Sound Investing

Paul opens with news of a new opportunity to reach young investors: a five-part series for Next Generation Personal Finance (NGPF.org), available to some 150,000 teachers who use NGPF's free curriculum. Topics include the math and history of investing, the case for index funds, the inside story on diversification, the $5 million payoff for a financially literate high school graduate, and a teacher Q&A session. Each presentation will be shared with Sound Investing listeners the following week.
Then Paul turns to two listener questions that go to the heart of how people actually experience the market.
The first asks whether broad diversification really produces the best returns, or whether a more focused portfolio would do better. He walks through the Bessembinder research showing that roughly 4% of companies drove most of the market's long-term return, Fama and French data on small cap value going back almost 100 years, and Vanguard's own real time returns since 1998 comparing $10,000 invested in the S&P 500, mid cap, small cap blend and small cap value asset classes.
The second is a letter from an investor who put his first real savings, earned at $7 an hour, into Fidelity Magellan in 1985, lost 30% on Black Monday in October 1987, and pulled everything out. Forty years later he still fears the next crash and asks whether Paul's Ultimate Buy and Hold portfolio could leave him waking up with half his money gone.
Paul closes with a story about five 24-year-old engineers he met on Bainbridge Island, and an offer to anyone who can gather a group that would benefit from a conversation about investing.
LINKS
Fine-Tuning Your Asset Allocation tables
NGPF: ngpf.org

WATCH THE VIDEO
It was a pleasure to be invited back on System Trader with Jack Lempart. Here is a list of the main topics we covered:
CHAPTERS
0:53 • My own biggest mistake
3:15 • Why “the stock market is a casino” is exactly backwards
6:48 • “I don’t have enough money to start” — what $100 a month actually becomes
9:33 • A $20 bet with my 13-year-old grandson
13:04 • How much intelligence does successful investing really require?
15:31 • The Mensa Investment Club: buy low, sell lower
16:24 • Three books for the psychological hurdles
17:38 • “It’s a bad time to invest right now” — the myth that never dies
20:00 • Why a falling market is the best thing that can happen to a young investor
24:21 • Can a star manager do it for you? SPIVA and Bill Miller
30:21 • An ETF is only a wrapper — how do you grade what’s inside it?
33:01 • Traditional vs. non-traditional index funds
35:49 • Home bias: half U.S., half international, and the lost decade
44:04 • Cap-weighted vs. asset-class weighted funds
46:26 • Finding your right level of risk before the market tests you
55:20 • Is the small-cap value premium dead?
62:52 • Financial literacy in high school — and who’s teaching on TikTok
64:21 • Where the biggest premium comes from: size, value, quality and momentum
69:29 • The one thing to do tomorrow morning: control what you can, then automate

Paul and Chris reflect on Paul’s recent discussion with Rick Ferri. Paul adds information he wished he’d included, and Chris reacts to Paul and Rick’s positions. Together, they discuss the behavioral, trust, and performance benefits and trade-offs of seeking meaningful diversification by adding Small-Cap Value to a portfolio.
CHAPTERS
00:00:00 – Intro
00:02:50 – Chris’ 30k Foot View
00:06:16 – Mid-caps?
00:10:40 – Tot. Mkt. vs. S&P 500
00:20:15 – Trust and Change
00:25:45 – Table G1b
00:28:50 – VT vs. AVGE
00:42:20 – Dollar-Cost-Averaging
00:52:00 – Paul’s Grandson’s Question
00:53:08 – Gold funds
00:59:40 – Travel plans
01:02:20 – Outro
Watch the video on YouTube
Table G1b — Fine Tuning Table: S&P 500 vs. US Small Cap Value

Watch the video here.
Paul sits down with Rick Ferri — not for a debate, but for the kind of honest conversation two people can only have after spending their careers chasing the same goal from different directions.
Rick makes the case against tilting: the small cap premium largely disappeared once the research went public around 1980, and he believes value stopped working around 2006. Paul counters with Table G1b, which shows the results of blending small cap value and the S&P 500 in 10% increments from 1970 through 2025 — returns alongside the worst drawdowns each combination had to survive. Then Rick does something unexpected — he crosses to Paul's side of the table and builds a strong argument for small cap value, framing it as a way to capture the return of private companies that represent half of the economy.
Where they land is less about who's right than what it costs to be wrong. If you go down the factor road, Rick says, it's a lifetime commitment — not three years.
Also covered: lump sum versus dollar cost averaging, what an hourly advisor can do to help do-it-yourself investors implement their new portfolio, the new Trump accounts for newborns, and why VT may not be your best choice in a taxable account.
Both Paul and Rick will be at the Bogleheads Conference, November 13–15 at Green Valley Ranch Resort and Spa in Henderson, NV, near Las Vegas. Registration: boglecenter.net/2026conference
Table G1b — Fine Tuning Table: S&P 500 vs. US Small Cap Value: View the table
Stay tuned for next week's podcast, a discussion with Chris Pedersen about this interview with Rick.

This Friday I'm sitting down with my friend Rick Ferri for a debate that I think matters a great deal, even though — or maybe because — Rick and I agree on almost everything. We both believe in diversification, low costs, index funds, ignoring predictions, and staying the course. Where we part ways is what happens after that.
Rick's case is that you should simply own the whole market. A total stock market index fund gives you thousands of companies at an extraordinarily low cost, and adding complexity rarely pays. My case is that the academic research — Fama, French, and decades of market history — shows that greater exposure to small and value companies may raise long-term expected returns. Rick calls that factor tilting. I call it better diversification. He'll argue I'm not adding diversification at all, just changing the weights, and he's right that this is exactly what we're doing. The question is whether it's worth doing.
We also take on a second question that gets far too little attention: if you do want small and value exposure, where should you get it? Vanguard, Fidelity, DFA or Avantis — traditional indexing or systematic portfolio management? Differences that look trivial today can compound into very large ones over 40 or 50 years.
Neither of us is trying to win. Rick may be right. I may be right. Ask us again in 50 years. What I hope you take away is the process — examining evidence, understanding the alternatives, admitting what nobody knows, and committing to a strategy you can stick with. Because every strategy disappoints you eventually, and what you do in that moment matters more than which one you chose.
The podcast and video of my conversation with Rick will be available Wednesday, August 19, 2026. If you have any questions for Rick, send them to Paul@paulmerriman.com.