The best AAII presentation in 34 years!

From: "Sound Investing" <info@PROTECTED>
Subject: The best AAII presentation in 34 years!
Date: April 27th 2017
April 27, 2017

The Ultimate Buy and Hold Strategy is priceless advice for the long-term investor. It has given me greater peace of mind as I put my investments on auto-pilot. Paul's podcasts, videos and articles are a wealth of information. I wish I had known this information when I was in my 20s.” – Chris L.

Dear Friends,

I am pleased to introduce our latest expert, George Sisti, CFP, one of the smartest guys I know in the business and 100% dedicated to people doing the right thing for their financial future. For last week’s podcast, I read two articles by George, which you can read in print: Fake News and Financial Journalism and The Illusion of Wealth. George splits his time between Washington state and Arizona, playing lots of golf and having fun in fulfilling his long-term goals. He is not looking for new clients, but I thought you’d enjoy his insights and wisdom as I do.

AAII Puget Sound Presentation with
Special Session on Robo Investing

Join me May 20, 9 a.m.–Noon for Beyond Buffett: Value Investing, Asset Allocation and Fund Selection. This presentation, sponsored by the American Association of Individual Investors, Puget Sound Chapter, will be held at the Mercer Island Community & Event Center, 8236 SE 24th Street, Mercer Island, WA. Doors open at 9 a.m. and the presentation is from 9:45 a.m. to 12:30 p.m. with two breaks.

I’ve been giving AAII presentations since 1984 and believe this will be the best of my AAII career! I will cover our latest work on asset allocation, equity selection and distributions, as well as the All-Value portfolio and a real breakthrough in Target Date Funds. There is no cost but you need to register via Eventbrite to reserve your space for the AAII presentation. A donation to AAII is appreciated.

Following, from 12:45 to 2:00 p.m., I will address the subject of Motif Investing and Robo Advisors with some who attended the first presentation. As there will be room for 180 for the first presentation and just 70 for the second, it can only be offered on a first-come-first-served basis.

Update on Motif
In the next few weeks we plan to introduce Target Date fund portfolios at Motif. If you’ve not yet taken a few minutes to learn about Motif Investing, I encourage you to do so, and share this link with friends and family. To view all the portfolios created by Chris Pedersen and myself, click here.

Scam Alert!  

This article addresses a form of telephone scamming, and a solution being tried in the UK. I know a fellow who has lost over $100,000 to scammers, and he doesn’t have Altzheimer’s. Read here.

Questions & Answers

We’ve separated the following into general investment Q&A’s – many more of which can be found at my website’s “Ask Paul” – and Q&A’s specific to Motif Investing, which are archived under “FAQ’s for Motif Investing” also on my website.

To your success,


General Q&A’s

Q:  The Ultimate Buy and Hold chart shows that the S&P 500 has higher risk and lower historic returns than US LCV, so why hold any S&P 500 at all?

I am helping my children and grandchildren make their first investments.

A:  For young investors I believe an All-Value portfolio makes sense, but the S&P 500 is likely to hold up better in a catastrophic situation so it’s appropriate for those close to or in retirement. I suggest you compare the Fine-Tuning Tables for the S&P and All-Value portfolios. You can find them here.  

For young investors my best work is yet to come. In the coming months we will introduce a group of Target Date Funds that are almost all All-value until age 40.  

Q:  I happened upon your 1985 book "Market Timing with No-Load Mutual Funds" and wonder, how do you feel about market timing since you occasionally mentioned that you have a portion of your investments in market timing?
I enjoyed the book and wish it could have been updated to cover ETFs and a more up-to-date strategy. I use a somewhat similar strategy that includes a 200-week exponential moving average and the percentage of stocks above their 40-day moving average with some success in a small portion of my retirement account.

A:  I am a big fan of market timing but rarely recommend it to do-it-yourself investors, as it is unlikely that they will maintain the timing systems. I only trust trend-following systems.

Since 1995 my best return (including all buy-and-hold and timing portfolios) has come from a hedge fund that combines mutual funds and ETFs with leverage and market timing. The annual return of the hedge fund has been about 2.3 times greater than the S&P 500, with the same downside standard deviation. 

The majority of my timing is more conservative, including all the important U.S. and international equity asset classes plus high grade and high yield bond funds. This strategy has worked well, under performing in the best of times and out performing in the worst of times.

I don’t expect writing another book on timing but Les Masonson, author of All About Market Timing, does a good job of showing investors how to use trend-following systems with ETFs.

Q:  Could you share your thoughts on rebalancing the portfolio and the frequency of rebalancing? 

I really liked your approach to investing and am interested in knowing more about investing for taxable accounts. 

A:  Here is a link to an article that may help: “6 Things You Should Know About Rebalancing.” If you want to get more complex, check out Larry Swedroe’s “5/25 Rebalancing Strategy.”

Q:  When are you going to update your mutual fund recommendations?

A:  I’m working on them right now. Some will be out in the next week. 

Q:  You often mention that one could use a flexible distribution strategy with an ample retirement savings, but how to determine ample?

Is  33.3 x annual expenses ample? 1.5X that? 2X that? It's probably highly subjective based on risk tolerance but I am curious to know how you think about that question.

A:  I love the question. I will be recording a podcast on distributions in the coming month. I will likely do one on fixed distributions and second on variable distributions. I will address your question on the variable podcast. In the meantime you already know most of the answer: “It depends.” 

From my viewpoint, your suggestion of 33 times your “need for money” is close.  I would probably use 40 times. So let’s assume a minimum cost of living, that needs to be taken out of your investments, is $40,000. Let’s also assume you would like to take out a lot more but you don’t need to. Let’s also assume you are concerned (even if it’s a completely emotional feeling) about running out of money before running out of life.

If you waited to retire until you accumulated $1,600,000 it suggests you could easily take out 5% ($80,000) with little risk of using all your savings. And if the market went down for an extended period you could certainly cut back to the $40,000 distribution. I waited until I had at least twice what I needed before I chose to spend the rest of my career working without pay. I think you will enjoy my new distribution tables.

FAQ’s for Motif Investing

Q:  How do I find your Motif portfolios?

I tried looking for it under Paul Merriman and could not find it.

I discovered Motif about 2 years ago. I love Motif because it has so much potential for the little guy.  I'm so happy you are using it to help us with the best of the best and guiding us along the way. Looking forward to buying it and belonging to your Motif community.

A:  If you search for “Merriman diversified” under Community Motifs you should see the list of 70 portfolios. Here is a direct link as of today

Q:  I am thinking of converting an IRA to a Roth and then transferring the Roth to Motif. Which of your portfolios should I use?  Do you think this is a good idea? What should I be aware of?

A:  Before I answer your questions it’s important to understand my limitations.  I want to do all I can to help you make good investment decisions but I am not able to give personal advice.  My hope is, with the help of the Fine-Tuning tables you can identify the right combination of asset classes to meet your need for return within your risk tolerance.  Of course the conversion of a traditional IRA to a Roth IRA is a combination of tax and estate planning decisions. Again I am limited in giving personal tax advice.  When I was an advisor I often encouraged investors to convert their IRAs to Roths as it was the equivalent of saving more money. Plus who knows what tax and estate laws will be in the future?

I know our present lineup of portfolios at Motif is overwhelming to many investors. My hope is our soon-to-be offered target date portfolios will make the decision easier.

Q:  Regarding Motif commissions: since I usually like to save a certain amount per paycheck and invest it into an account, wouldn't it be wasteful to be investing that amount and incurring a commission every paycheck from making a trade?

My name is Ryan and I am a 23-year-old who has been in the work force for 9 months. I'm a big fan of your work and have been listening to your podcasts and reading your material for a little over a year.

A:  No, it doesn’t make any sense to spend $9.95 a month to dollar cost average into a small account. I am trying to figure out the steps you should take, as I’m sure there are a lot of people in your position.

Here are a couple of ideas. You can set up an account with a firm that doesn’t charge anything to make small contributions. One possibility is to work with Schwab. At your age an all-value portfolio is a reasonable strategy. Then once you get to $2,000 you can transfer $1,500 to Motif and continue to invest the monthly amounts at Schwab.

Another approach is to borrow your intended annual contributions from your parents and let them be the recipient of your monthly contribution. What I like about this approach is it means you invest earlier in the year and that should produce a lot more income when you retire. I will be doing more on this in the future.

My goal for you is to find the best place to meet your personal needs and Motif is not going to be the answer for many investors.

Q:  Can I use the names of the funds in your ETF portfolio and try to find similar mutual funds on Schwab’s OneSource list where I have my 401k?

A:  There must be a lot of people who would like that help at Schwab, and Fidelity. I have added them both to my “to do” list. In the meantime I suggest the following: I know you will be able to find funds that represent the asset classes I hope you will have in your portfolio. They include all the equity asset classes found in by Ultimate Buy and Hold Portfolio. Some are available in very low cost Schwab index funds.  Watch for my Schwab and Fidelity self directed recommendation in the last quarter of the year.

The big mistake mutual-fund investors make

You have probably heard about what’s known as the DALBAR effect. It’s the fact that, as a group, mutual-fund investors underperform the funds in which they invest. more

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