A (4:07)

Thanks Mindy, Great to be here. I'm so excited that my enthusiasm is going to have to be actively managed. Today we are so excited to be joined by Paul Merriman. If you aren't familiar with Paul, he is a longtime investor educator and a big believer in simple evidence based investing. After decades as a financial advisor, Paul now focuses on helping everyday investors through his non profit books and his newest book, We're Talking Millions. In addition to his Sound Investing Podcast, he's all about making long term investing feel doable for everyone. We are actually going to be doing a crossover and so this will be released on both the BiggerPockets Money Podcast and the Sound Investing Podcast. If you are listening on the Sound Investing Podcast, welcome to the BiggerPockets Money sound investing Podcast.

C (4:48)

Paul, I am equally excited. I've been waiting for this for a long time and I sometimes ask myself should I have been more aggressive and invited myself. But thanks for inviting me yeah, we.

A (5:02)

Should have invited Jeff like five years ago.

B (5:04)

Eight years ago.

A (5:05)

Eight years, yeah. Let's kick off things by getting into the background that has generated the philosophy you bring to investing. So I think you've been in the investing industry for decades. How did you go from active management or traditional active management to becoming one of the biggest advocates in the space for passive buy and hold index investing?

C (5:25)

My initial start in the industry was in 1966, and I went to work for a brokerage firm. It was one of the cleanest operations on Wall street because they didn't underwrite, they didn't make markets. All they did was allow the people who worked there to buy and sell securities. So you weren't asked to do the unus usual in order to feed the house. But it still was an industry that was just filled with conflicts of interest. And so I only lasted until 1969. But I learned a lot while I was in the business, and I went through other businesses, I ran businesses, started businesses. I love small business and I'm in essence still in a small business. But what happened was I was taught by Wall street initially. So I in some ways thought along the way of active management. When I started my investment advisory firm in 1983, what I knew was for the previous 20 years, people didn't make any money in the market. It went up and down and up and down, and buy and hold didn't work. And in fact, there was this question in the late 70s about whether or not it was the end of investing. And so I came into it trying to figure out defensive ways to help people, which meant market timing. And then I have to give credit to my son who joined the firm. And I have always been comfortable personally with market timing. I don't advocate it to anybody, but I personally feel okay with it. On the other hand, my son said, dad, we really need to be able to offer people a buy and hold strategy as well. And then I had the magic two or three days at dfa. They put on a workshop. And I'll tell you, I came out of that two or three days of a good solid teaching about indexing and how to put portfolios together to help people. And I was sold. And I came home and gave my son a hug and thanked him for pointing me in the right direction. So it wasn't entirely easy to turn the ship, but we got it turned and it has made a huge difference.

B (7:56)

You just said that buy and hold didn't work for the 20 years between like 1963 and 1983. Why do you think that is? Was that just the crazy 1970s market?

C (8:08)

Yes. I mean, what happened was you had a run up to it a thousand and you had to run down to 5, 600 and then back up to 1,000 and then back down again. And so what happened is people were, they were not learning the lesson that investing works in the long term. And as we all know, a lot of people, if it doesn't work in the first year or two or three, they don't think it's any good. And so the lesson they were learning was you can't trust the stock market. And Wall street, of course, they always had something to sell. If stocks weren't any good, they could sell you annuities, or if annuities weren't any good, they could sell you limited partnerships. They always had something that had been recently working, but the market itself hadn't worked well for some time.

B (8:58)

So do you think that buy and hold was just kind of stuck for a little bit and then continued on, or do you think that. Well, I guess. I guess it's the same thing. Like for those 20 years, buy and hold didn't work. Do you see that coming again?

C (9:12)

Oh, well, of course.

B (9:13)

Great.

C (9:14)

Well, what I mean is I can guarantee the people who follow our work that if you do it, that you will have periods of decline and more than likely major declines. And if you're not ready, if you're not trained, if you're not committed to it, then buy and hold goes out the window. And, you know, Wall street claims that market timing doesn't work. But if you look at what they do, they're constantly market timing telling people they should have more bonds in their portfolio, they should have more international. They move around as things that have been doing well lately make people happy, because people love being in something that's been doing well lately. But it better do something pretty good for them soon or they're going to be looking for another way to beat the rap. And so it isn't easy being a buy and hold. That's why we have to train them, I think, to prepare for the worst, hope for the best, prepare for the worst, and diversify and protect yourself every way you possibly can.

A (10:20)

I want to go back to this concept. You had an epiphany and your son prompted this with this retreat that you went to. I think you said, dfa, what were you doing before and what were you doing after? What was the change? What was that epiphany? And how did that actually come together?

C (10:37)

Well, what I was Doing before was legitimate market timing. We built portfolios where the funds were tracked on a daily basis. And using simple trend following kinds of strategies, we would move in and out of those funds. We had large and small company funds, we had international and us. We had all the same asset classes. But we weren't just buying and holding. We were trying to protect people from suffering through a major market decline in the hopes that they would stay the course for the long term. This is what I'm still looking for, Scott. I'm still looking for a way to get people to stay the course, except for trying to get them to do it with buy and hold. And when the market is down and seemingly out of control for a year or two, it really tests people's resolve and they question the source of the advice. And unfortunately, well, let me say, fortunately, more people look to John Bogle for advice in a sense than looking to Wall Street. But we didn't have John Bogle when I was in the industry and I started. And so that was something that, had I had that when I started in the industry, I suspect I would have had a different path in the industry.

A (12:02)

So when you say buy and hold, your work does not talk about just buy the S&P 500 and set it and forget it. There's more to it than that across the body of your work. In a lot of cases there's multiple funds, you have different designs. I think you have up to 10 different funds here that range in complexity or funds that range from 2 to 10 different components. Can you tell us a little bit about how that work evolved and why buy and hold, in your view seems not to be as simple as buy one index fund and forget it?

C (12:32)

Well, first of all, I'm okay if people buy one index fund and forget it and that would be the S&P 500. I don't think that's a bad thing to do. I think a person getting a 10% compound likely, actually the 40 year average return is 11% since 1928. And so that's a really fine return. And when I spoke and met with John Bogle in 2017, he agreed with all the things that we're doing. He just didn't agree that they were good for the investor because they're confusing, they complicate the process. But what the academics taught us is that not only should we have hundreds and hundreds of stocks in our portfolio, but it's not enough diversification to just have yourself planted in the large cap blend category, which is the S&P 500 that there are long periods of time that The S&P 500 has underperformed. And if you diversify amongst the other major equity asset classes that the academics blessed, that's what I was introduced to back in the mid-90s, was the blessing of a whole bunch of equity asset classes. And when you put them together, they aren't guaranteed to kind of offset each other as they go up and down. But I can tell you in 2000-2009, when the S&P 500 compounded at a negative 1%, a broadly diversified portfolio of equity asset classes compounded at over 7, that kept a lot of people involved and staying the course because they saw that you didn't have to have everything go down 50%, which it did. Now, not every bear market is that kind to us, that something's going up when other things are going down. Sometimes everything goes down and you've got to be prepared emotionally for that as well.

A (14:42)

So what does that look like in practice? What are the options that someone has to diversify across these baskets of stocks? And what has your research taught you? Where do you bias the starting point for that?

C (14:53)

We certainly know that we want investors to have part of their portfolio in the S&P 500 because that's the highest quality of all of the equity asset classes. And so if you are going to have one and only one, that is probably the one you should have. But what happens? And I've got a quilt chart that we've built for investors to be able to see this in color. And that is we look at every year since 1928 and what happens to the S&P 500 and large cap value and small cap blend and small cap value. And you can see year by year, how random they're up and down. And sometimes there'll be many years The S&P 500 is right at the bottom of the group. And then another period of time they'll be at the of the group. It's a random series of events. And people would like to think that these things are predictable. They are not predictable from everything that I have learned. But what happens that is so magic is that when you build a portfolio since 1928, 25% large cap blend, S&P 500, 25% large cap value out of favor companies that sell at lower PE ratios, 25% with small cap and 25% with small cap value. And something truly magical happens. But it's nothing more than what we learned about the diversification across different equities, individual companies. It Turns out that when you combine those four equity asset classes, you get the lowest volatility of any of the four, because you got them all. And so the returns are right in the middle, almost year by 78% of the time. Right exactly in the middle. Now that's okay, but what kind of return did you get? Well, what the academics taught me and I try to teach others. What we teach isn't anything that I've made up. I'm simply sharing what I've learned from the academics. What happens is when you add more risky investments to the portfolio, the risk goes up and so does the return. So for the last 96 years, the combination of all four of those equity asset classes us only because we can't go back to 1928 with internationals. But what we know is that the return is about 1.5% more than the S&P 500. And yet the S and P is up here, it's down here, it's over there, it's out there. But the four fund is kind of just hanging in there. You're never number one, you're never last. And hopefully that will give people a sense of stability. But it turns out that you can do about the same thing if you only had part of your portfolio in the s and P500 and part in small cap value, because the S and P has large cap value, has large cap growth, and small cap value gives you value and gives you small. And so people can invest with two funds and get a little bit higher return. Yeah, you go up about another 2/10 of 1%, I think. But still, and this is, I just think this is so important. If you go back to 1970 and you have a portfolio that is only in the S&P 500 and you have a portfolio that's half S&P 500 and half small cap value, and you look at all of the losing years and The S&P 500 has a higher total loss factor, if you look at all the losing years, than the combination of the two, which means that you have reduced the risk. And oftentimes the s and P500s at the top and the small cap values at the bottom, and they flip, flop, and that over time lowers the volatility of the portfolio, raises the return, and you can do it with just two funds and you don't have to be 50, 50. We show you the table for 60, 40, 70, 30, 80, 20. This is all being done for do it yourself investors. I'm not an advisor, I'm a teacher trying to help do it yourself investors, nothing more. But I love doing it.

A (19:28)

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B (20:53)

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A (22:52)

You regularly publish here's what I think is the best fund in this category, which I think is awesome. It's a wonderful resource that you provide to the community. What does that criteria look like because you're regularly updating this and providing opinions.

C (23:06)

We are going through a transition this year and it's a big deal to me. I'm 82 and I know my days are numbered and so if I'm going to actually help people for the rest of their life, I know what I've got to do is to figure out a way to get them in a fund, whether it's large or small or value or us or international. Get them in an ETF that I believe they can hold for the rest of their life and not be forcing them to reconsider what might be better this next year. And so there's something really good that's happened in the industry that not everybody knows about. DFA Dimensional Funds were a family of funds that only people with a lot of money could get into because you had to have an investment advisor who was approved by DFA offer their mutual funds and many of those advisors, their minimum size account was a million dollars. So it wasn't for the public, but the work they do is fantastic. But now, because several years ago, back in 2019 actually a group of people left DFA and they started a new mutual fund family and they offered that work as an ETF where anybody could put their money into it. And if you look at avuv, which is our number One recommendation for small cap value and you compare that, its return is virtually the same as what DFA has been able to accomplish. Because Avantis came on the market with these ETFs, DFA had no choice, I believe, but to follow and come make their funds available to everybody. So now my feeling is if I could get a young person or an old person, depending on how much equities they want in their portfolio into, I don't care whether it's Avantis ETFs or DFA's ETFs or both of their ETFs, I truly believe that is a position they could take for a lifetime. The idea of the S&P 500, what Bogler brought us was to invest in something for a lifetime. Well, it worked and now we need to figure out what can we recommend that you as an individual investor could do for a lifetime. And I have high confidence that DFA and Avantis will fulfill that for their investors.

B (25:40)

And that is what Frank Vasquez put me in when we had him walk me through creating a risk parity portfolio. As soon as you said avuv, I'm like, oh, Uncle Frank gave me that.

C (25:53)

And we've been recommending Avantas for some years. But we had to make sure they could in fact replicate the work of dfa. And that work is mind blowing. You talk about small. Here's a fund that's been around as a traditional index fund since 2000. It's the fund IWN that follows the Russell 2000 small cap value. If you compare that track record with DFA's small cap value fund that's been in existence since the same time, the work of DFA has almost doubled the work of the traditional Russell 2000 small cap value. Most people do not realize that there's good small cap value and there's, I call it bad. There's small cap value that is not built to make as much money as others. So now that sounds like a big fat sales pitch, I think to probably a lot of people. But because Wall street is filled with.

A (26:51)

Them, what is it that makes an ETF good? Like what, what are we investing in? Like we have this concept of small cap value. I think that that's been, that's been much more popular lately. People intuitively understand the core underlying philosophy, but I don't think people understand the mechanics. What makes AV UV good relative to what you said Iwn or another, another etf?

C (27:15)

This is a great topic because it isn't discussed very much. And that is the difference between A traditional index fund and a non traditional index fund. It's actually what the US Government calls funds like AVUV and dfsv. They are non traditional index funds. The traditional index fund like the S&P 500, if you look at all the different S&P 500 funds, they are built just the same. What's going to be a difference in return is going to be the expense ratio. That's it. Now, there are a few equal weighted S&P 500 funds, but only a couple. And they're fine too. But if you go, I don't care whether you go to Vanguard or Fidelity or Schwab, The S&P 500 is the S&P 500. And again, look at the expense ratio. That's what you should use as your guide to choose the one you're going to have in your portfolio. Now this is not true with small cap value. Understand that if Swab has an S P500 fund or fidelity does, or anybody does, they're paying the S and P company Standard and Poor's a licensing fee. And it's not cheap. What happened was when small cap value funds started to be the rage, they built their own. Morningstar has one, Morgan Stanley has one. The center for Security Prices from the University of Chicago, there's one there. There are six very different small cap value funds. But understand the difference between the S&P 500 and small cap value. The idea with The S&P 500 is truly, truly buy and hold. Because they would like to be able to find 500 companies and keep them in the portfolio doing what they do well forever. They don't have to change the companies, but they change the companies because some companies don't do well. And you take those companies out of the S and P, but basically you're counting on those companies that survive long term to make you the money in the s and P500. That is not true with small cap value. Those companies are only in there for a relatively short period of time because they may be out of favor. Their PE ratio may be price to earnings ratio may be very low now. But if some group of people starts buying those and they push those out of the value group and into the growth group, they're no longer in the fund. There's a lot more turnover expected in small cap value. In fact, the whole idea is to get the companies out of it because when they are out of it, they've made some money for the shareholders. So then they take that money and they go buy another company that's out of favor. Small cap value is not about finding the companies that might be the future. Nvidia's or Facebooks or whatever. No, because if one of those companies does well, they're out of the club. They're in the growth club, not in the value club. So now it is a big question how are you buying those? What kind are you buying? For example, with a traditional like the Russell 2000, they don't require the companies to have good financial statements. They have lots of companies in the Russell 2000 that those companies are not likely to succeed and they know it. But they're small and people like DFA and Avantis are building portfolios and not including them. They have a higher quality underlying portfolio.

A (31:05)

There's a certain cutoff for price to earnings. I think that is going to be one of the foundational principles in determining whether something is a value stock or not. What does debt capitalization look like in the context of that as well? Right, because you're not a value stock if you make a million bucks, but you have 10 million bucks in debt. Right. That's, that's a very, you know, arguably. So how are the rules set up for these here?

C (31:28)

Again, the rules can be set up by whoever says this is an index that we have built and it wouldn't be unusual that that is being built to look for companies that have low price to their book value. The academics found early on that not PE ratio, but that book to value ratio is more important in being able to predict is this going to be a good small cap value company. It boils down to how they buy and sell, when they buy and sell, every step they take to manage that portfolio, it's got a fork in the road. You can have a portfolio that every company is based on their cap weighting. So when you buy The S&P 500, the big companies are going to represent a major portion of that index. On the other hand, when you are building your own small cap value strategy, you can decide you're not going to be cap weighted. You can decide if you want to, that you're going to buy without telling anybody. You're going to buy and try to get the prices for the investors are serving at a lower price as opposed to regular indexes that declare in a week we are going to be buying these and we're going to be selling these. And all of a sudden you've got the problem with public front running or professional front running where the shareholders don't get the break they should get. Now I'm not saying that regular index funds are bad. I'm just saying that everything that we know from the past indicates that these non traditional index funds are likely to produce better returns because they do so much more than the traditional.

A (33:22)

So in the case of Avuv Avantis Fund, what are their rules that govern it, that make it better, in your view, than their competition?

C (33:31)

Well, they're going to have internal rules about the size, they're going to have internal rules about when they sell, they're going to have internal rules about what conditions do they look, what kinds of things in the balance sheet are important to them. They are taking an academic look at all these different ways. This is what came out of DFA was this the idea of factor investing. So they're looking at quality, they're looking at momentum, they're looking at size, they're looking at liquidity. And each of these companies, DFA does not have the same set of requirements when to buy, when to sell. That's one of the reasons, I think if people wanted to put money into both DFA and Avantis, I think that'd be great because they don't hold all the same equities. They aren't mirror images of each other. But I do know they're coming to work every day trying to use every factor they know to help their investors, which is not true of the S&P 500 or most of the traditional index funds.

B (34:39)

Paul, you just gave us a portfolio. 25% large cap blend, 25% large cap value, 25% small cap blend and 25% small cap value. Does this portfolio hold for a lifetime or is this more towards the beginning of your investing career? And then as you are you age or get closer to retirement, you switch this up.

C (35:02)

Well, this is about the glide path and everybody should have a glide path.

B (35:08)

And can you define glide path for our listeners who aren't quite sure what that means?

C (35:12)

Let's just talk about a Target date fund, which is, I think is one of the greatest inventions, investment, invention made. And that is that when you go into a Target date fund like the Vanguard fund, it is 90% in equities and 10% in bonds. By the time you are 40, it's still 10% in bonds and 90%. But from there on, slowly over the years, they are adding more and more bonds to the portfolio. That's a very conservative glide path. But you could develop your own personal glide path based on Vanguard, based on BlackRock, based on Fidelity. They all have slightly different glide paths. But the thing that they're trying to do is to help people get more defensive as they get older. On the other hand, I recommend everybody spend some time with an hourly advisor and go through this because this building of a glide path is a very personal thing. And while I come up with a glide path for conservative, for moderate and for aggressives. But I'm not the one that's talking to these people individually and getting them headed in the right direction. I can tell you this. I'm 82 and I'm half in bonds. If I were had that money in a Target date fund at Vanguard, they would have me 70% in bonds. But the fact is is that my wife and I are mostly investing for charities and for children. And yes, we're going to live off it, but we really have to invest more aggressively than have all our money there to take care of us if we happen to end up in an old folks home. And so it's a personal decision. And of course, when I'm talking to somebody who's just getting started and they want to retire early, well, you're talking my language because I really push young people to go all equities from day one because you can't lose. And by the way, when I say all equities, I'm not talking about individual companies. I'm talking about diversified portfolios. Whether it's a forefront strategy or the S&P 500. You don't want any bonds in that portfolio because they're holding you back from getting to do the one one thing you want to do, and that is buy more shares when the market's down. So every penny that's got to be there now here's the reason you can't lose. There are two things going to happen to a young person who starts investing early. And that's so important. The earlier the earlier the better, obviously. But if you happen in the first five years to invest in a terrible market, your grandparents may be complaining, your parents may be complaining, complaining. But you are buying cheap shares of great companies. Again, if you're buying a diversified portfolio and you're getting them cheap, one of the greatest periods, historically 40 year periods, was for people who started investing in 1932 because you got into stuff that was really cheap and you benefited over the long term. On the other hand, maybe, just maybe, instead of picking the most terrible five years you could imagine, you get five years like 1995 to 1999. The S&P 500 compounds at 28 and a half percent for five years. You have just hit a bonanza. With your early dollars. And there's a couple of reasons. It's a bonanza. Not only did you make a lot of money, but every time that market's going up, it's patting you on the back saying you made a good decision. And we need those pats on the back because if we get them, we're more likely to stay the course.

B (39:07)

Okay, you are speaking my language because I just looked at the total amount of my portfolio that's in bonds, and it's $2,600. And the only reason it's in bonds is because Frank Vasquez made me do it when he set me up with my risk parity portfolio. So I'm 53 and I have a rounding error, not even a rounding error of my portfolio in bonds. At what age are you starting to think that people should get into bonds a little bit more? You're at, what did you say, 50% at age 82?

C (39:41)

Yes. It's so tricky to try to give cheap advice. And that's what my advice is. It's free. And so it does not know the investor. But here's what I do know. Every one of us needs to have enough money to last a lifetime. Now, the big difference between John Bogle and me, when I met with him in 2017, I learned a lot about him in 90 minutes. And the one thing I know, he had enough on his mind. That's all he could think about, was enough for the people who followed his work. And I told him, you know, the difference between us is I want more than enough. And the reason I want more than enough is not because I'm greedy. It's because in my life, having been giving advice for many years, I can't believe how many plans I've seen that didn't work out the way people planned them. And that's because they didn't plan for more than enough. And so when I think about you at 53 now, I'm not going to ask you for numbers, but I'm going to tell you that if I sat down with you when I was an investment advisor before I retired in 2012, we'd have an hour to talk about where you are, where you're trying to go. How much money do you want in retirement? What are you thinking about? Inflation? I mean, all these things are part of that plan. And sometimes it takes an hour or a two to work with a planner to make sure you got all that in place. Because like it or not, we're all making decisions based on faith here and based on trust in somebody. You are trusting Frank with the risk parity. I would choose my strategy over his. He would choose his strategy over mine. But the fact is, they're both going to work just fine, I think, over the long term. But. But if you don't address how much to put in bonds, you are saying right to the day that you don't move to bonds. I am willing to lose half of my money. I am sitting here right now knowing that there's a high probability that I'm going to lose half of my money. It happened in 73 and 74, it happened in 2002, and it happened 2007 to early 2009. You had a chance to lose. Lose half of your money and prove that that is the risk that is likely in your portfolio. How do you feel at age 60, taking the risk of losing half of your money? You might not like that.

B (42:13)

My thoughts about losing half of my money is I'm only losing it if I sell. So if the market drops by 50%, I'm going to figure out a way to keep my money in the stock market until it recovers, which I truly believe it will do because I have faith in the US System, that's fine.

C (42:34)

But I will tell you, if you have the ability to adjust your cost of living, what we're moving towards is the day that you retire and now you're taking money out. We have almost 250 tables on our website, Scott. Evidently you saw a bunch of them.

A (42:50)

I saw about 30 of them, yeah. So there's no real deep dive.

C (42:54)

A lot of them are about distributions. Are you taking 3%, 4%, 5%, 6? Are you taking fixed distributions or variable distributions? Every time you look at one of those tables, you could say, oh, if I had all my money in equities, I would run out of money before I ran out of life if I had to meet a certain cost of living. Right now you're doing well enough financially. Evidently you're not worried about having to take money out to live on. You're putting it away and you love what you're doing. I loved what I did until I was 70 and I sold the company. And I kept doing the same thing, except doing it for free. I mean, I love what I do and you love what you do. You're changing people's financial futures and you may do it for another 30 years, in which case you don't ever have to take money out of your investments. And you could be all equities, all the time, forever. I know lots of people who have pensions and Social Security and they don't touch any of the other money and it's all in equities. Pedal to the metal until the day they die and their kids get all that stuff on a stepped up basis.

B (44:04)

So as long as I am not withdrawing from my portfolio, it can still be in equities. Like I am perfectly comfortable with risk. I have some individual stocks that are very growth. We're tech heavy in our stock portfolio. I do still have some individual stocks because they've done really well. I still believe in the future of the company. I do have s P500 index funds that are just as I'm selling individual stocks, I'm putting the money into the S P500 just to be more diversified, but it's only sort of more diversified. I'm still really tech heavy in everything that I have, but I'm also comfortable with a lot of risk. So since I have other money to live off of in the form of income, I'm a real estate agent, so I randomly sell houses and that funds my life. So what I'm hearing you say is that if you're comfortable with risk and you have other sources of income, you're not withdrawing. You can keep your money in the equities as much as you're comfortable with.

C (45:05)

I think so. And here's When I was an advisor, I had the same tables that we update every year for the people who follow our work. They're called fine tuning tables. And they will show you the S&P 500 all equities, 90, 10, 80, 20. It will show you the returns year by year since 1970 of different combinations of equities and fixed income. And down at the bottom of that page it shows the worst six months, the worst year, the worst three years, the worst five years. And when I was an advisor, I wanted to make sure that the person I was helping was willing to accept that kind of loss. And oftentimes it was a couple. The person who was in control, yeah, all the way equities all the time. And the other person is scared to death of equities. And I would try to get them to compromise and they had plenty of money. I mean there's a psychological end of this business that you can't answer with numbers. But when I could show them, if you follow my Advice, if you're 50 50, you must be ready to lose 25% of your money. Now my wife and I are 50 50, so we're willing to lose 25% of our money. We take 5% out of our portfolio in the first week of the year. That's our money for the year to live on and to give away. And whatever happens, happens. And if it goes down 25%, we're going to take a cut and pay. It'll be 5% of a lower number because the number we've got is already too high to begin with because we over saved. I worked until I was 70. I sell the firm and do well in selling the firm. And I don't spend money easily and my wife does. These are the things that we struggle with. And the problem is for people, they don't start struggling until the problem is right in their face and it's actually happening to them. And we do not make good decisions when we are under stress. I've always done my best to try to help people prepare for the worst, hope for the best, and make sure they're being legitimate in their expectations. Because too many people have unrealistic expectations. They just haven't been bit badly yet, but they will. History just shows too much of it.

A (47:25)

I've got some questions here because Mindy is very aggressive and is fine losing 50% of her money. And I am not fine with that. I'm very cautious. I have an entrepreneurial itch. So I'm very happy to go and do those types of things and roll up my sleeves and work and all that. So is Mindy and a lot of other people. But that's where I'm happy to apply more risk tolerance, if you will. My thought was, you know, last year when I stepped down as a, as a CEO and began to actually need my portfolio to generate some income that I'm going to spend, it was, hey, I'm so heavily concentrated in stocks. I'm going to sell a big chunk of stocks and move it into a rental property that's paid off. And the reason I'm not going to put it into bonds is because I'm 35 and I know bonds is a losing bet for me over a very long period of time. You are an academic. I'm an amateur in the concept of portfolio theory. Getting the privilege of talking to masters like yourself. I would love some feedback on that on that particular one. Selfishly, while we're on the show here, before we turn into the broader international stuff that I want to get to.

C (48:26)

As well, it would be fun to go through that conversation at length. But here's the bottom line. What I might have said to you. If you're really uncomfortable with the market, but you Want to maintain liquidity. If you could look at the chart, having 20 or 30% in the market has been very low risk and yet has made a much higher return historically than real estate. And you would have one day liquidity if you needed it. So there are different paths that you can take. I have never owned real estate to try to make a profit on it. So it's just I like one day liquidity, I really do. And I like having knowing that there's something there to stabilize it which is the fixed income. I'm as maybe as conservative as as you are, Scott. When I was 40 I got to a number that I had shot for since I was age 19 and got married. I wanted to have a certain amount of money. I didn't have it at 30, but I had it at 40. We didn't have a fire movement going on then, but it was the same thing. And so I decided to start a business but I was so conservative that the only I was willing to invest and risk $15,000. That's it. I'm not putting any more than $15,000 into this company because the chance it's going to survive and be worth anything is very, very small. And I was so stupid as to give over half of the company to to my kids because I didn't think it was going to do anything. And so that became my investment management company. That's the only money I ever put into it was that $15,000. I worked really hard. I was the first one in in the morning and I was the last one out at night. I didn't get paid for years but it paid off. But my risk capital was $15,000 because I was afraid of it. I didn't want to lose any more than anything $15,000 in a self funded entrepreneurial idea. Wanting to be an investment advisor. I wasn't an investment advisor.

A (50:36)

No, I love it. I think there's a very similar mentality into various approaches here. I'll move off that real estate topic here. So we have a lot of research on how we improve return profiles by moving into separate different funds here. I think underlying that is the value thesis that the value just outperforms to a certain extent over very long periods of time in many different types of cycles. Is that an underpinning of the core research in this?

C (51:03)

If I may just talk about that small cap value. It is not an easy investment to have and I'll tell you why. If you dig into the long term return since 1928 it has had I think six periods long periods where it underperformed the S&P 500. Maybe it was only five periods, but underperformed for 16 to 19 years. And at what point do you say, who convinced me about this? Well, it's Paul Meerman. Well, he's dead. I'm getting out of this thing. I mean, small cap value, you wait around, it stays in there and then it explodes. Like this month, small cap value is up maybe 7,8%. Last year, the whole year it was up about 8%. Except for the international small cap value, which was up about 40. Which is why I think it's smart to have some US and some international. And fortunately, both DFA and Ivanas have them.

B (52:03)

Okay, I'm glad you brought up International because I'm starting to hear a lot of investment advisors suggesting that you have some international exposure. But international is literally everything but America. There's gotta be some countries that are better or perform better than others. Do you have any favorites?

C (52:21)

Well, my favorites are to own basically all of them. You have choices. You have emerging markets as an asset class. You have international large blend, international small blend, International large value, International small value. And as a matter of fact, when you add those to that famous 10 fund strategy, the return, by adding these four asset classes, internationally and emerging markets, it's over a half a percent. Remember, half a percent is a really big deal. A half a percent is for a young person, another million and a half dollars over their lifetime. Even if they only put away $6,000 a year, it's huge. A half a percent. Both Small Cap Value and US International have paid a premium over large cap blend and large cap value. But again, they come in streaks. Now I just have to. Inside, I just. I'm howling because many, when you tell me about people, are starting to say, you should get into internationals. That's not the way it's supposed to work. You're supposed to know that international, I don't mean you, but I mean the industry. They sell to the path of least resistance. Every salesperson I've ever known sells to the path of least resistance. That gets them to the quickest yes. And the quickest yes is to tell people, hey, you ought to have some money in this thing. That's been making a lot of money. Look at this shiny nickel over here. I mean, it's not fair because it's so ungodly wrong. What we should do is say, look, I don't want to own 10 funds. What 4 funds could I have? And you say, I might say, well, do you want international for the rest of your life in the portfolio or not? You might say, yep, I do. Well, then I can suggest a portfolio that's 25% in large cap blend, 25% in small cap value. I can give you the other 25% in international large cap value and International small cap blend. Now I've got the same four equity asset classes, but I've got my portfolio half us, half international. And you'll get almost the same return, a little better actually than my 10 fund strategy that my wife and I own. International is not about should we be in it this year? International is a great place to be in for the long term. But then if you tell me, but it didn't do well recently. Well, what do you do with the S&P 500 when it goes down 1% a year for 10 years? Do you decide I'm never going to have the S&P 500 in my portfolio? No. If you did that and you had all your money in equities and you were retired and an advisor did that to you and didn't have a letter in the file that said I tried to, to get them to put some fixed income in the portfolio, otherwise they're susceptible to getting a lawsuit because that's what these things do. So we can treat it lightly in a way, but when you're actually helping people manage money, which is why, by the way, most advisors tend to get very conservative. I'm trying to help do it yourself. People and investors be a little more aggressive longer in their life. I think they can do that.

A (55:40)

When we think about these, these allocations you're talking about, hey, you know, International's pot all the rage right now because it went up, you know, a bazillion percent in 2025. And that's not a good reason to invest in it. It's a good reason to invest in because of the principles over very long periods of time. What about the inverse though, where you have something that is, is approaching all time high price to sales, price to earnings, price to book, what you know, what you pick your, your metrics in terms of, of pricing. Does that begin to change the math at all? Or is that something I totally ignore in the approach that you bring to long term investing?

C (56:13)

Well, this is one of those things again that tends to be kind of personal and that is how often we rebalance because the whole idea of rebalancing is so counterintuitive. Take from the rich and give to the poor. Take from something that's really felt good lately, you see, and Once it starts down and we see that all, oh, it can go down too, we start thinking, well, maybe it can go down a lot and maybe I should be selling. I mean, if you don't have a strategy as to how you're going to take the risk out of your portfolio of being caught with too much of your money in an asset class, that takes a big nosedive. And they do. And remember that in 1987, on October 19th, the market went down 22% in one day. And by the way, this is not a reason to do market timing. But I was a market timer then, before we had the buy and hold. My clients were all in cash when that happened and I was a hero. In fact, that was what got me on to be the special weekly guest for Louis Rukeyser on a show that nobody knows anymore called Wall Street Week. And it got me a nightly business report and they got me in a three page spread in US News and World Report about my work because I was out. And I would try to tell people I did not call the crash. I happened to be out when it happened. Nobody wanted to hear that. They wanted to hear somebody new. I didn't know. And the only reason I didn't get on the front page of Money magazine is because Elaine Garzarelli did too. She was a market timer. She had her clients out and she was ever so much better looking than I was. After that night on Rukeyser Show, I got 400 phone calls. People wanted to have me help them with their money. We weren't ready for that at all. And what happened? My performance for the next couple of years wasn't as good as just being a buy and holders. And that's the problem with chasing asset classes, chasing returns. And by the way, if returns are what you're really about, you are so at risk of things like cryptocurrency, where people know how to manipulate markets and pump and dump is just part of the game. And I know I'll get more hate mail. But to answer your question, Scott, the answer is rebalanced. How often? Once a year if you want some people rebalance. If you read Larry Swedrell's work, one of our truth tellers, Larry will tell people to if it gets us 5% out of line, I mean, he's got rules. I think it's a good idea to have some rules or never rebalance but have your portfolio diversified over a whole bunch of different holdings. So then you know something, I'm not so sure that it's a good thing to do rebalancing the fixed income doesn't make you more money rebalancing. As a matter of fact, if all you own is the S&P 500 and small cap value, rebalancing is going to help because so often they're at the top or the bottom.

B (59:26)

You just said rebalancing is taking from the rich and giving to the poor.

C (59:30)

Exactly.

A (59:31)

Let me ask you one more question here. Are there any valuations of these, these types of asset classes where you'd say that is now so ridiculous that it's time to break some rules or I put some rules in place. And conversely, like one of the things I'm interested in is a view on bonds. When interest rates are literally zero and there's almost no conceivable case where they can go that much lower in there. Does that then change the rules for bond ownership? For example, from a few years ago, Are there any extremes that you, you would say, you know what, take this academic theory and the historical research seriously. And of course we move away from it. In these extreme scenarios, bonds are there.

C (60:09)

For one of two reasons generally. One is that you want the income from the bonds, in which case we recommend a whole bunch of different bond funds. Bond funds that are likely to get you to more income, but maybe give you more volatility. But if you got bonds in your portfolio because you're stabilizing your portfolio with the bonds, so when the market goes down 50%, you go down 25, for example. Then instead of these income generating bonds, what you're looking for are short to intermediate term governments. I never go any longer with that money, that stabilizing money than intermediate so they don't go wild and crazy when interest rates flip flop around. They will some, but, but not bad like long term bonds do. But I still need the stability. And then a money market fund might be paying more than I can get on a bond. Maybe. But the fact is the risk, my equity risk is being stabilized with the bonds even if they don't pay me anything.

A (61:11)

You said rebalancing. Right. When we rebalance in practice early in the journey, that just means investing in whatever one, you know, putting the additional dollars into the fund to rebalance here.

C (61:23)

New money goes into the bring it back in balance. Yep.

A (61:26)

Now let's talk about decumulation. So someone builds their portfolio for a very long period of time. It's AN S&P 500 index fund, simple path to wealth kind of, kind of philosophy. Now we're thinking, okay, I'm going to actually get into more, more into portfolio theory because you can't just be in this kind of simple passive index fund and decumulate safely unless you're going to, you know, go so far beyond these rules of thumb from a withdrawal sequence, you're going to need some kind of bond exposure, some kind of different fund exposure. Could you give us not just your fund strategy we talked about here, but also the withdrawal strategy? Where should these assets be placed in a relative sense for asset location in the context of the frameworks you've built?

C (62:04)

We have tables where we take out 3% and adjust for inflation. We have tables where we take out 3% variable. So whatever the portfolio is worth, you take out 3%. If it goes up, you get more because you're taking 3% of a higher number. If it goes down, you get less because you're taking 3% of a lower number. We have the same table for 4%, 5%, 6%. We have it for the equity being the S P 500 only, or the two fund strategy or the 500. I mean, we have nine different equity strategies that people can choose from along with all those different combinations in 10% increments so that you could actually see would have looked like had you retired in 1970 and tried to live off of that money, taking out the different amounts of money. And I will tell you, there's nothing wrong with having an all equity portfolio all of your life. If you just look at the table, if you take out 3%, it even works at 4%. But I can tell you at 5% you're broke in about less than 30 years. At 6%, you're broke even sooner. And yet my wife and I are taking out 5%. And the reason we can and not worry about it is because we're not adjusting for the inflation. So when you have more than enough money that you can take out 6% a year, you could, but when it goes down, you're going to take 6% of a lower number. And of course, it also depends how long you have to live. If you're somebody retired at age 4, 40, you got to have a little longer conversation than somebody retiring at age 82. There's more to consider because there's also like when I retired, I promised my wife that I would never work for money again. And I have absolutely kept that promise to this day. I had not been paid one penny since 2012. Unfortunately, what she thought I said was, I'm not going to work again. He comes back to my little place, they're in Are you ever coming out? These are big decisions and decisions that mostly should be made with a couple. If that's what it's about, your saving rate, the rate you take it out. We have tried to build a table for every major decision you're going to make, try to give you the ETFs to use to fund those decisions, whether it's fixed income or its equity. And there are things, I have differences of opinion. Frank likes commodities, likes gold. I think that's great that he does long term. That's not something that I use. So you're going to run into these small differences. But I think most of us, if we get you diversified, it's going to have large and small in value and growth. And everybody needs to say no to bonds or say yes and no, why and when. It's just that simple. Any good hourly advisor should be able to take a look at your plan and say, in fact, this happened when I was an advisor. Nine out of 10 times, people had way more money than they needed for the rest of their life. Those are the kinds of people that tend to come and ask for an advisor's help. The people who are underfunded, they won't do it because they've been making these decisions on their own their whole life. And by God, I'm not going to trust some bozo who's going to make money off me. Well, you know, it used to be 200 bucks an hour. Maybe it's 400 bucks an hour now. But I will tell you, that is money well spent if you don't really know what you're doing.

A (65:41)

I love it. And I want to, I want to say something here that you're not saying, but I'm reading between the lines here, which is an indirect challenge to the 4% rule in the context of early retirement planning here. And I think that, first, that assumes a reasonably sophisticated portfolio strategy. Second, it assumes that you're going to, your spending is going to be consistent and fixed with inflation over a very long period of time, which many people don't have that level of precision against. Third, I think it does not model in certain risks and cost escalations specific to the early retirement space. And there's a couple other things. But again, but the offset to it is that there are real offsets to it. If you own a house that has a mortgage that's going to amortize and pay off, that's a real offset to those things that I talked about. If you're going to get an inheritance that's A real offset. If you're going to get Social Security, that's a real offset to it. So it ends up in practice being actually very reasonable for many people in many situations. But it's dangerous because of the simplicity, does not reveal that complexity beneath the surface that can really blow you up if you're at risk of those escalators and don't have any of the offsets that I just discussed There Is that. Is that kind of. Should I be reading that correctly? Am I reading too much into what you're saying?

C (66:51)

I agree that how much you take out has to do with at least a dozen factors. Your health, your desire to leave money to kids. I, my wife and I have to fund a program when we're dead at Western Washington University that is underwriting an education program for every student who goes through. They'll be obligated. They'll have to. They're required to take a financial literacy. It's costing us money. We have to save so that money is theirs so that it can be paid. That's in my plan. If I didn't have that and my kids got half of the company, over half the company, when I didn't even know it was going to be a company really. And so my life is still about trying to arrange what happens after I'm gone. And it's not all about children anymore because they don't need it. They probably don't feel that way. But the bottom line is there are all these variables. You said something, though. You said that there are these complex strategies. An academic might understand them. I am not an academic. I have never in my life used an Excel spreadsheet ever in my life. I am not an academic. I'm somebody who reads books and is willing to go to class and learn and then share it with other people. It isn't that complex. There is nothing magic. Let me tell you what the business believed in 1926. In 1926, people believed stocks were not good for the long term. You should not invest in stocks. And a professor came, he wrote a book and it became a very popular book. It was the first, first time in 1926 that somebody made a public case as stocks for the long term, bonds were an investment. That's something you could put money into for the long term, but certainly not stocks. They were pure speculation. Then fast forward to the late 20s. We have mutual funds built for the kids of rich people at that time. That's where they started. And we have to go all the way to John Bogle to make A huge, A huge change in the industry with index funds. And it took decades for people to understand, oh, my God, that's what an index. In fact, for 20 years, a lot of people still thought The S P 500 was an index. The index, the only index. And it wasn't the only index, but that's what people learned. So now index funds aren't. They're not complex anymore. People understand you get the best diversification, lowest cost, lower turnover, the highest tax efficiency. It's all there. And it's not complex. But it wasn't believed in in the beginning. They laughed at him. They tried to run him out of the, out of the industry. So Today, because of Dr. Fama and Dr. French and others, we understand the idea of small versus large, of value versus growth. And we certainly have the greatest products to put them into. Roth iras. I didn't have that when I started. I didn't have IRAs when I started, as a matter of fact. And target date funds. That's like being able to have somebody who manages pension funds managing your money for retirement. That's really good. And so I want to try to change that idea that it's complex because you might put together a fundamental. What you need to do, I think Scott and Mindy is you need to look at those pages and say, okay, what changed when I used the four fund strategy, because it's a little more risky. Am I willing to take the additional risk with half of my portfolio? Because in retirement I'm going to be 50, 50. What does a market over that period of 56 years? Which doesn't mean the future will look like that. But how would have it held. How would it have held up with the amount of money I want to take out? Because it would be different than the s and P500. And we build the table so you can look at them and you can run your fingers at them and you can say, whoa, I see here. I wouldn't want to lose that amount of money. I know what my spouse would be saying. We're going to have to change our lifestyle, move in with our kids. I mean, those are decisions that come up if we don't take this stuff seriously.

A (71:04)

Absolutely. And I think, I think I'm using the wrong language in determining the, the maybe in the. In the world of complex, it's not as simple as buy this one fund and set it and forget it forever. There's more to it than that that you have to, I think, think through and you have to end the way you have to really be precise or smart is how much do you want to spend? That's I think, the real challenge for, for a lot of folks. And then there are many right answers to the portfolio design problem in there that you folks like Frank, many other people, Bill Bingen, have really pioneered and thought through and evolved to give a lot of really good answers to that question of what is the right portfolio for me to last a lifetime under these constraints. But yeah, the hard part, the complex part is the spending. I think especially for people that are younger, that's where I'm work in progress, trying to still think through exactly how each of those map to the lifetime journey.

C (71:58)

SCOTT I think it's about trust at the end of the day. When I started investing, I trusted Wall street to educate me. And I learned that without any question, the house was more important than the client. As a matter of fact, you are in essence, a fiduciary. When you work for the firm, first and foremost to the firm, not to the client, to the firm. That's an important thing to understand, which is why we really want want to try fiduciaries who have an obligation to us personally and why it's nice to do business with somebody who is the firm. But the bottom line is you may trust me because of my speech pattern. I've had people come up to me twice after one of my six hour workshops that I used to give free to the public. Two people said, I loved your presentation. You sound so much like Professor Harold Hill in the Music Man President. The first time I heard that, I was taken back and when I got home, I told my wife and we both cracked up. But when it came a second time, I thought, well, I must have a speech pattern that they trust because how we speak, people trust or don't trust how we shake hands. And you trust Frank. Frank's a very trustworthy kind of guy. I get to work with Frank this summer at a event in Florida and I'm thrilled to do it. And we have the truth tellers. I don't know if you have truth tellers on your website, but we have truth tellers. People like Ben Carlson and others who we think are telling the same story we are. But maybe you'll trust them in a different way than you trust us because we want you to get in good hands.

A (73:38)

I have two kind of last questions for you here, Paul. One is could you boil down the essence of what your philosophy is into maybe two or three simple rules for investing? And then second, on the other extreme, what is the best way for someone to get started going down a really deep rabbit hole that you have gone down. Like, are there these six hour workshops or what is the best way for someone who loves this and wants to get another six hours or 12 hours of Paul and his philosophy? And where can they go to find that?

C (74:09)

That one's real easy. We do a thing called Boot Camp. I'm now starting to record for 2026 and I have to re record. When we update the tables, we have 10 boot camp presentations in each case. There'll be an article, there'll be a podcast, and there'll be a video. You can learn three ways and each one of those will be an opportunity for me to try to convince them. Okay, we've come to a, a fork in the road. What are we going to do here? Stocks versus bonds certainly is one of those forks in the road. Okay, what stocks I'm going to like, Give them the 10 equity asset classes that the academics, the real academics gave me. Then how do you put those together? We show them how to put them together and we show them the historical impact of putting them together and then we take a look at the process of accumulating. Should I be all equity? What's the implication? With all of our portfolios, we're showing them how to do each one of these steps on their own. And I would just love it if I never got any questions because we answered them all. But because there is so much to learn, we do get questions. Then we get into the distributions, we go into the fixed and then we go into target date funds. And then my last one this year, it's a new one. I've done things. I'm going to talk about newborns. I love strategies for, for children and grandchildren. I have a strategy that I can't wait to present it because it's so much fun. But it only takes $365 and that's all you ever have to put away for that child for a year. And if you love them, you'll do another year with 300. Anyway, I'll let you know when I, when I've got this because I think you might, you might enjoy it. When they finish those 10 things, they know what I know. They may throw up their hands and say, I don't know what to do. But here's what I do. I do know it's easy. And I don't think this is going to be new to you. Start as early as you possibly can. I even encourage people, if they have access to it, to go to their parents, parents and show them the table four of starting five years sooner. You've seen these kind of studies. I know if you show that to a parent or a grandparent that's got some money for the long term, or maybe money that you were gonna, they were gonna leave to you anyhow, what a blessing to be able to have that money go into your Roth IRA when you're 18, 19, 20, 21 years old. It's a big deal. And I know people who take a second job in order to have the money that they're, that they're saving for the future like that. And my recommendation is that as early as you can get going, get it wherever you can get that money to save it for the future. I'm even in compromising, saving that emergency money somewhat. If you, if you've got a really good job and you think you're okay, I'd even have you getting some of that money you're putting aside on the table into your, into your Roth IRA instead. I also think you have to learn right up front what can you control. And if you learn, you can control expenses and you can control the equity asset class and you can control taxes and you can control when you put the money in and you can all those things you can control and make sure that you don't allow somebody else to take control of those things and that money ending up in their pocket, not your. I love the term pockets and I think this is, this is what this is about is more in your pocket. And if you keep those things you can control in your pocket, that is going to get you more than you're going to get from small cap value. Okay.

A (77:57)

In other words, bigger pockets.

C (77:59)

Bigger pockets. And people just do not seem to understand the long term impact of little incremental advantages. It's start early, easy, own the market. Forget about every story you ever hear from Wall street or something that smells like Wall street because Wall street knows people love stories. You sell the sizzle, not the steak. The sooner you understand that the important thing is to realize how the market works, works and how you can put it to work for you by your controlling all these things that you know you can control. And none of them, I mean they're in the free book that we offer on our website that we're talking millions. And I think those are basically going to be it. And that is by the way, not only to control the expenses, but control your bad behavior. I want you to be on your best investment behavior for the rest of your life. And we all know what bad behavior looks like and it has to do when we allow the emotions to take over. In the back of we're talking millions is a 16 page appendix that I did not write. It is a listing of the 48 biases that Daniel Kahneman covers in his book Thinking fast and slow. These are 48 biases that we have to deal with in life. Overconfidence, for example. We know that's a problem with investing. People think they know more than they do. Control more than they do. Recency bias, home bias. Those 48 biases are explained in 16 pages in the back of the book. If people don't read my book and they just go to the last 16 pages and, and they understand the biases and if I could recommend another book, you, money and you'd brain by Jason Zweig. It's a masterpiece. It's written decades ago. One of the brightest people in our business. And it's all about how crazy we are when it comes to money. And boy am I, I can be so frugal at sometimes and out of control at others. And we all have these problems to chase and to corral and to control. Get better saving habits, get better spending habits, get better investing habits and let the businesses do the hard work. They will do it. You don't have to do anything to help them. IBM will take care of the future. Nvidia will take care of the future. All those companies will take care of the future. Some will fail. Part of the process.

A (80:48)

Love it. Well, this has been fantastic, Paul. I'm excited to go and check out more of the bootcamp stuff. I have not, I have not gone through the entire boot camp from last year, but I look forward to doing that when it's complete for 2026. I have that your money and your brain book here in my shopping cart on Amazon. Helping pump up the, the S&P 500 right there. And then I look forward to checking out. We're talking millions as well. So thank you so much for coming on the show today and sharing your wisdom with us for almost an hour and a half here. Really appreciate it. It's been a true privilege.

C (81:19)

Thank you, Scott. And thank you, Mindy.

B (81:21)

Paul, thank you so much for sharing your time with us. It was fascinating to learn all of these things that you have. And I'm going to go read that book so I'll know everything that you know in 10 short lessons. Right.

C (81:34)

Good luck, you guys, and let me know if I can ever help in any way. I hope getting this out to other people, for the people that we reach. I wish that all 50,000 people would open their mail every week, but enough do that. It makes it worth the effort.

B (81:50)

Well, before you go, let's tell people where they can find you online.

C (81:53)

Oh, PaulMerriman.com well, that's easy.

A (81:56)

That's where the bootcamp is, guys, as well that we were just talking about.

C (81:59)

And if you want to email me with a question. Paulaumerman.com There you go.

B (82:04)

All right, Paul, thank you so much for your time today and we will talk to you soon.

C (82:09)

All right, good luck to both of you.

B (82:11)

All right, Scott, that was Paul Merriman and I am so excited. I was very proud of myself for not fangirling over him, but holy cow, we had Paul on the show. That was awesome. What did you think of what he had to say?

A (82:22)

I thought it was fantastic. What a, what a treat it is to, you know, study in this space for, for a decade and then get to just meet these pioneers in the fields of personal finance and investing. We're so lucky to be able to do that, Mindy. And it's an. And thank you to everyone who listens to BiggerPockets money as part of our community because it enables opportunities like this for Mindy and I. And we hope that that's then nice and in a virtuous cycle for you guys. But it's just a, what a privilege to meet folks like this and get to pick their brain and learn over the course of an hour and a half.

B (82:53)

Yes. I am so excited to talk to Paul. So excited to dive into those boot camps. I can't wait till his 2026 boot camp is up and running. Just what a wonderful masterclass in the concept of money and investing.

A (83:06)

He gave us a taste of this. But one of the things that I'm looking forward to diving in the next level of depth into is what makes AVUV better than the other small cap value funds, what makes a good ETF in that next level of detail. And so I'm really interested in exploring that with you. And I think that'll be a really fun episode to say, okay, there's different funds for what are those mechanics? And by the way, you know, something that I think will give people a little bit of a pause here is the Fire community has really developed a taste for passively managed, low fee, broad based market index funds. Right? Like, like Vanguard funds, for example, are particularly popular. But a fund like avuv, which we are not recommending necessarily by the way, we do not recommend specific investments here on BiggerPockets money. But a fund like AVUV is actually considered an actively managed fund and would have an expense ratio that's many times what you'd find on A S&P 500 index fund like a Voo or a Vti, common acronyms for the ETFs, that many, many people in the fire community prefer or seem to prefer the fee structure. For example, on a vti might be 0.03, 0.04, 0.05%. But on AVUV that fee will be.25%. That's four or five, maybe six times higher, depending on which version of those ETFs you're using. And so something is happening. It's, this is, it's not like some, like a human is necessarily making individual decisions on stocks. There's an algorithm that's picking it, but there is an active managed component to that. And that's, you know, that's, that's actually, you know, a little bit of a brain reset that, that some people may have to go through as they look into the types of portfolios and strategies that Paul Merriman, that Frank Vasquez, that other other researchers in this space who are getting increasingly sophisticated or pushing the limits of academic theory for investing to the next frontier. Those folks are beginning to turn to some of these things, which I think is an interesting observation in the world of investing right now, something that I'm not an expert in and look forward to learning about over the next couple of years with you.

B (85:09)

Yeah, and I think it's really interesting guessing when we do talk about these, these funds, I'm going to ask our guest, at what point does it make sense to go with the higher expense ratio funds because you're getting such a better return?

A (85:23)

If you want to get exposure to a value stock to Paul's point, at some point it has to select value stocks and then exit when they're no longer value stocks. There has to be some definitional line in the sand and that, that becomes really important and there becomes an active process to, to filter for that. That's what makes this so interesting and never ending this world of investing.

B (85:44)

Yeah, passively managed funds cost less, but they can have a lower return. So yeah, you're going to have to start rethinking how you want to invest your funds and you know, do the math for yourself. Don't just listen to one person say, oh, you should do this and then do that. Start getting information from a bunch of different sources and see which one you identify with or you know which which one speaks to you in a way that makes the most sense. And maybe that is going to be actively or passively manage index funds. But then you're making the choice informed as opposed to, well, I heard this one guy this one time, and that's good enough for me. But even better than that, all that is just investing in the first place.

A (86:25)

Love it.

B (86:26)

And starting early, start as early as you possibly can. Quote from Paul Merriman all right, Scott, should we get out of here?

A (86:31)

Let's do it.

B (86:32)

That wraps up this excellent episode with Paul Merriman of the Bigger Pockets Money podcast. He is Scott Trench. I am Indi Jensen saying Toodaloo Kangaroo.