May 25, 2016


“You give people confidence in the long-term functioning of the stock market and make it easier not to get frightened by all the noise out there. Especially here in Europe many people don’t have this confidence and shy away from investing in stocks. I will direct my nieces and nephews to your website, hoping they will take your recommendations to heart. Thank you so much for all you do, making (financial) life better for so many people.” – Rainer D, Switzerland

Dear Friends,

In this newsletter I share Q&A’s from WWU students and some ideas to whet your appetite for traveling. First, a wonderful new book that captures many of the reasons I consider San Miguel de Allende, Mexico, my second favorite city, after Bainbridge Island. Then, read about a “Journey To Havana” that may interest those of you curious about another of our neighbors to the south.

“Facing South” and other photographic books by Marge Allen

My friend, Marge Allen, recently published a new book, “Facing South,” that contains wonderful photographs and descriptions of the Mexican colonial city of San Miguel de Allende and its residents. San Miguel is a UNESCO World Heritage site, famed for La Paróquia, one of the most enchanting churches in Mexico; murals in the Belles Artes by the esteemed Mexican artist, David Siqueiros; an extensive botanical garden featuring rare and endangered cacti and succulents; and a 19th century bull ring. This is a companion to her book, “Fiesta San Miguel,” which contains photographs taken on San Miguel’s many fiesta days. I think her Jordan: Sands of Time book is also amazing.Those who like great photography will love many of Marge’s other books, all of which are available to preview for free and buy by clicking here.

Cuba! A Journey For The Creative Spirit!

Many of you know of Aysha Griffin as Communications and Marketing Director for The Merriman Financial Education Foundation for more than four years. We met at a workshop on marketing she presented at the San Miguel Writers’ Conference in 2012, and have worked together since on most of my post-retirement projects.

What you don’t know is that in spring 2013, Aysha visited Cuba for the first time and it changed her life. She was invited back by the Cuban Book Institute to offer courses on digital publishing and developed close friendships with many renowned Cuban authors, several of whose books she is hoping to publish online. She also has two adopted Cuban families and is a godmother to a baby boy.

Last October, she organized a successful tour for U.S. writers to Cuba, the first of its kind. This November/December, she is expanding the tour to include many other arts and cultural aspects of Cuba through her broad connections, knowledge and passion for Havana. It’s not just for writers, and you don’t have to know Spanish. With Aysha as your guide, you will no doubt experience Cuba in a unique and personal way. You can learn about the trips offered at:

Q&A’s From Students

Every quarter of the school year at Western Washington University, my alma mater, I have the pleasure of teaching students enrolled in Personal Investing 216, a course my Foundation helped develop and continues to fund.I posed a question to the students, which we all should ask when we invest: “Am I getting my money’s worth?” As our foundation spends $10,000 a quarter to have this class taught, my concern is, are the students understanding the importance of, and learning how to save and invest for their retirement? From these questions I received after a recent class, I’d say yes.

Q: Do you recommend ETFs or mutual funds for a first-time investor?

A: Most first time investors are starting with a relatively small amounts of money, so the answer needs to address achieving maximum diversification with a small investment. ETFs are the best first-time investment. For less than $1000 you can build a portfolio of very low cost ETFs that would require tens of thousands of dollars to build with mutual funds. Plus, ETFs can be purchased on a commission-free basis at several brokerage firms. Here is an article that includes recommendations for three different groups of commission-free ETFs.

Q: Most experts are predicting that the Fed is going to raise interest rates in the coming months. What is the likely impact on the value of stocks during a period of rising interest rates?

A: A great question with no great answer. There are so many reasons that the market goes up and down that it is hard to know how much of the move was due strictly to higher interest rates. From 1965 through 1982, Treasury Bill interest rates increased from 3.9% to 14.7%. It was not a great period for stock returns, after including inflation. During that period, the S&P 500 compounded at .5% a yearafter inflation. The index grew at 6.5% a year but inflation ate up almost all the gains. But markets don’t all go up and down together. During that same period the small cap index compounded at 14% before inflation and 7% after inflation. Small cap value compounded at 17.7% and over 10% after inflation.

Q: I only have $150 to invest. How much do I need to open an account?

A: I’m hoping you will be able to invest the $150 in a Roth IRA so it can grow tax-free for the rest of your life and when you retire you will be able to take the money out tax-free. If you might need the money in the next few years, I suggest you keep a money market account, as you shouldn’t be taking risk with money that you know you will need soon.

There are several brokerage firms where you can invest without a minimum and without a commission. One of those is TD Ameritrade. The only minimum is you must be able to buy one share of stock.  Of course, the type of stock
I recommend you to use is an ETF.

Q: It seems like I will make more money investing in individual stocks than diversified mutual funds? At my age, shouldn’t I be taking more risk by investing in individual stocks?

A: Common sense would have most of us believe that, but all of the evidence says no. Very few investors who invest in individual stocks make as much as well-diversified mutual funds or ETFs. The S&P 500 Index has compounded at about 10% a year for almost 90 years. The small cap value index has compounded at more than 13% over the same period. I know very few investors who have made more than 10% long term, and almost none who have made 13% long term. At 10% you double your money about every 7 years, and at 13% every 5-1/2 years.

Of course lots of people take the risk of owning a couple of companies in the hopes of beating the market. It is the nature of humans to think they can do better than others; these humans tend to be overconfident and make costly mistakes. If I can convince you to invest in index funds and ETFs, I think you will have more than you need to enjoy a very comfortable retirement.

Q: What’s the first step I should take to start investing?

A: The best single step I know is go to my website and download my free eBook, First Time Investor: Grow and Protect Your Money. I also suggest you read a second free e-book entitled, 101 Decisions Guaranteed To Change Your Financial Future. If you still have a question after reading those two books, I suggest you email me at paul@PROTECTED.

Q: Some people want to invest in socially responsible funds while others expect companies focused on immoral industries and products to make more money. One that has been recommended is VICEX; should I expect to make more in “vice than nice?”

A: There is nothing special about the returns at VICEX, as it has made less than the S&P 500 over the last 10 years. There is also nothing special about the returns of socially responsible funds, except they may give an investor a sense of wanting to own the portfolio for a very long period of time.

If you are really interested in the best returns long term, I suggest you starting reading about the asset class that focuses on small cap value. I have written many articles on the asset class. Here’s one.

Q: Are there any companies investing in or developing technologies for time travel?  

A: I am glad you asked this question as it gives me a chance to make a point that Professor LaBorde and I should make. There is likely nothing more enticing to young investors than a company developing an exciting technology for the future.Here is an article about time travel you might find of interest.

It is hard for a lot of young investors to believe that investing in new technologies has produced a much lower return than one would expect. There is a technology index that has been tracked since 1972. The return is about the same as the S&P 500, but with about twice the risk. One challenge is that many companies will try and fail at whatever the new technology might be. That was true of automobiles, airplanes, computers, software, etc. Investors also get in trouble because the rush into technology stocks often occurs at the peak of the run, not the bottom.

Q: I’d like to explain the “Legacy For a Newborn Child” to my parents, whom I wished had done this 20 years ago. What do you think?

A: There is no risk in the past. One of the interesting challenges in the investment process is it is so obvious what we wish we would have done, or others might have done for us. But now we know that a small annual commitmentof $365 a year for 21 years can be turned into $20 million to $50 million dollars, without having to win the lottery. Your parents may have missed the opportunity but I hope you won’t.

A special note to our Western students:  At the end of the quarter I hope you will remember to email me and let me know how Personal Investing 216 helped you to prepare for your financial future. While I will not use your name, I may share your comment to attract other students to our class. I have another favor to ask. While I am thrilled that we are filling the class each quarter, my goal is to increase the number of non-finance majors in the class, as they are less likely to get any of this information in their majors. Please tell your friends that this is a class that will help them do one or more of the following:
1.  Retire earlier
2.  Retire with more to spend
3.  Leave more to children and charities
4.  Allow them to share this information with their parents so they might be able to do the same.

Ask Me Anything: For the Q&A of my recent “Ask Me Anything” session on, click here. Thank you

Believe it or not, investing has never been so simple
Most of today’s investors don’t know how good they have it. More



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