Joe Shaefer of Stanford Wealth Management, an old friend of more than 30 years, recently wrote an article for Seeking Alpha. “Passive Index Investing is a Delusion” is an active manager’s view of investing in indexes. In the podcast I address Joe’s views of why index investing is a losing strategy and why I think he is dead wrong. While Joe raises many interesting problems of investing in indexes, he fails to give investors credit for being able to address all those problems successfully.
There are three huge decisions that will likely lead to reaching the “early retirement” goal. Paul discusses why these three decisions are key, and shares stories about those who have been successful in reaching their financial freedom goal. How important is it to have a spouse who has agreed to the challenges of being an aggressive saver? How important is it to find a lifestyle that allows everyone to feel they are not missing anything that is more important than reaching the goal? There are lots of investments that would have worked in the past, but which are the ones most likely to work in the future? This is a good podcast for a couple to listen to together.
Paul expresses three outrages, exposing the dirty tricks some advisors use to exaggerate their performance. He also corrects a mistake on his last podcast regarding mid-cap funds, and answers several questions from listeners: Is it time to get out of small cap funds and get into TIPS? What ETFs do you recommend to put the “Two-Fund Solution” to work?” “Why did some small cap value mutual funds and ETFs do much better than others in 2016? And he ends the podcast with a little information about what he considers the most exciting investment project of his life.
This podcast is recorded from the 2011 CD collection recorded for the premium package for the “Financial Fitness After 50” PBS show. There is lots of advice for first time investors, as well as retirees, but some of the biggest mistakes are made within a few years of retirement. If even one of Paul’s warning keep you from making one of these mistakes, you will be glad you took the time to listen. If you have friends who are close to retirement, we hope you will forward this podcast.
What will market do under President Trump? And 12 other important investment Q&A’s
When Paul addressed members of the community in a seminar co-sponsored by the Bainbridge Community Foundation on Nov. 3, 2016, he was unable to answer all questions at the time but agreed to do so through this special podcast. Here are the questions addressed on this podcast:
1. What is the best source to determine the asset class of each mutual fund?
2. 8% seems like a high rate of return. Is it really a reasonable assumption for future growth?
3. Is it possible to get 8% with 20% or more in bonds?
4. What benchmark should I use to evaluate the performance of a portfolio?
5. Do you read the prospectuses that mutual fund companies send you?
6. How do you determine the total cost of owning funds like Vanguard? What about 401k fees?
7. Most U.S. companies are global. What percent of you have in international funds?
8. According to research only 15% of actively managed funds exceed the long term returns of the S&P 500. Why not invest most of your money in S&P 500 index funds or ETFs?
9. What is the difference between growth and value companies? Should you own both kinds?
10. What happens to the market when we have a cyber attack or the election ends undecided? (Note this was asked before the Presidential election)
11. My wife has followed your recommendations for years while I invest in individual stocks. Do think it is possible to compromise? And should we compromise?
12. There are so many index funds. Which are the most appealing?
13. How do you expect the market to do if Trump gets elected? (In my answer I address the reason I thought it was likely for Trump to win)
2. With the market selling at record levels, is it time to consider a bear market fund to defend against big loses?
3. How can the combination of a great short-term track record and a commission-motivated salesperson lead to terrible financial outcome?
For 10 years, Paul had a weekly “Outrage of the Week” on his Seattle radio show. He says it was never a problem finding something that made him hopping mad. In this podcast, Paul explains his recent outrage about one of America’s most trusted insurance companies giving their employees the shaft. He also answers questions from his listeners and readers at paulmerriman.com (Note to listeners: there are 12 Q&A’s mentioned on the podcast, but one was removed in order to better address it in a future Q&A).
1. As a first time investor afraid of losing money in the market, can you recommend a book to read and what can you say that will help me take the high risk of stocks?
2. Why don’t you create a portfolio of ETFs that can select from all available ETFs?
3. How can I get you to update your 401(k) for my company?
4. Now that Fideliity has lowered their fees on ETFs, should I move from Vanguard to Fidelity?
5. How can I get my company to add index funds to the 401(k) choices?
6. How about using some of the best performing REITs rather than index funds?
7. How are ETF portfolios changed as the companies change size or value/growth characteristics?
8. What do you do with proceeds from a RMD that you don’t need to live on?
9. What would you do to make my portfolio better?
10. What do you think of The Mutual Fund Store?
11. Should I use the Four Fund Solution or The Ultimate Buy and Hold Portfolio for the equities part of my portfolio?
Paul explains the importance of adding value to your portfolio. The higher long-term returns of value stocks is not in question, but it is confusing to many investors as to why troubled and out-of-favor companies are expected to make more than great companies. To clarify this, Paul reads sections from both “Financial Fitness Forever” and “Live It Up Without Outliving Your Money.” And for those who aren’t interested in all these details, it’s important to know that almost every famous professional investor became famous using value stocks (e.g., Warren Buffet, Peter Lynch, John Templeton, and Michael Price).
In this podcast Paul discusses the 12 investment decisions all first time investors must face. He speaks to both the parents, as well as the young investor, about the life changing impact good decisions can have on the young investor’s future. There are a couple of important links mentioned in the podcast.
Raising Financially Fit Kids by Joline Godfrey
Everyone in the financial community knows that emotion-based decisions almost always hurt investors in the long run. This podcast of Chapter 7 from Paul’s book, Financial Fitness Forever, discusses 5 ways an investor can eliminate most of the dangerous outcomes of emotional decisions. It is read by Rich Buck, co-author of Financial Fitness Forever and Live it Up Without Outliving Your Money!
Rich and Paul have worked together on books and articles for over 20 years. Rich was a Seattle Times business reporter for 20 years, capping a 30-year journalism career that included eight years as a writer and editor for the Associated Press. He began working with Paul as senior editor of Merriman Inc. in 1993 and retired in the fall of 2011. He has kindly continued to donate his time and expertise to The Merriman Financial Education Foundation and as co-author our three “How To Invest” series books (available as free eBooks at paulmerriman.com) and weekly MarketWatch articles. This podcast completes the audio versions of five chapters from Financial Fitness Forever. They can be found, along with all podcasts, here.
In “How much risk will you take?” Paul discusses the difficult topic of identifying and accepting the normal risk of investing. This audio chapter from his book, Financial Fitness Forever, also addresses the often overlooked risks of owning both stocks and bonds.
Paul reads from Financial Fitness Forever, “Will You Try to Beat the Market?”, which focuses on how trying to beat the market has had a terrible impact on investors’ returns. This Chapter 4 includes important studies, from DALBAR and Morningstar, suggesting that more than half of all investor returns are lost to bad personal behavior, like being influenced by natural feelings of fear and hope (some call greed). Much of Financial Fitness Forever is dedicated to Paul’s attempt to protect investors from their own unproductive behavior. The evidence in this chapter should help investors see how serious this problem can be. We hope you will share this podcast with friends and family who might have experienced this challenging behavior.
Paul compares the fixed distribution strategy he discussed in the last podcast with the flexible distribution strategy. Generally, the flexible strategy is for investors who have saved more than they need to meet the minimum financial needs in retirement. The key points to consider are: How much have you have saved for retirement? What combination of equities and fixed income investments do you hold? How much will you take out of your investments in retirement? How you take more when you need it can make millions of dollars in difference between how much you have to spend and how much you have to leave to others.