Sound Investing is not gambling

Dear Friends, As we try to address the issues of interest to investors at all stages of life, we offer this newsletter with what we hope is something for everyone. We always appreciate your comments and questions at info@PROTECTED and do our best to respond to each one. In this week’s video and podcast, “How can you trust the market?,” […]

The post Sound Investing is not gambling first appeared on Paul Merriman.

The post Sound Investing is not gambling appeared first on Paul Merriman.

Dear Friends,

As we try to address the issues of interest to investors at all stages of life, we offer this newsletter with what we hope is something for everyone. We always appreciate your comments and questions at info@PROTECTED and do our best to respond to each one.

In this week’s video and podcast, “How can you trust the market?,” I again have the pleasure of being joined by Chris Pedersen, our Director of Research, and Daryl Bahls, our director of Analytics, to answer a few big questions, like, “What can a Do-It-Yourself investor do to prepare his/her spouse/partner for managing retirement investments should the DIY investor die first?”  Join us on YouTube or podcast.

Last week, we ran two different pieces—a podcast interview I did with Dr. Robert H. Pass, pediatric cardiologist and host of Pediheart podcast, on “Funding a child’s retirement” and a video conversation with Skye Michiels, host of the east coast 6AMERS group, titled, “How to become a better investor (and your kids benefit too!).”

Online Gambling for Kids

You may know about kids legally gambling online, but I was made aware only recently. I find it disconcerting from the standpoint of parental influence and control, the waste of money that could be wisely used to invest in a child’s future, and wishful thinking supplanting the cultivation of good habits, such as saving, planning and patience. To learn more about this subject, we’ve gathered a few resources for you.

In this article, NextGen Personal Finance tackles the issue of “Teenagers Making Wagers”. Ngpf.org is one of our Truth Tellers and a great source of basic information on a full range of financial and investment topics.

According to ngpf.org, “A 2018 Supreme Court decision to remove the federal ban on sports betting led to over 36 states making this a legal practice which means more and more young people are being exposed to gambling apps. We’re not talking about games and apps that have gambling-like features mimicking the casino, such as spinning roulette wheels and slot machines – Nope! We’re talking about teens placing real bets via apps like Draft Kings and Fan Duel. Learn more about how serious this issue is and which state chose to do something about it right inside of public schools: https://www.ngpf.org/blog/fincap-friday/fincap-friday-teenagers-making-wagers/

In this video on “Seeker,” teenager Luci examines “Why The Lottery Is So Seductive.” See more links in the video notes.

This NPR edpuzzle.com video considers, “Should I play the lottery?”

ABC News addresses gambling addiction in a video and transcript, “Online gambling among youth worries experts, one teen says sports betting was an ‘escape’”

From the Wall Street Journal’s archives (Dec. 18, 2022), we find, “Problem Gambling Is on the Rise Among Young Men”.

Truth Teller: The Balance

The internet is awash in unverified information and personal opinions presented as facts, so it’s our goal to offer you the most trustworthy resources we know. We call them our Truth Tellers. When I need to look up an investment-related definition or topic, I trust The Balance.

Why? It’s the only website I know where every article is fact checked and peer reviewed by professionals with wide-ranging expertise in the financial industry, from professors to certified financial planners. Their Financial Review Board works with their editorial team to make sure they’re giving the best possible information.

Their broad range of topics includes budgeting (with a useful calculator), investing, mortgages, economics, banking, small business and career planning. So, next time you want some reliable information on a wide range of financial topics, check out The Balance.

Update: 2 Funds for Life and More!

This time of year, I start getting questions about when the more than 160 tables will be updated. Please understand all of the research, which we update each year, requires many hours of our volunteers. We are aiming to complete this process by the end of the first quarter.

During this time, Chris Pedersen, the brains behind 2 Funds for Life and author of 2 Funds for Life—A quest for simple & effective investing strategies, will be updating his Best-in-Class ETFs recommendations, as well as an update on 2 Funds for Life and M1 Finance.

If you haven’t watched this excellent video, “Invest Successfully with Just Two Funds,” in which Chris succinctly explains 2 Funds for Life, on Katie Gatti’s “Money With Katie” show, I highly recommend you do.

Additionally, we will update 2022 data and produce a series of podcasts (and/or videos) on The Ultimate Buy and Hold portfolio, Table H1 update of returns with our Best-in-Class portfolios, Fine Tuning Tables, Accumulation Tables, Fixed Distribution tables, Flexible Distribution Tables, 2 Funds for Life and M1 updates, plus “Follow the Math of Successful Investing.”

Please stay tuned, and we’ll bring you the updates ASAP!

Meanwhile, we want to remind you that the purpose of our information is to help you, who follow our work, maintain a healthy long-term perspective.

Last year was not a good year for investors in general, and especially difficult for those focused on growth equity asset classes. On the other hand, broadly diversified portfolios suffered much smaller losses.  For more insights on “Why Markets Were Down in 2022,” you may enjoy the work of Ben Carlson, one of our Truth Tellers.

Welcome Our New Team Member

We welcome Jess Hartter, our latest volunteer team member. Jeff retired from a career in engineering and project management in 2022 at the age of 35. He began his investing career at the age of 10 in 1996, and was an active stock trader for 17 years before discovering the “Shockingly Simple Math Behind Early Retirement.”  

In 2014, at the age of 27, he joined the FIRE movement and set a goal of retiring in 10 years. At that point, upon discovery of The Merriman Financial Education Foundation’s work, he pivoted to an index investing strategy that evolved from a Total US Stock Market strategy to a more diverse strategy. 

Jess taught financial literacy classes for five years before joining the Foundation in early 2023, where he currently leads our university outreach and education program. With a general curiosity in living a mindful and fulfilling life, Jess enjoys traveling with his young family.  

If you are involved with a college or university and would like to contact Jess directly, please email him at: jess@PROTECTED

Q&A with Chris Pedersen

Q:  I hadn’t heard any podcasts since 2017 regarding the Merriman Aggressive Target Date Fund strategy. Do you still recommend this strategy and, if so, how do you rank it against the UB&H and 2 Funds for Life portfolios?

A:  We still support investors who use the Merriman Aggressive Target-Date Glidepath. It’s customizable using a Google Sheet (available here). It starts out with 100% equities in small-cap value plus some emerging markets, then adds fixed income and the other asset classes, so it’s a 50% fixed income and 50% Worldwide Ultimate Buy & Hold at retirement. 

In chapter 12 of my book, 2 Funds for Life, I point out that the aggressive 2-Funds-for-Life approach has performed very similarly to the Merriman Aggressive Glidepath, especially if you split the small-cap value investment into US and international funds. That doesn’t mean the 2, or 3-fund solution is better. Some people may prefer to hold a wider range of asset classes, so they always own a piece of what’s doing best at the time.  

Q:  I have always invested in the small-cap-value stock funds, however, based on your logic, holding a small cap “fund” would defeat any intent to hold the next 10-bagger, for as soon as a particular stock grew to mid-cap, the fund manager would give it the boot. But for all your other data points, I continue to hold VBR. What do you think?

A:  VBR and AVUV are both given 4 stars by Morningstar. The reasons we prefer AVUV for the long run is AVUV companies are much smaller on average ($2.4 vs. $5.3 billion), have lower Price to Book Ratio (1.26 vs. 1.72) and much higher quality companies. The last 3 years, a good period for SCV, AVUV made about 6% more per year (13.2% vs. 7.3%). In years that large does better than small, VBR should outperform. In years that growth does better than value, VBR should outperform. In other words about 54% of the time AVUV should be the better performer.

I suspect the advantage to AVUV will be at least 1% a year. Not a life changer for me but for my newly-born granddaughter (who has 50% of her retirement account in SCV and 50% in the S&P 500) it should make a difference of about .5% or more per year.

Your point is well made regarding the 10-bagger but the small cap value index is expected to add about 2 to 5 percent a year over the S&P. Over 40-year periods, since 1928, small-cap value has added 2.7 to 7 percent over the S&P 500. I would be thrilled with a 2% advantage in the future as SCV was not a commonly known asset class for the first 60 years. I have drunk the academic “cool aid” that there is an expected premium for the SCV asset class and that it is smarter to hold many rather than a few of these companies, as so many fail to pay the premium.

Q:  I have decided to implement the 2 Funds for Life in my 401K but, unfortunately, I do not have a good SCV in it. I decided to buy the SCV in my brokerage-link account associated with my 401K, where I have more freedom to choose a wide range of funds including AVUV (expense ratio of 0.25) and FISVX (Fidelity’s small-cap-value index fund with expense ratio of 0.05). According to the following Best in Class ETF, you recommend AVUV. I am tempted to choose FISVX given its extremely low expense ratio. Would you still recommend I select AVUV over FISVX even though the expense ratio is high? If so, can you please provide some reasons behind your choice?

A:  The reason I recommend AVUV over FISVX is that it has historically provided more exposure to the market, size, value, and profitability factors or parts of the market. The additional exposure increases the expected return more than enough to cover the 0.2% additional annual expenses. Since October 2019, AVUV has had about a 7% higher CAGR which probably has as much to do with market cycles as it does with the greater factor exposures, but it’s consistent with the recommendation.  If you’re interested in exploring the factor exposures yourself, you can see them at Portfolio Visualizer.

Personal Story: Send Us Your Video!

Paul Hays is a long-time friend, colleague, a member of our Foundation’s Board of Directors and author of Spending Your Way to Wealth. He kindly recorded this unsolicited 2-minute video about me and our work. We hope you’ll watch and enjoy. Feel free to share with your friends and on social media.

If you’d like to record a short video about how our financial education efforts benefit you, we’d love to receive it! Please send a ready-to-play mp4 via Dropbox or Google Drive or WeTransfer (and include your name, email address and phone number) to our webmaster: margiebaxley@PROTECTED

Helping you build a better financial future,
Paul

The post Sound Investing is not gambling first appeared on Paul Merriman.

The post Sound Investing is not gambling appeared first on Paul Merriman.