Money, Kids, Bainbridge Island and more

October 26, 2016

Dear Friends,

A huge “thank you” to those who responded to my birthday wish, that you share my free video, “Financial Fitness Forever 2016.” More than 2,500 views have been logged so far, which makes me very happy. Once you open the video, you can go back and watch where you left off. While we’ve provided the handouts in slideshow and .pdf format, there is also the option to purchase the video for $10 with a synchonized slideshow. I hope you will continue to pass along this video to others so they too can be empowered to enjoy more money, less risk and more peace of mind.

How to talk about money with your children and grandchildren

Last month, we introduced you to financial literacy expert Joline Godfrey, with an article on “The Economic Regrets, Dreams and Possibilities of Women.” We continue this month with Joline’s insights into “Five Difficult Financial Conversations Kids Will Make You Have.”

As my team and I approach our fifth anniversary of The Merriman Financial Education Foundation, we are starting to focus our outreach to women and young investors. I hope you’ll support these efforts by forwarding or sharing on your social media our website address and specific resources to the people in your life who might benefit from them. If you – or someone you know – has a blog, all information on my site can be shared – with attribution and links to the referenced material.

A new interview: 12 Investment Decisions Guaranteed to Change Your Financial Future

I recently spoke with Sam Marks, an interesting young entrepreneur who, with Johnny FD, runs the website, Invest Like A Boss. Sam did a great job and you can listen to the podcast/interview by clicking here. (The actual interview starts at 2:46). I especially recommend this for first-time investors who need to understand that a moderate amount of risk is a homerun to creating a successful retirement.

Why I love where I live: Bainbridge Island, WA

I have lived almost my entire life in Washington State, including growing up in Wenatchee, a beautiful orchard community along the Columbia River. But since 1961 I have lived on the Western side of the state, and since 2004 on Bainbridge Island. My wife, Zan, and I love living on Bainbridge Island and thought you might enjoy a recent Vogue article about our island. I can’t vouch for all the recommendations in the article, but can say that the Harbour Pub is a great place to go off a diet — amazing fries (regular or sweet potato), yummy clam chowder soup, fish and chips and hamburgers to shorten your life and a lively atmosphere. If you love ice cream, I guarantee you will find the ice cream at Mora Iced Creamery unforgettable.

One stop not mentioned in the article is Bloedel Reserve, a beautiful park and home to “Shakespeare in the Park” each summer.  If you want to walk on the beach I recommend a stop at Fay Bainbridge State Park. When I have time for a walk around Battle Point, a park that is a short distance from our house, I often use the walk as a healthy way to share a few investment ideas with serious do-it-yourself investors.

We also have the pleasure of spending time each year in San Miguel de Allende, Mexico, about which I’ve written and podcasted.

Presentation Nov. 3 on Bainbridge Island

If you are in the Puget Sound area, I invite you to join me Nov. 3rd, 6:30-8:30 at the Bainbridge Island Museum of Art (BIMA), co-sponsored by the Bainbridge Community Foundation. I’ll be presenting, “10 Simple Steps to Improve Your Investing Confidence and Build a Better Retirement Plan.” You can listen to an 18-minute podcast about this presentation by clicking here. To register, click here.  If you live in Seattle you can walk off the ferry to BIMA (a 4 minute walk) for the presentation.  If you come at 5 you can visit the museum before my presentation.

Presentation Nov. 7 to AAII Eastern Michigan Chapter

I will be making a 2 hour presentation to the American Association of Individual Investors Chapter.  Doors open at 6:30 p.m. To learn more and register in advance, click here.  Part of my discussion will focus on my new all value portfolio.

Q & A’s

The following Q&A’s are from the September “Ask me Anything” live chat, while the rest of the session can be read at this link. All archived Q&A’s can be found here on my website. We’ll provide the link for a future session in the next newsletter on Nov. 10th.

To your success,


Q: You wrote that you no longer recommend Vanguard funds over Fidelity, but what about for Target funds? Morningstar rates Vanguard’s more highly than Fidelity’s.

A: My comment regarding Vanguard and Fidelity funds had only to do with the ability to put together a portfolio using index mutual funds or ETFs. My belief is Vanguard has better target date funds than Fidelity.

Q: I am 84 years old and am considering using your multi-ETF solution for my future investment, however long that may be. What do you think? Recently I enjoyed your CRI course given at the Edmonds senior center. I have been a Paul Merriman advocate for decades. Alas, I have not followed your advice as I should have. Also I am healthy, have good genetics and a positive outlook.

A: I’m glad you enjoyed my course in Edmonds. It was a great group of fellow retirees. I have no problem with the use of the ETF portfolios but I am concerned about how much you might invest in equities. An all-equity ETF portfolio is expected to have a loss of 40 to 50 percent in a serious bear market.  Of course you can limit the loss with the addition of fixed-income ETFs. Please see my Fine Tuning Table for the right mix of equity and fixed income ETFs.

Q: What is your opinion of annuities? My only source of income is social security, with stock investments of about $135K and owning my $325K+ condo.

A: A good single-premium life annuity will pay you a guaranteed stream of income that will be twice that of the dividends you are likely getting from your stocks. That’s the good news. The bad news is at your death there will be nothing left for your heirs. Check out payouts at Vanguard and USAA. Their rates should be much better than a commission-based insurance agent.

Q: You mention small cap value in your articles, what about mid-cap value, like VOE from Vanguard? It seems to have done well and at times out-performed small-cap value.

A: There are a couple of important considerations in adding mid-caps to your portfolio. As the larger-cap and smaller-cap asset classes tend to do better and worse in different markets (see Live It Up Without Outliving Your Money for graphs pages 66-70), the impact of rebalancing works better at the edges than with mid-cap. For example, in the 1975-1983 period, small-cap stocks made about 7 times as much as large-cap (1400% vs. 200% gains). In the following period (1984-1990), the large-cap made about 150% vs. a small loss for small-cap. In both periods the gains of mid-cap were about half way between the best and the worst. I would expect mid-cap to do worse than small-cap when small does better than large, and mid-cap to do better than small-cap when large does better than small.

Q: If one wants to invest in a taxable account, wouldn’t the high dividends and traditionally strong performance of domestic and international real estate outweigh their less favorable tax conditions? In your Vanguard taxable portfolio page, you leave out this asset class.

A: The reason REITs are recommended for tax-deferred, rather than taxable, is that most REIT dividends do not qualify for the 15% tax rate of most dividend distributions. Instead, most of the dividends are taxed as ordinary income. If you do not have REITs available in your 401k, and if you are not investing in an IRA, the REIT could be used in a taxable account. Keep in mind that in a taxable account the returns of the S&P 500 will likely give better long-term total returns, after taxes, than REITs.


How a simple two-fund portfolio can boost your retirement returns
I’ve written before about how four U.S. index funds can leave the mighty Standard & Poor’s 500 Index in the dust. More






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