Dear Friends,
In the first two months of every year, our team buckles down to update our core data, our most essential and important work. (You can find this on our website under “Best Advice”). We begin with The Ultimate Buy and Hold Strategies: 2022, based on combinations of 10 equity asset classes. I’ve been writing about and teaching this to Do-It-Yourself investors since 1995. While sound investing principles remain the same, our ability to track and present historical data has improved massively.
Please check out my podcast on The Ultimate Buy and Hold Strategies: Update 2022 in which I use the UBH table (70-30) and UBH tables (50-50) to make the case for 10 equity asset classes I think investors should consider owning in the equity portion of their long-term investments.
The key takeaways:
- The S&P 500 can easily be “beat” without taking more risk.
- The impact of adding just 10% of another equity asset class can improve long-term returns.
- The impact of even .1% more return can be life changing over long periods of time.
- Adding more risky asset classes can substantially reduce risk.
- Diversification of equity asset classes is as important as diversification of individual stocks.
- Rebalancing is not about higher returns but is about limiting risk.
- Adding international equities can have a meaningful impact on long-term returns whether you add 30% or 50% to the portfolio.
- There is not risk in the past, we always know what we should have done.
- The UBH Portfolio is not designed to get the best return, but is designed to get a better return than the S&P 500 without substantially more risk.
We continue, in this next podcast, Fine Tuning Tables: Update 2022, to use updated tables to show you the risk and reward of different equity asset classes — along with different combinations of equity and fixed income — so that you gain a firm understanding of the relationship between long-term return and short-term risk, and make your investment decisions accordingly.
When we started this, more than 25 years ago, there were two tables — one for the S&P 500 (as the equity position) and a second for the Ultimate Buy and Hold combination of 10 different equity asset classes. In this podcast, I discuss and review 9 different combinations of equity asset classes and look at the 9 different equity asset classes we have added, which form the basis of the 9 Fine Tuning Tables. Many thanks to Daryl Bahls for creating the tables!
Lifetime Calculator Update
Craig Appl continues his generous contribution to our Foundation by updating and improving our Lifetime Calculator. I hope you will take a look and use it to better understand and project your financial future.
As Craig explains, “We updated the Merriman Foundation Lifetime Investment Calculator to reflect the 2022 Fine Tuning Tables that were launched on the 16th of February. The calculator now shows the 52 years of returns from 1970 to 2021. This update also includes the All Value US and 50% S&P 500/50% All Small Cap Value US that were added this year. You can view the updated calculator at https://paulmerriman.com/lifetime-investment-calculator/.”
The Thing About A Gold Rush
Every morning I read Ben Carlson, whom you learned more about in our last newsletter as one of our “Truth Tellers,” and Seth Godin. I read Carlson for the studies he shares (mostly from others) and Godin for the perspective he shares.
As I read Godin’s blog this morning about gold, I thought of these lines from a poem, “The Spell of the Yukon,” by Robert Service, “The Bard of the Yukon”:
There’s gold, and it’s haunting and haunting;
It’s luring me on as of old;
Yet it isn’t the gold that I’m wanting
So much as just finding the gold.
It seems Seth is talking about every high-emotion investment that makes speculation exciting, and more likely to lead to “regrets” than “satisfaction.”
The Thing About a Gold Rush by Seth GodinIt’s not the “gold.”
It’s the “rush” that changes the way people behave.
When consumed by a gold rush, people make decisions that they would never make on ordinary days. They trust entities, make assumptions and suspend disbelief. Not because there’s gold on the line, but because everyone else is rushing, and the fear of missing out is significant.
Rushing can help us overcome the status quo and our fear of the unknown. It can also lead to choices that hurt us in the long run.
We should rush on purpose. It’s a choice.
A huge win on a stock bet today doesn’t mean much if you lose it tomorrow.”
The Possible vs. The Probable
The goal of all our work is to help investors focus carefully on the choice… not the allure of gold and the possibility of “striking it rich.” We should never forget: with speculation anything is possible. But the goal of long-term successful investing is to find what is most probable.
It’s possible to win the lottery but not probable. The odds of winning Powerball are 292 million to one. According to the internet you are more likely to be hit by a meteorite.
You are equally likely to be struck by lightning on 250 different occasions in your lifetime as you are to nailing the right lottery numbers, Newsweek reported. Here rae some other odds:
- Yellowstone erupting: 1 in 730,000 in any given year, according to the USGS.
- Being eaten by a shark: 1 in 3.7 million, according to CNBC. Whale Bone Mag adds that those numbers change to 1 in 7 million for Americans living in a landlocked state.
- Being killed by a meteorite: 1 in 700,000, according to astronomer Alan Harris in “Discover” magazine. Those odds are considerably lower for getting struck directly by a meteor, however, dropping to 1-in-1.9 million should a meteor hit Earth.
- Death by vending machine: 1 in 112 million, according to “The Book of Odds” by Amram Shapiro. According to data from the National Electronic Injury Surveillance System, an average of four Americans died per year, between 2002 and 2015, due to vending machine mishaps.
I can tell you the historical odds of the long-term success of the S&P 500, as well as all public stocks in general. According to the study by Dr. Bessembinder 58% of public companies have a long-term return less than risk-free 90 day U.S. Treasury Bills. The S&P 500’s worst compound rate of return was 3 times the long-term return of U.S. T-Bills, and the best was 4 times. For small-cap value, the worst was almost 4 times the T-Bill rate and as high as 6 times.
What are the odds that cryptocurrency will do better than T-Bills for the long term? I have no way to know. There is no track record. I’m looking but so far I can’t find a currency that has grown at the rate of Bitcoin but I have found examples of currency buying power shrinking.
I do know that a loaf of bread in Germany rose from 250 marks in January 1923 to 200,000 million marks by November 1923.
The 2022 Financial Key Financial Data Card
Ed Fulbright, CPA, PA and host of “Mastering Your Money” radio program, has put together, with his team, a 2022 financial “cheat sheet” in a simple graphic format.
The Key Data Card can help you organize your finances without having to search the internet for numbers on tax brackets, deductions, credits, Social Security, retirement plans, and more. It’s a quick resource you can post on your bulletin board. You can get your free copy at: https://moneyful.com/2022-financial-cheat-sheet
Smart Money Moves for Expats
To add to a recent article, Resources for Americans Living Abroad, by Aysha Griffin — our Director of Communications and women’s financial empowerment coach who lives in Catalunya, Spain — our Lifetime Calculator wizard, Craig Appl, suggested these two resources:
FIRE for US Expats: How to Make Smart Money Moves
IRA Contributions for American Expats Explained
Transparent Investing: Last Chance to Get a Free Copy
On Jan. 25, we sent a special mailing to alert you to a limited-time free offer of the electronic version of Patrick Geddes’ book, Transparent Investing: How to Play the Stock Market without Getting Played (A Data-Proven, Simple Investing Strategy)
Some of you kindly wrote to say you could not download it for free, as the link we shared refers the ‘Kindle Unlimited’ eBook. Apparently, Amazon makes it look like you need to join to get the book, but Patrick assures us that on a “Free Day” it really is available free, without joining. We apologize for any confusion and misunderstanding.
On February 20 only, for one final day, Patrick has provided this link so you can get a free copy of Transparent Investing, without joining Kindle Unlimited.
Also, you may want to consider buying the Kindle or print version because Patrick is donating all net proceeds from the book to support financial education at the Consumer Federation of America; specifically, CFA’s America Saves initiative, to which Patrick has made a $300,000 contribution.
For more insight into Patrick and Transparent Investing, I recommend this recent conversation between Patrick Geddes and Tim Ranzetta, co-founder of Next Gen Personal Finance. In this NGPF Podcast, Patrick shares insights from a career in the world of investments.
And, for fun animated videos about smart investing, check out these by Patrick’s team: https://patrickgeddes.co/media/#investingfun. Additional information can be found at patrickgeddes.co.
Personal Story
Note: This is a fairly long but exciting exchange between one of our “sound investors,” Brian Rogers, and me. Brian did what I hope many of you have done and will do: help others invest wisely. I also thought you might enjoy knowing about Brian’s music at Facebook or his website.
Hi Paul and Team, Just tonight, my buddy transferred 20K he was holding in the bank, over to M1 Finance… I spent about 10 hours with him over the last two weeks, mainly listening but also giving him a shotgun education on investing.
Tonight he finally bought 3 ETF’s: 80% VT, 10% AVUV and 10% AVDV. He committed to contribute 2000 a month to this portfolio. And we developed a 20-year accumulation plan in which he’d get a 100% fee-only fiduciary advisor in 13 years, when he turns 50.
Paul, I couldn’t have done this without your knowledge you’ve shared so freely: Hours & hours of “Sound Investing,” your YouTube channel, Daryl Bahls’ charts, Chris Pederson’s analysis. All made it quick and easy for me to answer any questions my buddy had at any point along the way… Thank you! You’ve helped my friend greatly: a 37 year-old musician who makes good money, but doesn’t want to HAVE to play a gig at 67, just to survive. – Brian
Hi Brian, Your story made a relatively old man feel relatively young, very good and appreciative of all the information that our team was able to provide to you and your friend. My hope is he will be able to stay the course over the coming years. I hope our Foundation will be here to help, even after I’m put out to pasture.
We will be recording a podcast/video on how to select the right combination of equity asset classes in the coming weeks. I’m considering discussing what your friend has created as a way to address an investor’s need to create a custom combination. I look forward to hearing Chris’ and Daryl’s comments.
In April I will present a podcast, as part of our April Financial Literacy Month Series on: “Hire an advisor or do it yourself?” My hope is your friend will start to think about hiring an advisor by the hour. In the meantime, it seems you are doing a terrific job getting him started in the right direction.
Our dream has been that our work would help others pass on what we have learned from the smartest experts we know. Your story convinces me it’s working. With your permission we will pass on your story, which is golden. — Paul
Hi Paul, right away you definitely have my permission to share this story. I think the idea of addressing an investor’s need to create a custom combination is just great. And if this story helps illustrate the point in any way, it’s an emphatic ‘yes’ from me.
I really considered Two-Funds For Life at first. But after listening to my buddy’s situation, I felt he’s such a do-it-yourselfer in so many other areas of life that eventually he might want to reallocate things himself. He might even want to add a few additional asset classes as he learns more. Yes, I will point him to https://www.garrettplanningnetwork.com/ and inform him that an hourly advisor is probably all he needs whenever he meets a crossroads.
I’m very happy this email has landed with you the way you described, Paul. Your dream of helping others pass on what you, Chris and Daryl have learned from the smartest experts you know, is definitely working. And you’ve taught me that leaving a lot of money to heirs is half of a great legacy. While the other half is leaving knowledge and practical tools behind for others to build their legacy. — Brian
Helping you build a better financial future,
Paul
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