offering his rating service for investment newsletters. What do you suggest for those of us looking for newsletter advice for comparing results?
A: I recently recorded a podcast about the demise of Mark Hulbert’s service. I believe the results he provided were more accurate than anything the newsletters themselves provided. I don’t know of any other service that will give you what you need. Mark’s service was similar toMorningstar for mutual funds and ETFs – just about the numbers.
If you want to believe what Mark concluded, after 36 years in the business of tracking newsletter results, he recommended investors quit chasing the dream of beating the market and simply accept the likely higher returns of asset classes through index funds or ETFs. If you want to use a small part of your portfolio to take more risk in hopes for higher return, why not simply put 10% in U.S. small cap value, international small cap value or emerging market value?
Here are several sources for Vanguard diversified asset allocation:
Q: Other than a slight decrease in cost, are there any other differences in the Investor and Advantage funds at Fidelity?
A:  The only difference is the Advantage funds have a $10,000 minimum, and fees that are about 40% less than the Investor class, with a $2500 minimum.
Q: Is there any reason to choose the Vanguard funds over the Fidelity funds?
A: Now that Fidelity has expanded their index offerings, the difference between Fidelity and Vanguard is not meaningful, especially if you use  their ETFs I recommend.
Q: My daughter, an engineer, desires to be a smart investor and wants to know how to track returns to measure how she’s doing? I have always used the S&P 500 as the benchmark. Is that still a valid benchmark?
A: I think the choice of benchmark is very important. My benchmark is simply whether I am making enough to achieve my long-term goals. Since my wife and I are taking 5% of the portfolio value each year, I would like to make at least 5% each year. Of course some years are better and some are worse. I look at 5-year periods to judge how we are doing.
If your daughter is just getting started, I hope she is entirely in equities. Although it’s unlikely, I hope her 401(k) allows her to invest in all the equity asset classes in myUltimate Buy and Hold portfolio. If she can diversify among the whole group of U.S. and international equity asset classes, one similar benchmark could be the Vanguard Global Equity Fund (VHGEX). For the last 15 years this fund has compounded at 7.5%, about 2% more per year than the S&P 500.
Since VHGEX is mostly large cap growth, I expect my recommended portfolio – including more small cap and value asset classes – should do better by at least 1% to 2% a year over 10+ years.
Five steps to beating the market
Stock investors typically regard “the market” as essentially the Standard & Poor’s 500 Index of large U.S. growth stocks.



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