This 4-Fund Strategy Crushed the S&P 500 | feat. Paul Merriman, acclaimed investor & wealth manager

Paul Merriman, a former wealth manager turned financial educator, joins us to share investing wisdom that could reshape how you think about your money.

We kick things off talking about portfolio diversification. Paul suggests a simple four-fund strategy that includes large cap, small cap, and value stocks. He says this mix has historically beaten the S&P 500 with lower risk.

We then dive into international investing. Paul explains that while adding international stocks doesn't necessarily boost returns, it can help smooth out the ride. He keeps half his equity portfolio in international stocks, even at age 81.

Got kids? Paul's got some advice for you too. He tells us about putting money aside for his new granddaughter, aiming to fund her Roth IRA as soon as she can earn income. He breaks down how investing just a dollar a day from birth to age 21 could turn into millions by retirement age. It's a powerful lesson in starting early and the magic of compound interest.

We also chat about some common investing mistakes. Paul stresses that young investors often underestimate the power of stocks over bonds for long-term growth. He shares some eye-opening numbers: $100 invested in bonds since 1928 would have grown to about $12,000, while the same amount in small cap value stocks would be worth nearly $15 million.

Paul wants you to think of investing as a partnership with businesses. When you buy a mutual fund, you're becoming a senior partner in thousands of companies. At first, your contributions drive most of the growth. But over time, market returns take over, and you become the junior partner to a much larger fortune.

We wrap up with Paul sharing his excitement about a 40-hour financial education program he helped create at Western Washington University. It's designed to teach students essential money skills throughout their college years, from budgeting as freshmen to understanding 401(k)s as seniors.

Throughout our chat, Paul's message is clear: start early, stay diversified, and think long-term. He believes that with the right education and mindset, anyone can build a solid financial future.

Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times.

0:00 Intro to Paul Merriman and podcast topic

0:57 Two-fund portfolio strategy

3:55 Four-fund portfolio strategy explained

5:31 Large cap performance concerns

7:06 S&P 500 vs Total Market Index

10:59 AI impact on large companies

14:43 Market trends and historical performance

20:41 International equity in portfolios

25:26 ETFs vs index funds

29:41 Non-US investor asset allocation

38:41 Setting up kids financially

43:57 Early investing importance

48:37 Common investor mistakes

50:25 Investing as business partnership

52:51 Evolving financial education landscape

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[paulmerriman]

I hope you find the information helpful. For the next couple of days I will be checking in to see if you have any questions.

[Kep]

Paul is the best. Im doing 50% AVUS/50% AVUV in my hsa. Holding on for the next 30+ years. Thanks paul.

[johncervantes]

Paul, what index funds would you reccomend from Fedelity to achieve your 4 fund portfolio. Also, how often would you reccomend rebalancing? Thanks for your great work!

[kunlej]

Thank you so much, Paul. I am currently reading your book: we are talking millions. I have made changes to my portfolio based on your recommendations. I have added small value cap funds as part of my portfolio.

[LagrandAvetisian]

I have a 3 fund portfolio consisting of 33% S&P, 33% Total stock, and 33% international. I feel a need to focus on complete growth so I went 100% stocks, but does the SP500 and TSM overlap too much to make sense holding both? However I’ve been in the red for a month now. I work hard for my money, so investing is making me a nervous sad wreck. I don’t know if I should sell everything, sit and just wait but watching my portfolio dwindle away is such an eye -sore.

[cecilemuggill]

Paul, how do you rebalance annually if you are in the aggressive (all asset class) portfolio?

[FIgirl]

This was a great episode! I really enjoyed it. Thank you for sharing this investing strategy. I like it because it’s backed by tons of research and it’s simple.

I had just learned of Paul Merriman’s 4 fund portfolio early last week and I was pleased discover that after doing a little research beforehand, I had already included funds in 3 of the 4 asset classes that Paul suggests 😃 just need to add small cap blend to complete the portfolio. This episode came out a couple of days later so I took it as a sign that I’m going in the right direction!😅

Would having a small allocation to international and real estate (REIT ETF) have a significant impact on returns? Would you recommend having 6 funds for a beginner with a small portfolio?

Thank you Paula and Paul!

[hagi]

Heads-up to Paula for your patience! 😊.

[SP-owjl]

I need this explained as if I was 5 y/o 😂

[michaeldbouck]

The problem with Merriman's approach is that he is just slicing-and-dicing equity beta vs. true diversification. Merriman presents SCV as a different "asset class" however it's still equity beta and highly correlated to your other equity assets. You want to diversify across UNCORRELATED assets. Gold, managed futures, CLOs, TIPS, treasuries, etc.

[juicyfruitx]

Great video!! Love hearing Paul's investing philosophy and the work he's doing. Thanks for the episode.