Sound Investing

In this podcast Paul discusses an article by Truth Teller Ben Carlson (The Biggest Winners in the Stock Market), regarding a study by Dr. Hendrik Bessenbinder (Which U.S. Stocks Generated the Highest Long-Term Returns )

This study is an update from an earlier study from Bessenbinder that Paul has recommended many times.
Paul also discusses an article by Truth Teller John Rekanthaler,  "When Rebalancing Creates Higher Returns—and When It Doesn’t”

This article adds to THE discussion of the impact of rebalancing on the latest video/podcast.

Paul, Daryl, and Chris are together again to discuss what they each think are the best single charts or graphs to help people understand investing and make good decisions.

Paul starts by asking Chris and Daryl how much we can rely on the past to predict the future.

Paul follows that with a deep dive into his choice for the most important chart -- the quilt chart.

Daryl follows up with his choice -- a discussion of the tell-tale chart.Chris finishes with his choice: a discussion of the 2 Funds for Life Fine Tuning Table.

Tables referrenced-

Table J1b- Equity Index Returns: 1-yr Periods (1928-2023) 

⁠Table K1a⁠- 4 US Asset Class Indexes & 4 Fund Combo Relative Return Ranking (1928-2023) 

⁠Table K2a⁠ Asset Classes & 4 Fund Combo (1928-2023) - Return Rank Frequency 

⁠Table K1b⁠ S&P 500 & US SCV Relative Return Rank Comparison (1928-2023) 

⁠Table K8a⁠ Sound Investing Port. Returns: 10 Yr Periods (1928-2023) 

⁠Table K6a⁠ Sound Investing Portfolios, S&P 500 & US SCV Relative Return Ranking (1928-2023) 

⁠Table K7a ⁠ Sound Investing Portfolios, S&P 500 & US SCV (1928-2023) - Return Rank Frequency 

Watch video here.

One of the most challenging aspects of being a 100% do-it-yourself investor (DYI) is dealing with the emotions of wanting to make major changes in a portfolio due to what may easily be seen as catastrophic news. The DYI doesn’t have a professional to help them think through the difficult times like the 2008 meltdown, the October 19, 1987 22% one day decline or currently, the upcoming election results.

Paul believes one of the best sources of professional support a DYI could have is George Sisti’s,  "On Course Financial Planning Vectors" newsletter.  On this podcast Paul reads Sisti’s July issue focused on “The Election!” as well as the misleading “noise” that investors get from the typical predictions that Wall Street produces this time of year.

Paul recommends investors read George's letters anytime they are feeling uncomfortable with the market.  He even suggests that investors download his archived letters for future reading.

Paul starts the podcast discussing the upcoming (July 13, 2024) presentation for AAII Puget Sound Chapter (9-10:30).  Chris Pedersen and Paul will present, “2 Investment Decisions Guaranteed to Change Your Financial Future. ”Here is a link for more information and to sign up for this presentation.  Here is the link to sign up.
Today’s podcast is a discussion of the latest research from Daryl Bahls, Director of Analytics for The Merriman Financial Education Foundation.  Paul believes these new tables are likely the best teaching tool he has found to give investors a realistic idea of the future sequence of returns.  While Paul focuses on several of the 20 slides in the attachment, more of these will be discussed next week with Daryl and Chris.
Paul starts his discussion with his latest update of the Equity Asset Classes (1928-2023) table. 
He then explains why Daryl’s Quilt Charts are a better way for investors to understand the sequence of returns they are likely to experience.
Paul asks listeners to send him questions from the slide deck so they can be addressed in next week's podcast with Daryl and Chris.

Join Paul as he is interviewed by Ed Fulbright, CPA and host of Mastering Your Money on WNCU 90.7 FM in Durham, N.C.

The following questions were generated during a presentation Paul made to the Orange County and New York City AAII Chapters.

1. How do we go about finding someone (money manager) who follows your portfolio recommendations? Plus what is a reasonable fee to pay for advisory services? In the answer I do mention David Sterman. link:⁠https://huguenotfinancialplanning.com/⁠and two videos by Rob Berger: ⁠5 Hidden Costs of Fee-Only Advisors⁠ and⁠ 5 Key Questions to Ask Your Investment Advisor⁠

2. How can I decide whether to go from 50/50 stocks and bonds to 70/30? I suggest looking at table B1 and B9.

3. What bond durations do you recommend?

4. What are the ETFs that you recommend for each of the equity asset classes you list?

5. Can I share your presentation with my children? ⁠ Here is a presentation that might be good for a young person⁠. 

6. How do I find a good money manager and what questions should I ask? Here is a link to our free book, “Get Smart or Get Screwed: How to Select the Best and Get the Most Out of Your Financial Advisor.” 

7. How do I get access to all of your charts and tables? Here is the link to ⁠Boot Camp⁠ where you can have access to all the tables. 

8. What is your view of small cap value returns over the coming decades? In my answer I mention Ben Carlson’s ⁠article on randomness of historical returns⁠- When is the Mean Reversion Coming in the Stock Market? and his article Long-Term Recency Bias.

And here is the new ⁠graph⁠ that Daryl Bahls proceeded to see the returns of a couple of portfolios over the same periods as Ben addressed.

On June 8, 2024 Paul gave a 2 hour presentation to the Seattle Chapter of Choose FI.  The topics covered the 8 biggest investment decisions, plus a new piece on putting aside money for a newborn to 21 year old. 

Here is the video link. This podcast covers 10 unanswered questions from the presentation, plus 5 additional topics that guests listed as most important topics of the meeting.

Q&A:

1. How to find the best 3 year fixed annuity.  https://www.stantheannuityman.com/

2.  How to select the best target date fund.

3.  Why small cap value stocks make higher returns.

4.  When do Roth conversions make sense?  Link:  https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

5.  What is your bottom line best portfolio without having to go through all the tables?

6.  Will Western Washington University offer financial literacy classes on their satellite campuses?

7.  What additional advice would you give to a 45 year old who wants to live on a 4% distribution for the rest of their life?

8.  What distribution advice would you have for a single person who is planning to retire before age 45?

9.  In creating your tables, how often do you rebalance the portfolios?

10.  Please explain the most important differences between an ETF and a regular mutual fund.  https://www.thebalancemoney.com/differences-between-mutual-funds-and-etfs-2466791https://www.investopedia.com/ask/answers/09/mutual-fund-etf.asp#:~:text=Both%20mutual%20funds%20and%20ETFs%20offer%20investors%20pooled,offer%20a%20wide%20selection%20of%20actively%20managed%20funds.

More topics from the June 8 presentation:

11.  What changes should I make in my portfolio when I retire?

12.  Are low expenses the biggest decision when investing in index funds?

13.  What are the most important steps I can take to get better returns?

14.  What are the biggest (most costly) mistakes investors make?

15.  Is investing in the Total Market Index or S&P 500 all you need to reach FI?

Mavis Tsai is a friend I have known for decades. Our paths crossed as I was teaching one of my free 3 or 6 hours workshop. 

In January she asked me to participate in her 5-day online event entitled,  "Confluence of Hearts: A Global Summit on True Self, Brave Connections, and a Love-Led World”  In the description of the event she noted: "Together, we will explore cutting-edge insights on reconnecting with our true selves and our fellow humans, dismantling antiquated societal structures, harnessing our passions and gifts, and co-creating a thriving future for generations to come by contributing our highest selves to the world.”

We have one thing in common.  We are both trying to help people get better—but in very different ways.

When she asked me to participate I begged off. 

Here is a paragraph from my attempt to graciously say no.

"I am trying to help people have a better financial future, and I’m willing to do it for free, but I’m not sure I fit the mold of the kind of speakers you are bringing together.  I’m an expert on investing by the numbers.  I want do-it-yourself investors to take the steps that will give them the highest probabilities of long term investment success.  Normally that means squeezing every ounce of emotion out of the process.”

Mavis knows I like lists so she gave me a list I couldn’t resist.

1. Your expertise in investment not only aligns with our summit's focus on creating a love-led world but is a crucial piece of it. Financial stability and wisdom empower individuals to live their true selves and make brave connections. By teaching attendees how to secure their financial future, you're offering them the freedom to pursue their passions and contribute meaningfully to society.

2. Our summit thrives on the diversity of thoughts and approaches. Your unique perspective on investing by the numbers adds an invaluable dimension to our discussions. It’s about balancing the heart and mind—your approach provides the stability and clarity needed to pursue one's true passions with less financial fear.

3. Contrary to taking the passion out of investing, your method encourages a highly disciplined form of passion. It's about being passionate about our goals and the systematic pursuit of those goals. This disciplined approach is a form of emotional intelligence that is highly relevant to our attendees' journey towards a love-led life.

4. Your willingness to contribute your highest self by educating others for free is the epitome of what this summit stands for. (Your interview will be for less than an hour :)). It’s about contributing to a thriving future by sharing our gifts. Your insights can help our audience make informed decisions that align with their values and long-term success.

5. Your concern about confusing your followers is understandable. Participating in this summit, however, is an opportunity to show the depth and versatility of your expertise. It’s a platform to demonstrate how financial wisdom is foundational to living a fulfilled, passion-driven life, bridging your work with broader life goals. I said yes and the conversation is entitled, 

"Balancing Hope and Reason: The Lifetime Path to Successful Investing.” 

I hope you enjoy it.

Watch the video here.

On May 18, 2024 Chris Pedersen made a presentation to the Houston Chapter of AAII.   At the end of the presentation Chris answered over 20 questions.  Those questions are on this podcast.  Here are the question topics:

1. Portfolio expectations compared to S&P 500?
2.  How would adding small cap value (SCV) help a retiree?
3.  How important is asset class location using 2 Funds for Life?
4.  Would a do it yourself target date portfolio be better than buying a target date fund?
5.  How do you expect interest rates to impact equity?
6.  How different are the Total Market Fund expected returns from the S&P 500?
7.  What are drawbacks by investing in SCV?
8.  What steps should we take to manage emotional risk?
9.  What is your opinion about combining TIPs with equities?
10.  Should you increase your equity holdings as the get older?
11.  Please comment of Christine Benz’s Bucket Portfolio?
12.. What SCV funds do you recommend?
13.  Are there other target date funds you recommend besides Vanguard?
14.  At age 60 what kind of return should I expect over the rest of my life?
15.  Do you recommend nudge  withdrawals over withdrawals from the whole portfolio?
16.  Why would more profitable small cap value funds do better than portfolios of less profitable companies?
17.  Do you recommend VT, the Vanguard Worldwide equity fund?

Inside the Investment Mind of Chris Pedersen with host Charles Rotblut.  Charles is  the editor of the AAII Journal, and a vice president and Chartered Financial Analyst at AAII

Q1:  What is the best way to get big positions in cash invested?  All at once or dollar cost average over time?

Q2:  How should target date fund investors choose the best date for their situation?

Q3:What are the pros and cons of backtesting historical performance?

Q4:  Why did you choose the drawings in your book “2 Funds for Life?”

Chris explains investing diversification with some analogous side trips to the worlds of food and nature.