11 Q&A-Bonds, Rebalancing, All Value, Vanguard vs. Avantis & DFA

·55 min·5 clips

Paul Merriman shares why he uses a 10-fund equity strategy for diversification, even when half his portfolio underperforms.

This episode features host Paul Merriman answering listener questions submitted through an AI tool on his website about portfolio construction and fund selection. Merriman, a veteran investment advisor and founder of the Sound Investing platform, clarifies his personal views where the AI's automated answers may differ. He begins by detailing the specific "Sound Investing" portfolios listed on his site, including a 10-fund "Ultimate Buy and Hold" strategy and simpler four-fund variations. Merriman reveals his personal portfolio is split 50/50 between equities and bonds, with the equity half following the 10-fund strategy for massive diversification. He explains his rationale for a 50/50 split between U.S. and international equities, noting recent underperformance of international markets. For a 21-year-old's Roth IRA, he suggests an 80% target-date fund and 20% small-cap value ETF mix, specifically naming funds from Fidelity, Vanguard, Avantis (AVUV), and Dimensional (DFSV). A question about Vanguard versus Avantis or Dimensional funds leads to a discussion on "traditional" versus "non-traditional" index funds, with Merriman citing performance data showing Avantis and Dimensional funds outperforming Vanguard's value funds over certain periods. He addresses bond allocation, comparing the aggregate U.S. bond index to his recommended three-government-bond strategy, noting differences in volatility and return. For a 45-year-old, he considers a 25% bond allocation reasonable but suggests consulting an hourly advisor. Merriman analyzes the risk of a 50/50 portfolio split between the S&P 500 and small-cap value, referencing his site's data showing it had similar risk but higher historical returns than the S&P 500 alone. On rebalancing, he shares preliminary findings that rebalancing equities annually or every few years yields similar results, while monthly rebalancing may cost returns. He discusses the behavioral challenge of maintaining an "all-value" portfolio during its prolonged underperformance relative to growth stocks since 2010. A surprising insight is Merriman's personal equity allocation at age 82, which is significantly higher than typical target-date fund guidelines. He shares a detailed plan for his granddaughter's education fund, using a 50/50 S&P 500 and small-cap value split specifically as a long-term teaching tool. The episode reveals that non-traditional index funds from Avantis and Dimensional do not have to disclose their full holdings daily, unlike traditional index funds. Merriman notes that a handful of companies have driven nearly all of the S&P 500's historical returns, with the other 96% compounding at a much lower rate. He observes that some younger investors now perceive cryptocurrency as less risky than the S&P 500, which he calls a feeling-driven perspective. The host admits that even a diversified 10-asset-class portfolio cannot completely hide from market downturns, as evidenced by 2008. The tone is educational and conversational, with Merriman speaking directly to the listener in a mentor-like style, often using personal anecdotes and historical data from his website. The style is advisory and practical, focusing on actionable portfolio guidance and behavioral coaching for long-term investors. This episode is ideal for a self-directed investor seeking detailed, evidence-based answers on asset allocation, factor investing, and specific ETF selection. Listeners interested in the philosophical and practical nuances of value investing, international diversification, and rebalancing strategies will find it valuable. Those seeking broad market commentary, entertainment, or simple, definitive answers without nuance might prefer to skip it.

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