Sound Investing

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!

Paul Merriman joins host Roben Farzad on Full Disclosure for a rare conversation alongside Ben Carlson, director of institutional asset management at Ritholtz Wealth and author of the new book Risk and Reward: How to Handle Market Volatility and Build Long-Term Wealth. Roben called it a “truth teller tandem” — the first time these two have sat down together — and the result is an hour of warm, candid, data-grounded talk about how individual investors can actually succeed.

The conversation opens with a great question: does a century of S&P 500 history mean anything when index funds didn’t even exist for most of it? Paul explains why those long-run numbers still matter — not as a promise of the next ten years, but as a guide to the full range of what markets can do. From there, Paul and Ben trace just how far investing has come since Paul entered the business in 1966: the death of the 8.5% sales load, the arrival of IRAs and 401(k)s, fractional shares, and commission-free trading. As Ben puts it, the barriers to entry have been bulldozed, and today’s investor has a better shot at strong net returns than ever before.

But more choices bring more temptation. Paul and Ben dig into diversification as a risk-management tool — why a tilt toward small-cap value and a meaningful allocation to international stocks can pay off over a lifetime, even when the S&P 500 is dominating the headlines. They revisit the lost decade of 2000–2009, the lessons of Japan’s 1989 peak, and the hard discipline of rebalancing into the pain when an asset class is out of favor.

They also get practical about the things keeping investors up at night: inflation as one of the biggest risks most people underestimate, the real trade-offs in today’s bond market and long-duration Treasuries, and an honest look at the FIRE movement — including why meaning, longevity, and a 30- or 40-year retirement complicate the dream of retiring early. Throughout, Paul shares his own story, including why, at 82 and with more than he needs, he still holds half his portfolio in equities because of a caution he’s carried since his twenties.

Ben closes with the thought that may stay with you longest: the most important thing an investor can understand is not the market — it’s themselves. Knowing which mistake you’d regret more, and what you can truly live with, is the foundation everything else is built on.

Watch video here.

I recently sat down with Steve Chen on his Boldin Your Money podcast for a wide-ranging conversation about evidence-based investing — and why it matters more than ever in a world of speculation, hype, and constant financial noise. We covered my early days as a stockbroker in the 1960s, the psychology that trips investors up in downturns, how low-cost index funds transformed personal finance, factor investing and small-cap value, and why younger investors are being pulled toward gambling-like behavior through apps, crypto, and prediction markets. Whether you're just starting out or planning for retirement, I think you'll find it time well spent.

KEY TOPICS DISCUSSED
• The difference between investing and speculation
• Why staying the course is emotionally difficult
• Wall Street incentives and investor behavior
• The origins of index fund investing
• Factor investing and small-cap value explained
• Why diversification matters long term
• Rebalancing strategies and portfolio management
• Financial literacy and generational investing habits
• Why gambling behavior is becoming normalized
• How AI tools like ChatGPT and Claude are changing education
• The psychology behind successful long-term investors

TIMESTAMPS
00:00 Introduction
02:55 Paul Merriman's start in investing
05:20 Wall Street incentives and conflicts of interest
08:35 Why investing is harder than it looks
12:25 Investing vs speculation
15:40 Why people panic during market crashes
17:30 The psychology of staying the course
19:10 Generational wealth and financial literacy
23:40 The case for index funds
28:45 Factor investing explained
32:30 The four-fund portfolio strategy
36:00 Rebalancing and long-term returns
38:00 ChatGPT, Claude, and financial education
42:15 Market valuations and investor behavior
45:30 Building wealth intentionally
49:00 Gambling culture and modern investing
51:45 Teaching financial literacy to younger generations
54:00 Final thoughts on long-term investing

RESOURCES MENTIONED
Paul Merriman Foundation: https://www.paulmerriman.com/
Try the Boldin Planner for free: https://go.boldin.com/podcasttep110

Watch Video here- https://youtu.be/y_i5wrr_tfM

Paul and Chris answer 10 listener questions in one hour — covering asset allocation, investor behavior, funds, indexes, and fund management. They also dig into Daryl Bahls' hot-off-the-press alternative portfolio analysis.

CHAPTERS
00:00 — Intro
01:11 — Funds vs. their indexes
06:04 — Which asset can I drop?
10:50 — Buy and hold for a lifetime?
16:04 — Tracking errors
20:24 — How many years to trust a strategy?
27:05 — The impact of 10% cash
28:18 — What's a "good enough" return?
31:57 — The new worldwide 4-fund portfolio
42:29 — Too old for small-cap value?
44:56 — Avantis and DFA
48:27 — AVES for emerging markets value
54:04 — Outro

LINKS & FILES
Sound Investing Quilt Charts
Callan Periodic Table of Investment Returns
Two Funds for Life Calculator
Lifetime Investment Calculator
Daryl's 4-Fund Portfolio Analysis (WW 4-Fund)
Other Fine Tuning Tables (50/50)
2FFL Fine Tuning Table — Allocations

Watch Video Here

In Session 3 of the 2026 Bainbridge Community Foundation Spring Financial Education Series, Paul sits down with Mike Piper — CPA, Personal Financial Specialist, and the voice behind the Oblivious Investor blog and the free Open Social Security calculator — for one of the warmest, most practical conversations of the series. Mike has a rare gift: taking the topics that intimidate most investors and making them feel obvious. Over the course of the hour, he and Paul work through the handful of decisions that genuinely shape a retirement.

Mike opens with a quietly radical idea: if you've prepared well, "more than enough" isn't the exception — it's the most likely outcome. Because we have to plan for long lifespans, poor markets, and high medical costs that usually don't all come to pass, most disciplined savers end up with leftovers. From there, he explains which dollars to spend first each year, how age and capital gains should steer whether you draw from taxable or retirement accounts, and why the step-up in basis matters more than most people realize.

The conversation turns to the human side of money, too — how to talk a couple through it when one spouse is aggressive and the other can't stand the thought of the stock market, why both positions are almost always driven by fear, and how framing the trade-offs around the people you love often brings them closer together. Mike and Paul also tackle the spendthrift-child dilemma, the case for matching a young person's Roth IRA, and why small gifts early can dwarf an inheritance received at 70.

On Social Security, Mike makes the point that most people get the risk exactly backwards: delaying benefits isn't a gamble — it's insurance against the scary scenario of living a very long time. He walks through what really happens if Congress does nothing before the trust fund shortfall around 2033 (hint: the program doesn't disappear), and the range of fixes on the table. Throughout, both men return to the same theme — simple, low-cost, broadly diversified portfolios keep beating the clever alternatives, and the Bessembinder research helps explain why.

Stick around for the closing exchange on using AI to learn from the "Truth Tellers" — and Mike's cautionary tale about a chatbot that invented an entire tax-code provision, word for word and completely convincingly, that simply does not exist.

LINKS:
Mike Piper's blog — obliviousinvestor.com
Open Social Security — opensocialsecurity.com
Mike's books on Amazon — https://bit.ly/49BQugd
Oblivious Investor — https://bit.ly/4oeIacs
We're Talking Millions! (free PDF and audio) — https://www.paulmerriman.com/free-books
If You Can by Bill Bernstein (free PDF) — https://www.paulmerriman.com/free-books
PlanVision — Mark Zoril — planvisionmn.com
The Bessembinder study — "Do Stocks Outperform Treasury Bills?" https://www.morningstar.com/personal-finance/hendrik-bessembinder-do-stocks-outperform-treasury-bills

Watch the Video- https://www.youtube.com/watch?v=bB2ccYRLSOI&feature=youtu.be

In the final episode of the 2026 Boot Camp series, Paul Merriman sits down with Chris Pedersen and Daryl Bahls to tackle the last fork in the road every investor faces: how to and how much automation to use. After all the boot camp decisions — stocks versus bonds, which equity asset classes, how much fixed income, how to handle contributions and withdrawals — the final question is how much of the day-to-day management you should hand off to a tool, and which tool is right for you.

Chris walks through how M1 Finance “pies” let buy-and-hold investors put their portfolios on autopilot: automated contributions, on-the-fly rebalancing as new money comes in, fractional shares, and one-button rebalancing. He explains the pre-configured Merriman portfolios — the Ultimate Buy and Hold, Worldwide and US Four-Fund, All Value, All Small Cap Value, and the Aggressive Target Date glide path in five-year increments — and an important limitation: once you grab a pie, there’s no live link back to the source, so website updates won’t change your account.

Paul then makes the case for Fidelity’s Basket Portfolios as an alternative, especially for anyone uneasy about moving large sums to a younger company. He covers the flat $4.99-per-month fee regardless of account size, eligible account types, the TFLO short-term Treasury workaround for holding cash, and why Fidelity may fit investors already in the Fidelity ecosystem. The team compares trading windows, account minimums and how each firm counts the $10,000 threshold, and Daryl shares that M1 has grown from about $1 billion in 2020 to roughly $12.5 billion in assets under management.

The conversation closes with practical guidance on mixing and matching Sound Investing portfolios, the question everyone’s asking — “how long do I have to wait for small cap value?” — a reminder not to flail or chase recent performance, why the 10-fund Ultimate Buy and Hold strategy still stands, and a clear explanation of the move from AVUS to AVLC and where AVSC fits.

CHAPTERS

00:00 - Intro
03:10 - M1 Finance
13:45 - Fidelity Baskets
24:27 - Portfolio Combos
29:55 - When to Change Allocations
42:44 - AVLC vs. AVUS
45:15 - Outro

LINKS:

Sound Investing Portfolio Pies

M1 Finance Pie Tutorial (Mobile App)

M1 Finance Pie Tutorial (Web Interface)

In this interview from the 2026 Bainbridge Community Foundation Annual Financial Education Series, Paul sits down with Bill Bernstein — neurologist, financial historian, and author of The Four Pillars of Investing and If You Can — for a wide-ranging conversation drawn from 50-plus years of investing experience.

Bill explains why you're only rewarded for taking risk in well-regulated markets (and why crypto doesn't qualify), how today's market echoes the late 1990s, why the "reverse glide path" makes sense the older you get, and what the Bessembinder research really tells us about the cost of trying to pick winners. Paul and Bill also debate withdrawal strategies, the case against long bonds, and whether tilted small-value investing still works once "the bozos know about it."

A masterclass in evidence-based investing from one of the most respected voices in the field.

CHAPTERS
00:00 Intro from Matt Longmire, Bainbridge Community Foundation
02:50 Welcoming Bill Bernstein
03:50 Why The Four Pillars of Investing belongs on every DIY investor's shelf
05:50 Risk vs. reward — and why Bitcoin doesn't qualify
08:30 How many asset classes do you really need?
11:50 Where today's market resembles the late 1990s
13:40 Are REITs still worth holding?
15:50 The case for automating everything
19:45 Why retirees need to fear sequence-of-returns risk
21:30 Paul's 5% rule vs. the 4% rule
25:30 The two-bucket theory and the reverse glide path
27:30 Prediction markets, gambling, and "being the house"
32:00 The sociological signs of a bubble
35:00 Speculation vs. gambling — gold's real return
40:00 The Bessembinder study: why 4% of stocks make most of the returns
46:00 Why rich people plan three generations ahead
49:00 Audience Q&A
58:30 Tilted index funds (DFA, Avantis) — worth it?
01:03:50 The future of Social Security
01:07:00 Closing thoughts and book recommendations

LINKS:

The Four Pillars of Investing — Bill Bernstein (2nd ed., 2023)

If You Can — Free PDF from Bill Bernstein

The Bessembinder Study — "Do Stocks Outperform Treasury Bills?"

Bainbridge Community Foundation

Ben Carlson's New Book on Risk and Reward