The Ultimate Buy & Hold Investing Strategy? | Merriman Ultimate Portfolio Explained

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The Ultimate Buy & Hold Investing Strategy? | Merriman Ultimate Portfolio Explained:
As a long-term buy and hold index fund investor myself I was very intrigued when I came across an asset allocation that many said was one of the ultimate buy and hold investing strategies out there. But after looking into it is that reputation warranted? Today we try to find out by analyzing the Merriman ultimate portfolio in terms of long-term historical returns, crashes, and financial independence.

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[NextLevelLife]

In researching for a video for 2021 I revisited the data for the Merriman strategy as presented in this video and noticed a mistake. In the video I mention that based on the data someone utilizing the strategy would've achieved financial independence in 21 of the 44 scenarios using a 50% savings rate. This group of FI accumulations metrics is incorrect as are the average Time to FI that are related to them. Below are the correct metrics:

15% Savings Rate
Achieved FI: 0/44 (0%)
AVG Time to FI: N/A

30% Savings Rate
Achieved FI: 16/44 (36%)
AVG Time to FI: 27 Yrs

50% Savings Rate
Achieved FI: 32/44 (73%)
AVG Time to FI: 14 Yrs

70% Savings Rate
Achieved FI: 39/44 (89%)
AVG Time to FI: 6 Yrs

The cause of this error was I forgot to update the minimum 30-year safe withdrawal rate figure to reflect what we saw from the Merriman strategy before running the financial independence accumulation simulation. As a result, the savings goal required to reach FI was off and therefore so were the accumulation metrics. I have added notes for myself in the spreadsheet to ensure that this does not happen for videos in this series uploaded in 2021. Thankfully, after re-running the simulations it appears that all other figures (i.e. the return, crash, and even the withdrawal portion of the financial independence metrics) appear to be accurate as stated in the video.

[alwynjohn-thesimpleinvesto]

Amazing analysis of the Merriman investment, love it. Such a nice job, can’t thank you enough for all your advice. Your videos jump started my investing career way back!!

[alwynjohn-thesimpleinvesto]

Great content, love all of your videos. The breakdown is always so concise and informative. Keep it up!!

[daryl]

I've found your videos about the different portfolios very helpful. Thank you for putting these together! One note I'd make about the Buy and Hold Strategy is that it's designed to be combine the Merriman Portfolio with an allocation of bonds (treasuries) . The investor decides how much stock vs bond exposure he/she wants (80/20, 60/40, etc) and adjusts accordingly. (That's my understanding from perusing his website ; I may have gotten a some details wrong)

[litcguitarist]

Thanks for the work you’re doing on this definitely helps. I’m really looking forward to you covering the golden butterfly 🦋

[btrobin]

This has been a great series breaking down different investment portfolios. Something I have not seen in the different F/I scenes that I would like to understand better is a set inflation adjust withdrawal amount. Then we can see this initial start amount compared to the starting principle/investment amount.
If I retire with a 5% withdrawal rate, when times are good I'm pulling out a LOT of money, but if my Ultimate portfolio tanks -30% for 3 years, my 5% withdrawal is 30% less. I would rather see an amount, which would be < 5% during good times and =>5% during bad times. This way I can maintain my lifestyle during good and bad times. Let me know what you think, and also if there are any resources you know that would help with this.

[TheIcelandicInvestor]

Great video, I had never heard of Merriman before 😀

[rdx]

Would the higher expense ratios of international funds relative to domestic funds not make a big difference in this analysis?

[brianmahoney]

Thanks for sharing this series with everyone. These are the best comparisons I've seen. I have a question about rebalancing. How often are the simulations rebalancing, or are there bumpers set on the allocation limits?

[lukemcclung]

You got anything in the works for using valuations as start dates like saying a 15 Cape ratio?

[jeremyhershberger]

Thanks for this analysis. This looks like a reasonable strategy but like you said not the ultimate buy and hold strategy.

[KeithJones]

I’m all about the buy & hold strategy

[educatedwanderer]

I've been using the Merriman UB&H for six years now and I see that is protects a little on the downside. The complexity is a bit challenging but I've been able to make a spreadsheet and rebalance yearly. The returns on a 70/30 allocation have been decent so far; I'm keeping on track for FI well before traditional retirement age, but I can tolerate volatility pretty well compared to most having invested in a long term strategy since 1993.

[jhaybiebasco]

Can you do a video on what one can do to mitigate start date sensitivity outside of their investing strategy?

[reessimartin]

I'd prefer to avoid the crash and put large amounts in safer places like fixed index annuities and gain interest without worrying about losses during a horrible market.

[MatthewBuntyn]

It's a good strategy, if you can manage it.

One issue that I have with Paul, is that he's unwilling to acknowledge the complexity involved in self-managing those ten funds, & how that will affect someone's ability to stick with his method. I've listened to a couple of interviews where someone suggests that his strategy "might" be too complex for people. Each time, he became quite defensive, and held up his strategy as the end all be all investment portfolio, based on historic returns.

[knottheory]

It's really hard to find small cap international funds in most 401k plans.

I get the idea of tilting to value and small caps, but it's just often logistically difficult for a lot of employer provided plans. For example I do have access to a small cap fund and a value blend. The value blend is a perfectly viable option but the small cap is outrageously expensive and actively managed and is a relatively small fund by a smaller company.

It's also hard to find passive international funds in 401k plans sometimes too. I don't know why. The upshot is, most of the time there will be an international blend fund with an okay expense ratio that's really just a closet index fund.

I've just sort of settled on a 3 fund portfolio, a US blend index (45%), and international blend (15%) and a bond index (40%). Maybe I ought to up the international to 20 and knock the US down to 40, but I think you could sit around and debate that all day.

[daundredemars]

Why does the ultimate portfolio perform so poorly in the accumulation phase when it has similar returns and risks as the all stocks portfolio, I mean it's not even close

[Swartberry]

That is Richard Gere and not Paul MERRIMAN! 😳

[marksoberay]

This is very similar to the 7/12 portfolio