Sound Investing

In this practical and inspiring ETFatlas podcast episode, host Jack Lempart welcomes Paul Merriman for a return conversation focused on the biggest mistakes beginner investors make—and how to avoid them.

The discussion reveals why most investing errors are emotional, not technical. Paul emphasizes that successful investing is usually simple, though almost never easy.

Paul Merriman draws on decades of experience as an educator, advisor, and founder of the Merriman Financial Education Foundation to spotlight key pitfalls:

• Trusting the wrong advice
• Starting too late with investing
• Letting emotions drive decisions
• Chasing recent performance

Paul’s conversation goes further, sharing actionable tips:

• How defensive investing and diversification protect you from major mistakes
• Practical ways to automate good habits and avoid behavioral biases
• Insights from both US and European market examples

You’ll also hear why academic research has shaped today’s best investment practices. Paul strongly advocates:

• Automating decisions wherever possible
• Broad diversification
• Maintaining discipline during market turbulence

Listeners receive clear advice on keeping investing simple, avoiding high fees, and building portfolios designed to withstand uncertainty.

The episode closes with tips for further reading—including free educational resources and helpful links—to support every investor’s learning journey.

Agenda

• Paul Merriman’s journey from stockbroker to financial educator and foundation founder​
• Introduction to the most costly mistakes for beginners and how they can affect lifetime wealth​
• Why trusting the wrong advice is potentially the biggest error investors make​
• The importance of choosing academically sound, evidence-based sources over industry “experts” or neighbors​
• Analysis of how starting too late in investing can dramatically reduce future wealth​
• The emotional traps beginners face and the impact of behavioral biases on decision-making​
• The problem of performance chasing and recency bias in investment choices​
• Automating investments and the value of regular, disciplined contributions​
• Why diversification is considered “the only free lunch” in investing by experts​
• Advantages of keeping portfolios simple with solutions like target-date funds and low-cost ETFs​
• Examples illustrating the massive impact of investment fees over decades​
• The difference between defensive and offensive strategies in long-term market success​
• Real-world lessons from market history, including US, Europe, and Japan​
• How to avoid paralysis from choice overwhelm in a landscape of thousands of ETFs​

Watch YouTube video here.

Paul Merriman and Chris Pedersen tackle your biggest questions—from simplifying portfolios and picking best-in-class ETFs to understanding equal-weighted funds, tax efficiency, and how much small-cap value to own. They dig into factor investing (size, value, quality, profitability, momentum), why reversion to the mean matters, and how to think like an owner—not a speculator. Plus: mentors, work-life balance, and the real risk investors face.

Chapters
00:00 – Intro & Mentors
05:07 – Portfolio Simplification
10:13 – Work-Life Balance
11:39 – Which ETFs will outperform?
20:15 – Importance of Quality
22:45 – Equal-Weighted Funds
26:14 – History: how long is enough?
29:58 – Cost of public indexing
33:30 – Equal-weight fund tax vs. ETF
35:21 – How much small-cap value?
39:47 – Why three EM ETFs?
42:28 – “All Avantis” risk?
49:45 – Technology sector history & mean reversion
53:00 – Be an owner, not a speculator
55:27 – Outro

Key Takeaways

• “Best” ETF ≠ next year’s top performer—seek consistent factor exposure, low costs, broad holdings, and tax efficiency.

• Equal-weighting boosts small/value exposure but can increase turnover and tax drag; pairing large-cap blend with small-cap value can be more efficient.

• Decide small-cap value allocation by temperament (common range: 10–50% of equities when pairing with S&P 500/target date).

• Index approach vs. index label: DFA/Avantis are systematic and rules-based without telegraphing rebalances.

• Think like an owner: over decades, earnings—not sentiment—drive returns.

Resources
• Best-in-Class ETF Recommendations (2025): https://www.paulmerriman.com/best-in-class-etf-recommendations-2025#gsc.tab=0
• Sound Investing Portfolios, Returns & Risks: https://www.paulmerriman.com/sound-investing-portfolios#gsc.tab=0
• “Tune Out the Noise” (DFA Documentary): https://youtu.be/T98825bzcKw?si=kFMugnSSCn2E76sI

In this week’s episode, Paul Merriman shares lessons from a lifetime of investing—prompted by conversations with students, longtime collaborator Rich Buck, and questions from new investors about trust and risk.

Paul dives deep into the data behind his favorite long-term strategies, including the equal-weighted S&P 500 and the classic Four-Fund Portfolio, comparing 25-year results across multiple time periods.

He explains why no one can predict short-term returns, but how history can still guide your long-term strategy. Using decades of data, Paul shows how diversification across size and value has rewarded disciplined investors—even when recent performance has lagged.

Referenced Tables & Data:

• 40-Year Returns (1928–2024): S&P 500 best 12.5% / worst 8.9%

• 25-Year Periods (1950–1974, 1975–1999, 2000–2025)

• Equal-Weighted S&P 500 (VADDX/RSP) vs. Cap-Weighted (VTSAX, S&P 500)

• DFA Small Cap Value (DFSVX and DFFVX)vs. Russell 2000 Small Cap Value (IWN)

• Four-Fund Portfolio (S&P 500, Large Cap Value, Small Cap Blend, Small Cap Value)

• Two-Fund Portfolio (S&P 500 + Small Cap Value)

From 2000–2025, the S&P 500 compounded at 8.3%, while the equal-weighted version earned 9.9%, and small-cap value reached 11.1%. Paul explains why this premium persists and why patience—backed by data—is an investor’s greatest advantage.

Full tables and charts available at PaulMerriman.com 

In this final episode of our four-part series, Paul Merriman compares three powerful approaches for a lifetime of investing:

• 100% S&P 500: high-risk, high-reward growth.

• 60/40 mix of S&P 500 and bonds: a defensive balance.

• 100% U.S. Four-Fund strategy: large-cap blend, small-cap blend, large-cap value, small-cap value.

Paul uses 55 years of data (1970–2024) to show how these portfolios performed during both accumulation and retirement distributions. Paul highlights the following critical tables from the Bootcamp series. 

Table B1 - Fine Tuning Table: S&P 500 Equity Portfolio 

Table B4 - Fine Tuning Table: US 4-Fund Equity Portfolio
Table C4 - Fixed Contributions ($1,000/yr): US 4-Fund Equity Portfolio
Table D4.4 - Fixed Distributions (Conservative-$40,000/yr): US 4-Fund Equity Portfolio  
Table H2 – Sound Investing Portfolios (100% Equity)
Table H2A – Sound Investing Portfolios (60/40)
Table D1.4 – Fixed Distributions ($40k + inflation)

Did diversification deliver higher returns without extra risk? Or was the classic S&P 500 enough?

Get the numbers, the tables, and the takeaways to help you decide.

Paul Merriman continues our series on radical lifetime investment strategies—comparing an all-equity S&P 500 portfolio to a balanced 60% equity/40% bonds portfolio.

After two episodes focused on the accumulation phase, this third installment shifts to retirement distributions:

• How much income could each portfolio provide?

• How did they hold up during major market crashes?

• What role did bonds play in protecting withdrawals during tough years?

Using 55 years of historical data (1970–2024) and key tables B1

H2

H2A

D1.4

Paul shows the real-world impact of these strategies when you’re living off your investments.

Listen now to see why adding bonds can be a lifesaver in retirement—even if you love the growth potential of stocks.

At FinCon, Chuck Gaffe- moneylifeshow.com sat down with Paul for a wide-ranging conversation about investing and financial independence.

Paul shared insights on the rise of index funds, the FIRE movement’s “one-fund-for-life” approach, and how small portfolio adjustments can boost long-term returns. He also discussed timeless investing principles like staying the course, understanding risk, keeping costs low, and diversifying wisely.

At FinCon, Paul reflected on everything from the rise of index funds to the FIRE movement’s “one-fund-for-life” strategy. His message was clear: while simple investing solutions can work, small, thoughtful adjustments—like adding different asset classes—can meaningfully improve long-term returns.

Paul also emphasized timeless investing principles:

Stay the course. Don’t bail when markets turn volatile.

Understand your risk. Know how much you can afford to lose before the storm comes.

Avoid unnecessary costs. A fraction of a percent in fees can add up to millions over a lifetime.

Diversify wisely. A broad mix of assets offers protection and opportunity across market cycles.

Whether discussing crypto, ETFs vs. mutual funds, or portfolio allocation strategies, Paul’s advice always comes back to one goal: helping investors achieve financial independence with confidence and peace of mind.

You can explore his free resources, podcasts, and articles at paulmerriman.com

In Part 2 of this 4-part series, Paul Merriman compares the accumulation results of the U.S. 4-Fund Portfolio against the S&P 500, using both all-equity and 60/40 strategies.

Paul analyzes five decades of data, showing how diversification affects returns, volatility, and long-term wealth creation.

Paul also highlights the tables you’ll want to download and follow along with as he explains the numbers:

• Table B1: Fine-Tuning Table – S&P 500
• Table B4: Fine-Tuning Table – U.S. 4-Fund Portfolio
• Table H2a: Sound Investing Portfolios – 100% Equities
• Table H2: Sound Investing Portfolios – 60/40 Portfolios
• Table C1 & C4: Fixed Contributions for Accumulation Analysis

Next week: We'll look at the distributions in retirement using the S&P 500 in both the 100% equity and 60% equities/ 40% bonds.

This is the first of a series of 4 podcasts focused on the decision to have all of your investments be all equities vs. a balanced portfolio of equities and fixed income.  In this presentation Paul uses the S&P 500 in  both the all equity and the 60/40 stock/bond portfolio.  He uses the following tables during his presentation.

Table B1 Fine Tuning Table: S&P 500 Equity Portfolio

Table H2a Sound Investing Portfolios (these portfolios are all 100% equities)

Table H2 Sound Investing Portfolios (these portfolios are all 60% equities/40% fixed income) (NEW)

Table C1 Fixed Contributions ($1,000/yr: S&P 500 Equity Portfolio
In the next presentation he does the same analysis using the U.S. 4 Fund and Worldwide 4 Fund Portfolios for the equity portion of the portfolio.

Paul starts this letter beginning with a letter from a listener. The letter ends with the reason why our work has had more impact than John Bogle and Benjamin Felix (Both Truth Tellers).

 The rest of the podcast is focused on a recent article- ⁠The Evolution of Financial Advice, by Ben Carlson.  The focus is on the math, history and psychology of investing.

Paul concludes that most steps to successful investoring are well documented.  But two areas are still open for fine tuning:  Portfolio construction and fund selection. To help in that Paul recommends three Boot Camp Presentations:  Fine Tuning Your Asset Allocation, Fixed Contributions and Fixed Distributions.

On this podcast, Paul Merriman dives into three big investor questions: Why would anyone add bonds to their portfolio—even in retirement? How has the Ultimate Buy and Hold Portfolio performed in 2025? And how much Small Cap Value should an investor add to VTSAX? Along the way, Paul explains why diversification and balance matter just as much as chasing higher returns.

During the podcast Paul references ⁠Table G-1b, Fine Tuning Table: S&P 500 vs. US SCV Equity Porfolio - Out-Performance⁠ and ⁠Table H2a - Sound Investing Portfolios: Comparison Data ⁠, Quilt Chart K1a. He also points to Chris Pedersen’s Best In Class ETF Recommendations and his 2 Funds for Life returns table. These resources provide valuable context for comparing U.S. vs. international returns, equity vs. bond allocations, and how small-cap value can enhance a long-term strategy.