June 9, 2016


I have great faith that your approach is the right one and, given that I have roughly 15 years to retirement, I hope to tell you in that time frame how much your advice has helped me and my family. Please keep up the great work. I loved your Vanguard vs. Fidelity analysis this week and I look forward to more of your valuable insights! – Rob P.


Dear Friends,

As most of you know, I am no longer in the business of advising people but rather educating and making available for free (or minimal price) the information I’ve gleaned over 50 years in the investment business. However, I am pleased to see my old firm continuing to expand its reach in helping investors, as described in this article byFinancial Times’ “Financial Advisor IQ.”

It’s hard for me to think back to the days when my minimum account size was $2,000 — not fee, but money under management. I believe that successful money management and successful investing have a lot in common. It reminds me of my favorite Warren Buffet quote: “To succeed you only have to do a very few things right, as long as you don’t do too many things wrong.” Whether it’s the growth of a firm’s money under management or the growth of an individual’s portfolio, success comes from doing the same thing over and over, even when it doesn’t feel good.

Chasing fads can be the downfall of money managers as it can for individual investors. I wrote an article (as always with the help of Rich Buck) on January 9, 2000 stating that I did not believe it was a new era for investing, as many investment experts and amateurs believed. I recommended investors stay the course with massive diversification through index funds. The commitment to what I have learned from the brightest academics I know, once again turned out to be right. Of course if they had been wrong, you might not have me here trying to help. As I’ve said thousands of times, there is no way to know what the future will bring. That’s why broad diversification makes so much sense.

I wish the wonderful people at Merriman Wealth Management the best in the future. Of course, part of that support for them comes from the fact that they still manage all of our family’s money.

Age Old Wisdom from Cicero

I think a lot of retirees will enjoy this article, “10 lessons on aging and retirement that have lasted 2,050 years.” I agree with all of them, but #9 is my favorite.

Global HELP

Besides providing you with weeklyMarketWatch articles, podcasts and many free resources and investment recommendations at my website, I thought you might want to know about my other favorite cause: Global HELP (GHO). I was one of the founding directors and have continued on the board for 14 years. Global HELP produces free medical publications, CDs, DVDs, and YouTube videos for doctors and healthcare workers in developing markets.

Most people are unaware that doctors in developing countries have a shortage of educational resources and Global HELP is working to fix that. One thing that separates GHO from many other non-profits is that the board of directors donate the funds for day-to-day operations, so all public donations go to producing the materials.

The impact of the Global HELP website on the lives of children is exponential to the number of doctors who use it. “If you teach a doctor how to treat a child, you give him/her the tools to treat a thousand children and to change the lives of those children, their communities, their countries, and the world.” Here’s a link to GHO’s latest newsletter. If this speaks to you, a donation would be greatly appreciated.

Next “Ask Me Anything”

Once a month, I go live at Scutify.com to answer your questions. The next event takes place. June 21 from 1:00-2:00 p.m. EST. You can mark your calendar and join me then orgo to this link anytime and leave your question. I do my best to answer as many as possible.

Another Place for Your Questions and Comments: MarketWatch

Almost every week, Rich Buck and I publish an article on MarketWatch’s RetireMentor section. We repost these on our website, with a link back to the original article. But the articles on our site do not include comments and questions from readers, and my responses, that exist on the original MarketWatch pages, which you may find helpful and are a recommended place for you to engage with me in pertinent comments and questions.

Here’s a sampling of exchanges from the article, “5 steps to beating the market“.

Bob Rogers: The problem with this analysis is that a lot of the multi-year periods overlap. Therefore the different periods are often very similar periods with only a few of the years of performance swapped out. So you’re not really testing 40 different 40-year periods, because many of those periods have the same underlying years of return. This study would not be accepted in the Financial Analysts Journal.

Paul Merriman: @Bob Rogers. I don’t disagree Bob. I am not an academic but I have learned some important lessons from them. My goal is to take their research and make it meaningful to normal investors.  My primary goal with this article is to help investors (especially young investors)  realize that the longer the period of time, the more dependable the return and the less one has to worry about short term loss. I also hope to make the case that adding more asset classes can raise returns without additional long-term risk. My last challenge is to make it very simple. I hope I accomplished my goals.

Steve Quon: Most people can’t invest intently over a 40-year period. Their highest earning years are in their 40’s and 50’s giving them more like a 20-25 year window. But, even some in the earlier years helps. Most importantly, the early years sets the mindset, pattern, and lifestyle of investing.

Paul Merriman: @Steve Quon. Hi Steve, I agree that most people are late in their commitment to saving, but I am focusing on getting people to start earlier. And yes, even if the saving discipline is small in the beginning, the saving habit is what we are trying to get established. I have lots of young readers/listeners who are saving on a regular basis. It probably won’t surprise you that most of them seem to be engineers and others in the numbers/technology fields. My wife has often said, “All you’re doing is making rich people richer.” I like to think of it as helping to start a tradition of saving and smart investing that will impact their families for generations.

Keith Fleischer: What about fees, expenses? You can get an S&P 500 index fund with extremely low expense ratio. Not sure the same is true for small cap funds.

Paul Merriman: @Keith Fleischer. Yes, you can invest in small cap value funds and ETFs with very low expenses. SLYV, a commission-free ETF, available through Schwab, has expense ratio of .15%.  If you are a Vanguard fan check out VIOV. This small cap value ETF has an expense ratio of .20%.  If you have $10,000 to invest the Vanguard Small Cap Value Admiral Fund has an .08% expense ratio.

Keith Fleischer: @Paul Merriman. Great to know and thank you for the prompt and detailed response. Unfortunate that some employer 401(k)s do not offer such low expense options for small cap funds. I wonder whether the conclusions here would still hold if the difference in expense ratio between the S&P 500 index fund and the small cap funds were .9%?

Paul Merriman: @Keith Fleischer. If we believe the small cap premium will hold up in the future, the .9% fee would not be a deal breaker. The variable that could change that conclusion would be rather if the higher cost small cap fund is actively managed. If it is actively managed, it is possible another 1%-2% could be lost due to bad stock selection, style drift, timing and turnover costs. My hope is you can access the small cap value index through your IRA or your spouse’s 401(k) plan.

Clayton Fryer: Can you comment on a Four Fund Solution that I picked up on Bogleheads and am using, which uses LCB, IntlLCV, IntlSCB and SCV, similar to your Four Fund Solution but incorporating international?

Paul Merriman: @Clayton Fryer. I will offer a Five Fund Solution in the coming months that I think will be better than the approach you have noted. I think you will see the advantages of my suggested portfolio. Stay tuned!

I hope you’ll all stay tuned, share the resources at my website, and keep in touch with your questions and comments at theMarketWatch articles, via Scutify or my email: info@PROTECTED. Once again, please note I cannot answer questions of a personal investment nature and, that despite my best efforts, cannot get to every email received.

To Your Success,

Correction to the Vanguard Taxable Mutual Fund Portfolio: The Vanguard FTSE All-World ex-US SmCp Index Admiral Shares symbol should be VFSVX, not VFWAX. We deleted “Admiral Shares” from the name of the fund.

marketwatchWhat the Hulbert Financial Digest really taught us

Investment newsletters are interesting, but the reality is that many aren’t worth the money. More

soundinvestingMust-know lessons from the king of investment newsletters

Investing to put luck on your side




       Like us on Facebook   Follow us on Twitter   View our profile on LinkedIn