Sound Investing

As Paul turned 83 last week, he recorded this podcast in his studio office surrounded by piles of articles and notes for future recordings and a good deal of gratitude. He says this may be his favorite podcast he's ever made.

He starts with the two biggest paydays of his life. The first was December 31, 2012, the day he sold his part of the firm he'd started in 1983 and walked into retirement with a promise to his wife that he'd never work for money again. The second happened in the last 48 hours, and not a dollar changed hands. He also has a word of caution for anyone who credits him for what their portfolio has done.

Then an epiphany. After reading a recent Adam Grossman piece in HumbleDollar, Paul began to question whether John Bogle's "stay the course" really belongs as the number one rule for being a successful long-term investor. He took the question to ChatGPT, shares the whole conversation, and comes away with a new rule number one, plus a line he thinks an 18-year-old might still remember at 65.

The third topic is bonds. Paul has been reading a lot of negative commentary about them lately, so he goes back to Table B1 and walks through 56 years of history: how many losing years the S&P 500 had since 1970, how many the short-to-intermediate bond portfolio had, what the worst 12 months and worst 60 months looked like, and why he and his wife hold the mix they do at 83. He also explains why long-term bonds are not the answer, and what the numbers since 1928 say about the premium you get for their extra risk.

LINKS

Market Risks by Adam M. Grossman, HumbleDollar

In this special office-hours session, Albert and I answer the questions teachers have been sending in across our four NGPF classroom sessions — more than 500 educators strong.

We move fast and cover a lot of ground:

1. How a young person can open a first investment account (and why $1 is all it takes to start at Fidelity) 02:36
2. My favorite books on saving, investing and index funds 10:58
3. The best free websites and videos for teachers and students 12:51
4. How to make inflation real in the classroom — yes, the bubble-gum story 19:19
5. Why asset classes like small-cap value and large-cap growth behave so differently 25:15
6. A live walk-through of Morningstar’s style boxes and the chart function 34:45
7. Advice for reaching first-generation and lower-income students 47:24
8. What would be the job to suggest to a middle schooler to get them more interested in math and economics?

Whether you teach this material or you’re just getting started yourself, I think you’ll find something here you can put to use.

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This is the fourth of five presentations I recorded for Next Gen Personal Finance (NGPF.org) and am sharing with Sound Investing listeners.

I titled this one “The $5 Million Payoff for a Financially Literate High School Graduate” — but I could have called it the $42 million payoff, and by the end you’ll see the math that makes it believable. I walk through the single biggest decision of all (stocks vs. bonds), 100 years of market history, why the first five years of investing matter most, and how low costs, low taxes, and automation turn small savings into a fortune over a lifetime.

FREE BOOK THIS WEEK
Spending Your Way to Wealth (see Appendix E)
https://investorship.com/wp-content/uploads/2023/10/SYWTW.pdf

TABLES AND RESEARCH
https://www.paulmerriman.com/data-tables

QUESTIONS
[email protected] (put “NGPF” in the subject line)

Join us next week for the final session: Financial Literacy Office Hours with Paul Merriman.

Harry Markowitz called diversification "the only free lunch in finance." In this session, part of Paul's series for Next Gen Personal Finance educators, Paul Merriman explains what that means in practice, and why a well-diversified portfolio can help investors stay the course through good markets and bad.

Paul covers the history and math behind diversification, from Don Quixote's "don't put all your eggs in one basket" to Warren Buffett, Charlie Munger, and Sir John Templeton. He explains the three kinds of risk investors face (company, market, and asset class), and shows how the "lost decade" of 2000–2009 hit S&P 500 investors hard while more diversified portfolios kept growing.

You'll also hear:

• How adding small "baby steps" of large cap value, small cap, and REITs added about 1% a year to returns since 1970
• Why the two-fund strategy (half S&P 500, half small cap value) may be less risky than it looks
• What a young investor putting away as little as $1,000 a year could build over a lifetime
• A simple "ultimate buy and hold" for hands-off investors: a target date fund plus a slice of small cap value

Plus, Paul shares a free book from market historian Bill Bernstein.

Watch on YouTube: youtu.be/MDqaIojI8TE

Free book: If You Can: How Millennials Can Get Rich Slowly

Tables and research: paulmerriman.com/data-tables

Send your questions to Paul at [email protected] (include "NGPF" in the subject line)

Watch the video here.

This is the second of five presentations Paul recorded for Next Generation Personal Finance (NGPF.org), whose free curriculum reaches some 150,000 teachers. The sessions weren't open to the public, but NGPF has allowed Paul to share each one with Sound Investing listeners.

The subject is index funds, and Paul starts where the story starts: John Bogle, 1976, and a fund launch that nearly got cancelled before it opened.

From there he looks at what the evidence actually says about active management over 20 years, why most investors never hear about the costs that quietly come out of their returns, and what happens to a fund that doesn't perform. He also introduces the non-traditional index funds from Dimensional and Avantis that he believes give young investors their best opportunity, and closes with stories from the 90 minutes he spent in Jack Bogle's office.

CHAPTERS
00:00 Introduction
02:44 What is an index fund?
04:38 John Bogle and the first index fund
08:50 Active vs. passive: beat the market or be the market
10:52 The SPIVA report
14:53 Quartiles and the 20-year picture
19:49 How long do mutual funds survive?
22:05 Asset class and style drift
25:14 The tax cost of active management
28:51 Bogle on costs and the hidden drags on return
35:18 Myths about index funds
38:28 Beating the S&P 500 with index funds
42:35 Traditional vs. non-traditional index funds
49:06 Dimensional and Avantis
50:23 The number one reason to use index funds
55:46 Stories from meeting Jack Bogle
59:25 Wrap-up

NGPF: ngpf.org

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Want to build a multi-million-dollar retirement portfolio without gambling on single stocks? This is the first session of the four-part series I recorded for the teachers of Next Gen Personal Finance — and I’m sharing it here with you. In it, I break down the timeless principles, the math and the market history every long-term investor needs to know.

WHAT YOU’LL LEARN IN THIS EPISODE
• The Math of Compounding [01:43] — how finding an extra 0.5% to 1% in returns — or starting just five years earlier — can add millions to your lifetime wealth.
• The Power of Starting Early [09:48] — why your initial investment years build your foundation, and how both bull and bear markets work in favor of young, disciplined savers.
• Budgeting Strategy [19:43] — applying the “Pay Yourself First” rule and the 50/30/20 framework to establish sustainable saving habits.
• Stocks vs. Bonds [22:44] — understanding why stocks are low-risk for long-term growth, while bonds carry inflation risk over decades.
• Market Diversification [30:08] — why 4% of companies generate nearly all stock-market gains, and how owning total-market index funds ensures you don’t miss out on them.
• Equity Asset Classes [37:59] — comparing large-cap blend, large-cap value, small-cap blend and small-cap value to reduce volatility and boost returns.
• Target-Date Funds [49:38] — why automated, age-tailored allocation helps investors stay the course and avoid emotional mistakes.

Tune in to discover how staying the course, keeping expenses low, and letting history guide your strategy can transform your financial future.

Join us next week for The #1 Reason to Invest in Index Funds.

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.