Have you determined your risk tolerance correctly?

From: "Sound Investing" <info@PROTECTED>
Subject: Have you determined your risk tolerance correctly?
Date: March 30th 2017

March 30, 2017

“A BIG thank you, Mr. Merriman, for all you are doing for all of us! My ‘guess’ is that you are working harder as an educator than you ever did for pay. I also know that this is a labor of love, so likely giving your life/ knowledge away has to also be a lot more fun.” – David B.


Dear Friends,

If you’re NOT interested in the recent launch of my portfolio recommendations at Motif Investing, please stay with us! You can also go to Motif, create a free account and look at the portfolios we’ve created and use as a model for your own… at Motif or wherever you invest. More on Motif below, but I want to assure our readers and viewers that my team and I are committed to offering the best advice we can to each and every one of you.

We just introduced the 2017 Fine-Tuning Your Asset Allocation Tables, which can help all investors examine and determine their risk tolerance. The tables show, for the first time, the historical returns of The Ultimate Buy and Hold All-Value Equity portfolio. For more on this, please listen to my podcast.

A Roth IRA Could Be a Worse Choice Than You Think 

This article explores one of the most important investment and lifestyle decisions most investors make. Depending how you view it, the decision to use a tax deductible or Roth 401k and/or IRA leads to either saving more today or having more to spend on paying off debt or taking a dream trip.  Here is my favorite paragraph from the Walter Updegrave article:  

“Ultimately, what I take away from this study is that for many, if not most, people, it's difficult to really know whether a Roth IRA or traditional IRA will end up being the superior choice. With uncertainty both about your future income and future tax rules, it's impossible to know the tax rate you'll owe when you withdraw money from a traditional IRA many years down the road. Which is why I think it's a good idea for most people to consider hedging their bets by having some money in both a traditional IRA and/or 401(k) as well as in a Roth IRA and/or Roth 401(k) account. That will allow you to diversify your tax exposure, so to speak, rather than making an all-or-nothing bet with all of your retirement savings on a particular tax scenario playing out. Having the ability to draw money from both types of accounts can also give you more leeway in managing withdrawals and possibly lowering your tax bill in retirement.

Bottom line: The prospect of a big tax-free account balance in retirement may make a Roth IRA seem like the obvious choice. But that doesn't mean it's necessarily the right one.”

If you are trying to make this decision, I hope you will read Walter’s article on maximizing IRA contributions.  

Regarding Motif Investing

Thank you for the many comments received. I realize there is some confusion and I intend to answer as many questions as possible below, on my website, and in my podcasts. My colleague, Chris Pedersen, and I have added a number of new portfolio options at Motif, for your one-click, low-cost advantage in implementing my Ultimate Buy and Hold portfolios. Our final push will be to create Target Date Funds based on my recommendations. To access Motif, you need to set up a free account. You can decide not to fund it and simply look around and see what we’ve created there, and use whatever is useful to your own portfolios. 

To your success,


Q: Why did you become an affiliate with Motif? That seems counter to all the free information you’ve given in the past.

A: The affiliate relationship provides a one-time compensation to our Foundation when someone becomes a Motif client by joining Motif via our website or link. We will also receive $1 for some Motif trades. This is similar to the small commission we receive from sales of our books. Both provide some minimal incremental funding to the foundation. Neither is large enough to motivate me to recommend anything but the best for you. For those who are interested, the by-laws of The Merriman Financial Education Foundation prohibit any officer or director from receiving any compensation.

We like that Motif provides a high level of convenience at low cost – especially good for young investors. But it is only one option and not best for everyone. For large accounts, especially taxable accounts, moving to Motif may be very costly as the sale of the holdings might create taxable gains.

Q: Why do you recommend using Motif instead of Vanguard, Fidelity, Schwab, T. Rowe Price, etc.?

We don't. We recommend Motif Investing for investors looking for a simpler, more convenient way to invest in a broadly diversified portfolio. Many investors will still do better investing with an advisor who provides an even higher level of convenience. Some will prefer to work with Vanguard directly for the lowest costs. Others may have a preference for Schwab. All the providers offering mutual fund and ETF portfolios we recommend are good. What we care about most is that you invest using the service that assures you will maintain the Buy-and-Hold strategy in all market environments.

Q: Who is behind Motif?

Motif Investing is an online brokerage company founded in 2010 with over $120M venture capital investments from J.P. Morgan, Goldman Sachs and others.  Investments made at Motif are held by Pershing, which was founded in 1939 and holds over $1.5 trillion in assets and serves more than 1,400 business clients worldwide.

Q: What do I gain by changing brokerages?

Changing brokerage firms may or may not make sense based on your needs and values. Every situation is different. The primary advantages of Motif are one-click and one-fee purchasing and re-balancing of our recommended portfolios. The Motif portfolios we have put together allow us to build portfolios based on “Best-In-Class,” as opposed to being relegated to one ETF group. Motif does not offer the broad range of services like Vanguard, Fidelity or Schwab. 

Q: If it costs just $9.95 a transaction, to purchase a whole “basket” of up to 30 ETFs, what is the $9.95 a month offer they present at Motif?

Motif has a number of services that can be purchased for $9.95. As you noted an investor can select up to 30 stocks (including ETFs). Investors can build their own portfolio of securities, including what percentage of each to put in the portfolio, and buy the whole portfolio automatically with the push of a button. The total cost of the trade is only $9.95. The purchase even buys partial shares so all of the money goes to work. That’s unusual with ETFS. 

If you don’t want to build the portfolio yourself, you can select from a long list of portfolios designed by others. We have 70 of our portfolios for investors, built with our unique approach to asset allocation. Many investors are familiar with our work as they have followed our recommendations at Vanguard, Fidelity and others for many years.

We like Motif because we can build a portfolio of Best-in-Class ETFs and rebalancing is always just a button-push away. (We hope you will only push the rebalance button once a year). There are other advantages but those are the two most important.  Next week I expect to do a podcast about the challenges of working with Motif.

Motif offers a robo advising service called Motif Impact Portfolios for $9.95 a month. It is a robo advisory service that is built to compete with other the major robo advisors. They also have a $9.95 monthly fee for investors who want to auto invest and auto rebalance on a monthly basis.  That service has nothing to do with our portfolio.

The Merriman Motifs are designed for investors who are not looking for a robo advisor and are willing to take care of the basic steps to manage the account.  Using the portfolios we’ve designed requires you to take the step to periodically (annually is often enough) of pushing the rebalance button. I estimate most accounts can be managed for less than $25 account.

Q: I am not willing to pay $9.95 to make monthly payments through the Blue Plan offered by Motif. Do you have a recommendation on how to make regular payments without paying so much?

A: The $9.95 automatic investment and automatic rebalancing service has advantages but may lead to lower returns. In one study we found that monthly rebalancing lowered the annualized rate of return by .5% a year, compared to annual rebalancing. 

If you invest on a quarterly basis, by selecting a single ETF to put your investment in rather than rebalancing the whole portfolio, you will pay $4.95. If you make the investment and rebalance at the same time, the cost would have been $9.95. If you do that quarterly, in the 4th quarter you deposit the cash in the account and rebalance at the same time, the total commission cost for the entire year will be approximately $25. If you are able to make the entire year’s investment during the first month of the year, you can make the deposit and rebalance all at one time for a total annual cost of $9.95.

Q: Do you updated the website yearly or do the funds and percentages generally not change from year to year?

I’m newly retired and followed your recommendations for portfolio allocation in preparation for my retirement last year. I’m now looking at doing my first yearly rebalancing. Looking at your website, the allocations for Vanguard Mutual Funds was last updated February 29, 2016.

A: I hope you are enjoying retirement. I should have any changes made by the end of April. With all the work of introducing the new Motif portfolios, I have gotten behind. My sincere apologies.

Q: You've always recommended avoiding individual stocks before. Why have you changed with Motif? Why not recommend only ETFs, which would be consistent with your previous recommendations?

A: Even though Motif is set up to use individual stocks to build portfolios, all of our recommendations are based on ETFs. In each asset class we have tried to identify the best ETF based on what we believe produces the best returns.  Plus, we will continue to look for better solutions in the future.

Q: Do you plan to set up Motifs for each of the seven Ultimate Buy and Hold asset classes you've talked about in the past on your podcasts and web site?

A: Almost every one of our new Motif portfolios are built on those Ultimate Buy and Hold asset classes. What we have been able to do is offer many more combinations. Previously, we had conservative (40% equity/60% fixed-income), moderate (60% equity/40% fixed-income) and aggressive (100% equities) portfolios. Now we offer 7 different combinations of equities and fixed-income, as well as All-Value portfolios. The good news is investors can look at what we have done at Motif and do it on their own with another broker.

Q: Have you moved – or plan to move – your portfolio over to Motif? 

Your last podcast unveiling opportunities with Motif was very intriguing and seems to solve a number of problems with managing a portfolio. 

A: I have money being moved to Motif but the bulk of my portfolio will stay in DFA funds. I am putting the Motif investment in our All-Value Portfolio. I want to compare it to my All-Value portfolio at DFA. I think the bulk of investors at Motif are going to be real Do-It-Yourself investors.

There are three major camps of DIYers. One group does it because they love the process of selecting and managing their own investments. Another group does it themselves to eliminate as many expenses as they can. The third group is made up of millions of investors who don’t have enough money to find a good advisor to work with them. I think Motif will appeal to people from all three groups.

The group I would especially like to help is the young people who don’t have enough money to get the best advice from other sources. My hope is they will take the time to understand how we have constructed the portfolios and conclude we are the experts they can count on.

I don’t fit into any of those groups. Money is a very emotional topic for me.  I don’t want anything to do with managing my own money, so I have an advisor.  Plus, I am 73-years-old and have health issues that suggest I should make sure my wife and family have someone they can trust. I know it’s a luxury to have a financial advisor, but it comes with a great deal of peace of mind.

Why you should consider an all-value portfolio

Regular readers: I'm rolling out some brand new recommendations for long-term investors. ​more

Paul Merriman |  info@PROTECTED | http://www.paulmerriman.com

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