Sound Investing

Paul discusses his upcoming trip to Minneapolis to address almost 100 hourly financial planners at the Garrett Planning Network annual retreat — then shows, in real time, how he uses AI alongside the Truth Tellers. This example is prompted by a Ben Felix video arguing that most people save without knowing their real “why.” Paul asked ChatGPT to explore the question and shares the full AI response, which includes the six steps to creating your “why” — from “dream before you calculate” to purpose → plan → portfolio.
In the second part of this podcast he responds to the many listeners who have asked: build the worldwide all-value portfolio with five Avantis ETFs, or simply buy AVGV, a single ETF that owns the same ETFs but in different percentages? Over three years, AVGV compounded at 21.1% (up 77.4%), while the five-fund do-it-yourself version compounded at 22.2% (up 82.6%) with no rebalancing. Doing the work likely earns a better return — but a Morningstar study suggests most investors do better buying the single ETF, because it takes care of all the rebalancing and overcomes the tendency to chase returns as money is added.
Paul would appreciate your feedback on this podcast: paul@paulmerriman.com.
LINKS
• Ben Felix video on investor myths
• Morningstar “Mind the Gap 2025” study
• Garrett Planning Network — find an hourly advisor
• Meet the Truth Tellers

The hardest part of investing isn't choosing funds — it's building a set of beliefs strong enough to keep you disciplined when the market, the news, and your own emotions all conspire to pull you off course.
In this episode, Paul sets aside the usual fine-tuning tables and turns to one of his favorite books, Ben Carlson's Risk and Reward. Table by table, Ben makes the same point in a dozen different ways: the bad stuff is normal, it's happened before, and it will happen again. The goal isn't to avoid it — it's to expect it, so you can stay the course.
Along the way, Paul walks through:
• The 10 worst days, months, and years in market history — and how the market behaved 1, 5, and 10 years later
• Why bonds turn a 43% stock loss into something far gentler, and why a simple 60/40 has never had a losing 20-year period
• How stocks actually perform before, during, and after a recession (the average is a gain)
• The "dead cat bounces" of 2000–2002 and why three years of false hope wear investors down
• What a century of international returns says about putting all your eggs in one basket
• The most quietly important number in investing: the market's average daily return of 0.03% — a lifetime of baby steps
The theme underneath it all: future returns will likely look a lot like the past. We simply have no way to know the sequence — and that's exactly why realistic expectations, low costs, and broad diversification matter more than any forecast.
The biggest enemy of the investor, as the data keeps showing, isn't the market. It's the investor.
BRINGING FINANCIAL FREEDOM TO NEW AUDIENCES
Last week I spent more than three hours with 89 graduating nurses at Texas A&M University, exploring one life-changing idea: how a handful of smart financial decisions can add millions of dollars to your lifetime financial security. Many of you asked to see what these presentations look like, so we're making this one available to watch (link below).
LINKS
• Ben Carlson, Risk and Reward (Foundation earns when you use this link)
• Texas A&M nursing school presentation (3+ hour video)
• Texas A&M student feedback
• Mike Piper, Social Security Made Simple / other titles
• Personal Finance in Your 20s & 30s For Dummies
• Free books from Paul Merriman
• Boot Camp series & tables

A longtime listener wrote in after watching a Ben Felix video making the point that factor investing may not beat the S&P 500 by the end of an investor’s lifetime — and could even do worse. His question was simple: is factor investing really worth the effort?
Paul’s answer turned out to be two answers, so he’s splitting it into two episodes. This week is about the thinking. Next week is about the evidence — including new data Daryl Bahls just sent over.
Paul also tries something new: using AI to canvas the writings of the Truth Tellers and surface what they would say about this exact question. What emerges is a point they all agree on — good decisions do not guarantee good outcomes, and bad decisions sometimes produce wonderful ones. Bill Bernstein, Larry Swedroe, Ben Felix, Mike Piper, Christine Benz, Rob Berger, Jim Dahle and Jack Bogle each frame the same distinction: expected returns are not realized returns, and probability is not certainty.
Investing is one long series of forks in the road — save or spend, stocks or bonds, index or active, buy-and-hold or market timing — and none of them come with a guarantee. What they come with is a probability. The job is to choose thoughtfully, accept the uncertainty, and have the courage to stay the course while the evidence still supports the plan.
LINKS
• Meet the Truth Tellers: paulmerriman.com/truth-tellers

Paul returns from a two-week Baltic cruise refreshed and ready to dig into the numbers. He opens with a 12-month performance review of the recommended portfolios at Avantis, DFA and Vanguard — Avantis averaged 31.1% across the 10 equity asset classes in the Ultimate Buy and Hold, versus 27.7% at DFA and 26% at Vanguard — and explains why the non-traditional index funds keep outperforming traditional cap-weighted indexes.
Paul also revisits Ben Carlson’s look at the ARK Innovation ETF (ARKK), which grew to $30 billion under management before falling 65% while the S&P 500 gained more than 60% — a costly lesson in performance chasing, with an estimated $7.5 billion in shareholder losses.
Then Paul answers 12 listener questions, with a special deep dive into table G1B — 56 years of S&P 500 vs. small cap value returns, one year at a time, plus every combination in 10% increments.
QUESTIONS COVERED
1. Funds that match the international and U.S. small cap value asset classes 17:18
2. Keep investments at Fidelity or move to Vanguard? 18:51
3. Is the Vanguard money market fund a good long-term emergency fund? 20:19
4. Pairing the S&P 500 with small cap value — the G1B fine-tuning table 21:46
5. Why the Four Fund worldwide portfolio uses U.S. small cap value only 31:17
6. Should geopolitical tension make you cash out? 33:57
7. Why has small cap value historically produced higher returns? 36:47
8. Can you get rich from investing? The Rule of 72 and $100 a month 41:51
9. Is the all-value worldwide portfolio better than the other strategies? (Table H2) 44:03
10. Where to find the 10 Fund portfolio allocations 48:39
11. Paul’s take on DFA’s micro cap fund (DFMC) 49:16
12. Lump sum or dollar cost average when switching funds in a Roth? 51:57

LINKS
• Table H2 — Sound Investing Portfolios Comparison (Worldwide All Value)
• Table H1a — Sound Investing Portfolios Asset Allocations
• Fine-Tuning Table G1B — S&P 500 vs. Small Cap Value
• Fine-Tuning Table G1C — S&P 500 vs. SCV, 2025 Returns
• Best-in-Class ETF Recommendations

I joined my longtime friend Tom Cock for a special edition of Talking Real Money — a wide-ranging conversation about the evolution of indexing, the proposed changes to the S&P 500, and why investors should understand both the strengths and limitations of traditional index funds. I explain why firms like Dimensional Fund Advisors and Avantis Investors use a more flexible, evidence-based approach than traditional indexing, and how academic research has reshaped portfolio construction over the past several decades.
We also explore lessons from market history, including the importance of understanding major bear markets, determining appropriate risk levels, and building portfolios that align with your personal goals rather than chasing maximum returns. I share insights from the latest Dimensional Matrix Book and explain why I believe studying 100 years of market data helps investors stay disciplined during inevitable downturns.
Finally, I introduce a simple but powerful strategy for helping newborns and young children build substantial retirement wealth through small annual investments that can compound over many decades.
CHAPTERS
0:11 Special guest Paul Merriman joins Talking Real Money
0:55 Long friendship and investing partnership between Tom and Paul
1:20 S&P 500 rule changes and earlier inclusion of major IPOs like SpaceX
2:07 Historical examples of S&P 500 additions and omissions
2:35 Microsoft’s delayed entry into the S&P 500
2:56 NVIDIA replacing Enron in 2001
3:29 How index rule changes can affect future returns and volatility
4:08 Why indexing remains the preferred strategy for most investors
5:16 Traditional versus non-traditional index funds
6:37 How Avantis and Dimensional incorporate factors beyond company size
8:05 Why factor-based investing differs from traditional indexing
9:02 Problems with rigid index reconstitution schedules
10:16 Momentum, flexibility, and portfolio management advantages
11:22 Introduction to Dimensional’s annual Matrix Book
11:53 Using market history rather than forecasts to guide investing decisions
13:09 Lessons from past bubbles, crashes, and lost decades
14:20 Why Paul trusts academic research more than Wall Street forecasts
15:14 The case for small-cap value investing
15:49 Clarifying Paul’s allocation to small companies
16:53 Investing for heirs, charities, and future generations
18:10 Remembering investor panic during the 2008 financial crisis
19:18 Determining an appropriate risk level for retirement portfolios
20:43 Different investor goals: beating the market, maximizing returns, or minimizing risk
21:28 Peace of mind versus maximum growth
21:55 Helping young people build retirement wealth early
22:54 The $365-per-year retirement funding concept
24:09 Final thoughts and appreciation between Tom and Paul
Questions? Comments? Click!