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076: Paul Merriman – The Lifelong Process of Financial Education

Paul Merriman is a nationally recognized authority on mutual funds, index investing, and asset allocation. He founded Merriman Wealth Management in 1983, retired from the firm in 2012, and created the Merriman Financial Education Foundation. Everything he does is dedicated to providing investors of all ages with information and tools to make informed decisions for their own best interests.

Today, Paul joins the show to reflect on early financial lessons he learned, discuss the current state of financial education, and share the top three decisions everyone must make in their financial lives.

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Key Takeaways

00:47 – Jonathan introduces today’s guest, Paul Merriman, who joins the show to share his background in finance and the scarcity mindset he developed while growing up

07:15 – Paul reflects on early experiences that shaped his money story

11:25 – Paul’s career journey

17:22 – The state of financial education today

22:08 – How to make others understand that financial education is a lifelong process

27:46 – The FIRE (Financial Independence, Retire Early) movement and other financial advice

31:25 – Indicators of misleading financial advice

33:46 – A life changing experience

39:39 – The top three decisions everyone must make in their financial lives

45:38 – Paul’s thoughts on the 1% advisor fee

54:30 – One place Paul has visited that had a profound impact on him and the one question Paul would want to know the answer to

58:50 – Jonathan thanks Paul for joining the show and lets listeners know where to connect with him

Tweetable Quotes

“I don’t know why, but I started selling when I was eleven years old. And I kept selling from selling Christmas cards at eleven to selling in the record shop when I was in high school, selling in the clothing store. I have always enjoyed facing the public and I feel like I’ve always had something worthwhile to sell. And so, while others may see selling as a lowly profession, I’ve always found it to be wonderful because really it’s just another form of teaching as far as I’m concerned.” (03:54) (Paul)

“It’s amazing how much great information is being laid at the feet of young people. And there’s a lot more of that great information coming. On the other hand, there is an abundance of really bad advice that is available for free. The price is not what it costs to get the education. The price is gonna come when you get the education and those amazing investments don’t work out.” (17:39) (Paul)

“We all say that the best strategy is the one that you will use for the rest of your life. Now, you want it to be a good strategy. We don’t want you to be in cryptocurrency for the rest of your life. But, chasing performance is just not a winning strategy.” (35:40) (Paul)

“As a matter of fact, if you look at what is behind successful investing, it’s almost all about being a contrarian and doing the opposite.” (48:35) (Paul)

“Generally speaking, even though investment advisors are gonna make a good living, it’s not about making the big sale to get money right now, because they’re looking for a lifetime commitment. The salesperson who gets a commission can get rich right now for a few minutes worth of work. It doesn’t work that way with investment advisors. If you don’t like me after six months, I’m outta there.” (54:01) (Paul)

Guest Resources

Paul’s LinkedIn

Paul’s Website

Paul’s Podcast

Paul’s Email

Paul’s Facebook

Paul’s YouTube Channel

Paul’s Twitter

Mindful Money Resources

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Episode Transcription

Jonathan DeYoe: Hey, welcome back. On this episode of the Mindful Money podcast, I’m chatting with Paul Merriman. Paul is a nationally recognized authority on mutual funds, index, investing, and asset allocation. He founded Merriman Wealth Management in 1983, retired from the firm in 2012, and created the Merriman Financial Education foundation. He’s the author of eight books, all available for free, writes a column for Marketwatch.com, produces the sound investing podcast named by Money magazine, the best Money podcast, and writes a bimonthly newsletter with 40,000 subscribers. Everything he does is dedicated to providing investors of all ages with information and tools to make informed decisions for their own best interests. Now, for our regular listeners, this should all be a very familiar rhyme. He’s been doing for a while now, what we set out to do just a few years ago at mindful Money. And that’s why I’m so excited to have him on the podcast and have this conversation. Paul, welcome to the Mindful Money podcast.

Paul Merriman: Jonathan, thank you, by the way, for full disclosure, because I gulped a little bit when you mentioned that, uh, award from Money magazine. That was in 2008. So we make it since then. But we did then. Uh, maybe we had less competition, probably.

Jonathan DeYoe: But still, I appreciate everything you do. So start with telling us where you call home and, uh, where you’re connecting from today.

Paul Merriman: Well, our home is on Bainbridge island, uh, which is, for those who don’t know, a 35 minutes ferry ride, uh, from Seattle. My, uh, firm when I was, uh, working, was just a short walk off of the ferry. So it was a great place to live, a great place to work. And I will tell you, I, uh, love being able to work in a very different capacity today. But to do it at home, it’s absolutely marvelous. I may never have to go to another airport in my life.

Jonathan DeYoe: Well, unless you want to visit Paris. So did you grow up there, or did you grow up someplace else?

Paul Merriman: I actually grew up in Wenatchee. It’s right in the middle of the state of Washington on the Columbia river. Small community. It was about 18,000 people and it was a great place to grow up. Uh, but it certainly wasn’t a great place to try to establish, uh, yourself in the financial community, which is what I did after getting out of school. I went to work in Seattle for a brokerage company.

Jonathan DeYoe: Just going back to those years when you were growing up as a young lad in central Washington, what did you learn or what did your parents try to teach you about money and entrepreneurship?

Paul Merriman: You know, it’s interesting. Money was something we didn’t talk about. And in fact, I think my, uh, stepfather. The one thing that angered him the most about me was that I knew a lot about money later, but it was just something that wasn’t discussed. And so that was one aspect. On the other hand, I don’t know why, but I started selling when I was eleven years old. And I kept selling from doing selling Christmas cards at eleven to selling in a record shop when I was in high school, selling in a clothing store. And so I, uh, have always enjoyed facing the public and I feel like I’ve always had something worthwhile to sell. And so while others may see selling as a lowly profession, I’ve always found it to be, um, wonderful because really it’s just another form of teaching as far as I’m concerned.

Jonathan DeYoe: And we’re all in sales. Like, even if you’re an academic, you’re still in sales. I totally think that there’s no escaping it. So maybe there wasn’t any formal education about money, but how did you learn lessons about money? Did you have an allowance? Tell us about growing up and what the early years were like.

Paul Merriman: I don’t remember, uh, an allowance, which may have been one of the reasons that I went to work, but because I also did babysitting and mowing lawns and all of those, I was willing to actually work to make money. Selling was always a lot easier. I found that out. But I had, uh, an interesting situation and a life changing situation. I lost my father in World War II. He was a pilot in the south Pacific. And, uh, my mother remarried a fellow that probably would have been just as happy if I didn’t exist. But he, uh, came out of world War II as a master sergeant and I was his new recruit. And, boy, he was one tough guy. He demanded a lot, he was very physical, he was loud. And, uh, it created a lot of fear in my life. And strange thing is, somehow I came to the conclusion that my best protection from people like my stepfather was to have a lot of money. That if I had money, I wouldn’t have to put up with this kind of treatment. And by the way, I think that the things he taught me turned out, in many ways to be good, even though he was very strict. But I found money as a place of security. And I still, to this day, I have no particular interest in spending money. I’m actually pretty frugal, and I’m one of those husbands that, uh, the wife has to take them shopping once a year to get new clothes or it never happens. So it’s not about money for me. It’s money, I think, to have a sense that I’ll, uh, be okay. And I think there are a lot of people like that. So I suspect I have scarcity issues along the way as well.

Jonathan DeYoe: I’m just listening to you. And I didn’t have anyone that was physical or mean, but I definitely had some rules, and we didn’t have anything. We were poor. And so for me, money gathering money and saving money and investing money was a way to create security. So I never had to want for things. But I think that’s true. Scarcity mindset is inside all of us in some way. Do you have any experiences, like the first purchase of a stock or something that you can point to that became part of your money story?

Paul Merriman: Well, it is interesting how one beating, one loss, one financial involvement that turns sour can change your thinking. But when I was very young, I got married when I was 19. And my first transaction as an investment was with a Merrill lynch broker that put me into some commodities. And I doubled my money. I shouldn’t say I doubled my money. The, uh, commodity doubled the money in very short order. And I thought, uh, this is very easy. And then I tried it again, and I lost everything. And I decided, I’m not going to do that again. And so I stopped being that kind of a speculator, something where you have what appears to be a, uh, fast buck to be made. But my real teacher and I had a wonderful mentor, my wife, at 19, her father loved the stock market, and he really introduced me to the stock market. I have to laugh because I today think that there are just a lot of slick people taking advantage of other people on Wall street. And I see them as being more in the stock market than in the mutual fund part of the business. But my father in law thought, uh, the people running mutual funds are all a bunch of crooks, which, of course, it’s in many ways just the opposite. But that was his bias that he had. He liked individual stocks, and it was his excitement, his guidance. He also, by the way, taught me how to read a racing form. And I think he introduced me to vodka martinis. I think all three of those things were part of my life. And so my first job was to be a stockbroker. I started applying when I was, I don’t think I was even 20 years old. And I was talking to the manager of a company, uh, called Harris Upham. No longer exists. It eventually becomes part of Smith Barney. Uh, but he said, no way. We don’t take people until they’re 25 to 30 years old. We want them to have sales experience. Even if you go out and sell fuller brush, it doesn’t matter. Just get sales experience. But I kept coming back when I was back in Seattle, um, during the breaks from college, and eventually, right before I graduated, they finally caved in and they hired me. So I started very young in the business. But it was a turning point in the industry because about that.

Jonathan DeYoe: What year is it?

Paul Merriman: Pardon?

Jonathan DeYoe: What year was that?

Paul Merriman: 1966.

Jonathan DeYoe: Okay.

Paul Merriman: And they started hiring college graduates. So it was a whole new kind of a broker that was coming into the business. And so it was a short career for me, but I learned a lot about the industry during the three years that I was a broker.

Jonathan DeYoe: Yeah. So we didn’t know this coming in, but I have a five year stint. I dropped out of grad school, and I have a five year stint in the Wall street brokerage world before I set up my own ra as well. That’s interesting. Little parallel. So I want to get to the merriment foundation. Go ahead.

Paul Merriman: There wasn’t that to do. Just for what it’s worth, the difference between when you started and when I started, it is a world of difference for the people in the industry. It’s a world of difference for the investors. It’s changed so better.

Jonathan DeYoe: There’s a 30 year difference. You started in 66. I started in 96. Uh, so it’s like, literally a 30 year difference. I, uh, want to talk about the Merriman foundation, but could you just describe the professional journey a little bit? You did the brokerage thing for a.

Paul Merriman: Bit, and then I did some small time capital venture projects. I was involved in a few businesses. Small businesses. I started a mail order company selling something I knew nothing about, jewelry making and lapidary equipment and supplies. We had over 10,000 different things you could buy to, uh, make jewelry as a hobbyist, or even as a professional. And then I went from there to running a small manufacturing, a small public company out in Redmond. And I did that for about three years. Again, I knew nothing, uh, about the manufacturing business, but they were on the verge of bankruptcy. And I helped keep them out of bankruptcy and got them through a public offering that solved their problems. And then I went on. I kind of retired, actually, at age 40. And I thought I could stop being a workaholic. I thought I could stop getting up at three, four in the morning. I woke up at 130 this morning. Jonathan. I don’t know if I was excited about this today or just this is a sign of getting old, but I decided at age 40, I was going to be an investment advisor, and I was going to do it for fun. I didn’t care if you had any money. Well, my minimum was you had to have $2,000 to invest. I am your man. So I held classes. There were three hour classes and six hour classes. They were all free. And at the end of, um, being with me for three to 6 hours, I offered a free consultation, typically took an hour and a half. And I would listen to you, and I would tell you what I thought you should do on your own. And if you didn’t want to do it on your own, uh, then we would be happy to do it for you. And slowly we built the business up. It took a year to raise the first million dollars because I didn’t have access to a client base. I didn’t bring clients with me. But I got lucky. I got coverage in wall, uh, street Journal, in an article that I helped get them to write so that they would mention me, which is what we have to do in this industry to be seen. And then I had a huge break in 87. I kept my clients out of the crash of 87. And that got me on Wall street week, and being on Wall street week got me on nightly business report and a show called Serious Money, uh, here in Seattle. And I almost got a major article about me in Money magazine. They even had a photographer come and spend a half a day with me. But it turned out that Elaine Garzarelli was a lot better looking than I was. And so I think she got the COVID or she got the big article about having saved the clients from the decline in 1987, which, by the way, I did not call. I never claimed that I called it. I basically happened to be out of the market when it happened. But people don’t want to listen to the truth. They want people to be able to see the future. And protect them against these kinds of things. And, uh, I don’t think that’s something that people can do, but I happen to be there and put in that situation.

Jonathan DeYoe: So you become an advisor, you get some press, you start building the advisory firm. What about the shift from being advisor to being more CEO? Did you like being an advisor more, or did you like running a company more? Because you kind of have to do both.

Paul Merriman: Well, actually, I am not a good manager. I am not highly disciplined. And when I’m asked to go on a board, they’ll often say, would you think about being our treasurer? No, I do not want to be your treasure. That means I have to be organized now. I loved the teaching part. I loved the writing. And later on, a friend, Tom cock, came to work for me, taught me how to do podcasts and do radio work. That was all a great way to extend the teaching outreach. And I loved. I mean, I can’t tell you how much fun I had in all of those original meetings after people had listened to me for three to 6 hours, and then I could listen to them and then tell them what I think they should do. I loved that part of the business. But I will tell you, the key to the success of the business, other than my outreach in terms of education, was having the good luck of having a son who’s very disciplined and very organized and very smart, and he took care of that part of the business. So what was the surprise to me was that when we sold the firm to a company called Focus Financial, this is a company that owns a whole bunch of investment advisors across the company, a really fine company. But, uh, when they bought me out, basically, my son retired as well. So I found out he didn’t love the business as much as I did, and he took an early retirement. I, on the other hand, uh, took one day off and started the foundation. And I find myself working just as hard today as I did when I was being.

Jonathan DeYoe: Yeah, yeah. And I sort of anticipate that’ll be my life in a couple years, three years, five years, whenever that changeover happens. But we usually kind of have two topics today, right. The state of financial education in the United States, and then some specifics about what are some of the lessons just to start? What do you think about the business of financial education, about where it stands today?

Paul Merriman: Well, it’s amazing how much great information is being laid at the feet of young people, and there’s a lot more of that great information coming. On the other hand, there is an abundance of really bad advice that is available free. The price is not in what it costs to get the education. The price is going to come when you get the education, when those amazing investments don’t work out. And that’s the price that people are going to pay for, I think, chasing bad information, but there are people doing well. Let me give you one, if I might. Fellow named Tim Ranzetta has, uh, a company called Next Generation personal Finance. He has reached into his own pocket and for many years has been building an organization that is supplying free personal finance curriculum, 7th or 6th grade through twelveth. And it is great information. And he has the greatest personal development work for teachers in the industry, because you’ve got to help these teachers get over the hurdle of being comfortable with the financial, uh, topics that they have to address. Teachers, by nature, I don’t think are risk takers, but in essence, that’s what we’re trying to teach young people to do, is to understand and manage risk. And I think Tim has done a wonderful job of teaching the teachers, and he has hired lobbyists. There are now, uh, 23 states that require at least a semester of financial personal finance before the kids can graduate from high school. That’s huge. And with the help of people like Ranzetta’s organization to provide the curriculum and then to train the teachers, all at no cost. In fact, Tim will even raise $10,000 checks to school districts to let them help them install these programs into their curriculum. And he’s hiring lobbyists to go to the states that haven’t approved yet to get them to get on the back of the politicians to see how important this education is. Uh, the younger they are, the more society is going to expect them to take care of themselves. I didn’t know anything about a gig economy. I didn’t know about people maybe never working on a job, but making a living for a lifetime, but never making enough to be able to build a pension. There’s a lot of stuff that makes life financially way more challenging today than when I came into the industry, for sure. And I am so thrilled. Tim won’t take money from people. But he made one exception. He took $100 million from Michael Jordan’s foundation to be spent over a period of ten years, particularly focusing, in this particular case, in low income neighborhoods, uh, in the cities. And so there is an effort being made. And by the way, Tim does not make one penny. He pays. And there are a lot of people I can’t have the impact that Tim has, but I don’t get paid anything, and I’m working as hard as I can to try to educate people. You want to do it someday, or you are doing it today, really? And I think there are a lot of us, maybe many of us, had the good fortune of making enough to be able to take this, uh, wonderful trip with these people who want to learn, because there is almost. When I get emails from people thanking me for people who’ve followed my work for 20 plus years, it just makes me feel as about as rich as I can possibly be.

Jonathan DeYoe: You’re doing the good things. So there’s a couple of questions that pop into my head about, I hesitate to go here. I don’t want to disparage the idea of getting education into the collegiate system for finance, but there have been a few items of research that have said just having a six month course doesn’t solve the problem. We have to create an interest, and then they have to keep pursuing it and keep learning and keep on top of it for the rest of their lives. So how do we actually do that? How do we really inculcate that into people as part of life?

Paul Merriman: Well, I’m going to tell you what I’m working on and willing to open my checkbook and turn my IRA over to the university when I die. I’m doing everything I can to underwrite and help underwrite. I’m not the sole source of money. A program at Western, and I hope some of your listeners have our, uh, children or grandchildren that are going to western, because ten years ago, I underwrote a program there. Not personal finance, but personal investing, specifically, all about investing, which is really my expertise. I’m not a financial planner. I’m an investment expert. So I’ve been paying, uh, to support a class that’s held every quarter, but that has never been what I came there for. What I came there for was to endear myself to the administration, show them I am serious about trying to help these kids. And I’ve been lobbying for years for a program that every student who comes through Western will be required to have. It looks like it’s going to be 40 hours of financial literacy taught to them, one class a year in each of four years. And each class will be aimed in that particular year to the types of things that these young people need to learn. For example, freshmen, they better learn about, uh, budgeting, for example, and many of them have almost no knowledge about debt. Well, they got to learn it now, because if they don’t learn it now, they’re going to be among the group of kids who don’t finish because they didn’t have enough money. So when they become seniors, we’ll be talking 401 and mortgages. But during that four year, it’s going to be a real push to make sure they come out of that school ready to deal with all this. Think of the upper hand the financial community has in trying to sell to these young people. We must educate them to defend themselves against the information that is not in their best interest. And I will tell you, Jonathan, in my class that they teach right now, quarterly, they learn about index funds. There’s not a kid out going through that class that isn’t coming out of there believing that index funds are the right thing to do. No, load funds are the right thing to do. We are trying everything we can to make sure that they take the steps. There aren’t very many of them, by the way. There’s really only a couple of dozen things you need to get right. And we want to make sure that they get those things right, not just for a few hours, but we want them to dig a little deeper. And by the way, what we are negotiating right now is the folks who are going to help supply some online education for us. Part of the deal is not only do they supply the online education, but when the student goes away from the unit graduates and goes on to work, they take that source with them. And, oh, by the way, they can share that source with their parents. And so imagine, uh, a school, western. About half the kids that start there are first generation college kids. Now, we are not only educating these kids, but we really believe that we will be educating their parents. And as a part of this program that I’m helping to fund, there are also going to be, in areas where western has an impact on the community. There will be adult classes on these topics as well, so that we can help the adults in those communities as well as the university students. I mean, this is a small project in the whole scheme of the work that’s to be done. But if we can do this at western, maybe somebody at the University of Washington who’s got a lot more bucks than I do will say, hey, why aren’t we doing that here? And eastern, um, and central, et cetera. And pretty soon we’ll have all of the public schools, universities offering this kind of a path. It isn’t, by the way, a slam dump, um, because you got to cooperate with all those other schools that they’re trying to make sure their students get all the english classes or the chemistry classes. So we’re trying to work our curriculum into the world and trying to sell these heads of the deans of these other colleges how important this information is to their students, even when they do get their chemistry degree.

Jonathan DeYoe: Yes, for sure. You’re talking about high quality, deep, sort of intellectual conversations about the important financial education. Now, seconds ago, we also mentioned that there’s a lot of other stuff out there, and I wanted to just ask you. There’s this fire community. It’s not just brokerage firms trying to sell products and banks and brokerage trying to sell products. There’s also a whole bunch of people trying to monetize their blogs, trying to have affiliate networks that are trying to sell access to gold or trading art or whatever. Right. So what do you think about that as a source of advice? I worry that most young people today, especially those not going to western, are going to TikTok and going to social media for their investment advice. How do they protect themselves?

Paul Merriman: First of all, I think the first step is to find the online sources that are for real and that are teaching legitimately. Folks in the fire community. Now, I don’t know if all your listeners are familiar with the fire community, but it is people who are focused on generally retiring early. But really all of them are focusing on financial independence. So, financial independence, retire early. That’s the fire movement. And I’ve talked to hundreds of those fire folks. And I’ve also talked to the people that lead companies like Choose Fi, uh, which is a website that makes their living. Yes, they make a living by having links to other sites, like a link to Amazon. Well, if somebody comes to your site and they buy a book that’s available through Amazon, but they enter Amazon through your website, then choose Fi is going to get a small piece of that sale. And banks will pay to promote them. So if you have an advertisement on your site and you go to that bank through choose Fi. Yes, choose Fi is going to make some money, but the teaching that they’re doing is wonderful. Now, I do not think, uh, I’m not sure about this, but I do not think they were involved in cryptocurrency. And there are other sites that come out of the professional investment advisory industry. There’s a guy named Ben Felix on YouTube. Oh, my God. He does some of the best educational YouTube videos that I’ve seen. And he’s so serious. And he does some minor graphics that are just enough to keep it interesting. I’m sure you’ve seen them, but there are some people out there that are knocking it out of the park. Rob Berger, wonderful teacher, teaching the right thing. In fact, we have a page on our website called the Truth Tellers. And they are people that we have at least put our stamp of approval. And I don’t make one penny. If you go from my site to Rob Berger, or to Ben Felix, or to Larry Swedro or any of those people there are legitimate, educated, well balanced, and I think, well grounded in terms of what they’re teaching. Uh, obviously, they’re probably recommending the kinds of things that I like too, because I’m not an active mutual fund guy. I believe we should just do what we do with index funds. And I want to make sure that everybody sees the Spiva report. If they haven’t seen the Spiva report, and I’m sure that you’ve shared it yourself, Jonathan, then you just don’t know how bad active managers can be. It’s terrible.

Jonathan DeYoe: Yep. Makes no sense. Or what are the indicators?

Paul Merriman: If somebody tells you it’s ok to buy load funds, if somebody tells you that actively managed funds are better than index funds, oh, index funds are okay, but you can beat the market with active funds. If somebody tells you that the compound or the average rate of return, they’re very careful with the word they use here. The average rate of return for the s and p 500 over the last 90 years or whatever is 12%. They know better. They know the compound rate of return is closer to ten. And yes, twelve is the average, but you do not compound based on the average. You would be really rich if you could get twelve instead of ten. But these are misleading comments, and almost always it has to do with getting you to go somewhere. They want you to go and buy a load fund, buy an actively managed fund, even hire somebody to tell you to do that, and they get paid for it. And by the way, I don’t like to use the particular name that irritates me. The both, lots of people are that way. So if you come to somebody, I’ve got an idea for you. If you come upon a name, and you want to know about whether that person is teaching the right thing, just put in pros and cons of, uh, and name that source and you will. Typically, if it’s something that’s well known to be bad advice, you’re going to get an ear full or an eye full of advice that would warn you, hopefully away. But I will tell you, those people that, who encourage people to do the wrong thing, they just ignore people like me because they know that I’m not going to be there beating on people’s ears. Every day trying to protect them. So they just keep rolling right along, making millions and millions of dollars, teaching people to do what they know is the wrong thing.

Jonathan DeYoe: Right? Yeah. And, uh, I think the whole industry is sort of built up to make that possible. I read somewhere that you spent 90 minutes with John Bogle, and that experience changed your life. Can you tell us the story? How did it change your life?

Paul Merriman: Well, first of all, that I did it because he had invited me to come back and meet with him a number of years before. I went there in 2017, and my wife knew that was the case, and some friends in the business knew that was the case, and they said, you better get back there and see him, because that’s going to be a trip worth taking. So I went back, and he had allotted 60 minutes, and he gave me 90. And I will tell you, I have to, uh, literally hold back tears because it was such a, uh, moving meeting. I had been told that he was a little bit crusty, but he wasn’t at all. He was just gentle. He shared, he answered every question I had for him, and he read between the lines in the questions I asked him and made sure that I understood that there was something beyond what he was telling people to do that could be okay. But he was trying to protect his investors against doing a number of things that he thinks will confuse them in the end, will probably encourage them to do it at just the wrong time on top of that, and that they are better served just putting their money. In fact, we used to have him on our radio show once a year. So it wasn’t that I didn’t know him, because we had him for a long time as a guest, and he always gave, I think, half an hour. They were long interviews that he would allow, but, uh, he, in fact, was trying to do everything he could to allow people to get enough and allow people to stay the course. And we all say that the best strategy is the one that you will use for the rest of your life. Now, we want it to be a good strategy. We don’t want you to be in cryptocurrency for the rest of your life. But chasing performance is just not a winning strategy. And John was really trying to keep people from doing that. On the other hand, he really thought the work of pharma in French and all the factor investing information, that’s so much a part of my life and your life. He thought they were really clever, clever people, and he honored the work that they were doing. He criticized my work for the very reason that he wants people to be in the s and p 500 or the total market. He criticized my work because my work was historically owning ten different equity asset classes and rebalancing periodically. He said, you can’t. I’ve laughed about this because he was waving his finger at me. He meant it. He said, they will not do that. They won’t rebalance or they won’t, uh, all those things, the mistakes. He said, you have got to simplify and make it easier. And at my life. A guy named Chris Pederson, about a year earlier, had joined our foundation, somebody else willing to devote their life to helping others without compensation. But he became a volunteer, and I can’t say he was full time because I don’t expect anybody to be a full time volunteer. But, uh, boy, it was a real lot of work for a part time volunteer. But he helped us develop portfolios with two funds, with four funds, with five funds, with three funds for different kinds of investors. And he also came up with two funds for life, a combination of a small cap value and a target date fund. It is a masterful piece of work because it is so simple and it tests so well. As far as I’m concerned, it’s just as dependable as the s and P 500, based on history. So John was right there. Uh, that’s that old saying, when the student is ready, the teacher will come.

Jonathan DeYoe: Peter.

Paul Merriman: Yeah, boy, I was ready because I had spent seven years trying to teach the world to manage their money the way we managed money professionally for other people. They aren’t going to do it. That’s right. And why wasn’t I smarter than that? Because I’m human. But boy, we have built, I think, a service for people who, and we don’t just tell people what equity asset classes you should be in. We even tell people what funds you should be in in order to take advantage of those equity asset classes. So there’s almost nothing. The do it yourself investor has to do it.

Jonathan DeYoe: I love you’re doing it. Actually, I love even more. I can picture Jack John Bogle, like, doing this. Keep it simple. I can totally picture that. I think that’s fantastic. I’m going to send you a copy of my book when it comes out. It’s actually, people are getting, it’s not supposed to come out for ten days. But the whole point of the book is the simple path. And I say a single fund, I say just for equities, just a single fund is all you need. But I’d love to get your feedback on it. But I’ll send you a copy for sure.

Paul Merriman: That’s great.

Jonathan DeYoe: Ah.

Paul Merriman: Single fund. The total market index.

Jonathan DeYoe: It’s the total global market index. All Country World Index. ACWi or Vanguard’s got a similar fund. That’s the total market index. Yep.

Paul Merriman: Okay. And I would love to come back someday and talk about.

Jonathan DeYoe: We’ll have, whether it’s on here or not, we’ll have a great.

Paul Merriman: That’s great. So, uh, we talked a little bit.

Jonathan DeYoe: About the business of advice or the business of education. I know that you’re a big proponent of a few very big decisions, so keep it really simple. What are the things that people should focus on? You list eight. Make it even simpler. Like, what are the real big decisions that people have to make in their portfolios and their financial lives?

Paul Merriman: Well, in my book, we’re talking millions. The next word is the number. Twelve simple ways to supercharge your retirement. Each one of them is worth an extra million dollars. Okay, so I’m not going to give you the twelve because I want you to get the book free at my website. But what I will do, I’ll give you three that. Remember, each one is worth an extra million dollars. What does it take to make an extra million dollars? Well, if you put away $6,000 a year for 40 years and you make 8%, and then you, uh, retire and you make 6%, if I could show you how to make a half a percent more than that, during your accumulation and during your distribution period, it will add an extra million plus in distributions and what you leave to your children and charities. So I’m looking for ways to add a half a percent. Let me give you the slam dunk of all the decisions. The decision to invest in stocks versus bonds. That historical difference is ten versus 5%, approximately for the last 95 years. Well, if I’m claiming that every half a percent is worth a million, that would suggest in that one decision, you go from five to 10%. That would be ten half a percent advantages and 10 million extra dollars. And yes, it even turns out when you look at the numbers, by the way, you have to live to 95, okay? I mean, you can’t retire at 65 and live a year and expect to make an extra ten. But if you can make it to 95, that is the impact of that one decision. But you’re letting me come up with two more. I want them to be really easy. One, I think that index funds versus actively managed huge. That, by the way, could legitimately be over 2% a year. How can I say that? Well, I can say that because, first of all, index funds that I’m going to pick up a freebie here are going to have low expenses. Okay? There’s a million dollar, I think, decision right there. But that index fund is going to have low expenses. It’s going to have broader diversification. It’s going to minimize turnover costs inside of the mutual fund. And I know all we’re talking about is probabilities here. I know from the Spiva report that only one in ten, uh, actively managed funds can beat the indexes over 20 years, according to this report that is updated every six months. But it gets worse than that when we look at the tax impact. And you can go to Morningstar and look at what it costs you to own an actively managed funds in taxes, because they make distributions. Capital gains distributions, dividend distributions, whatever, you can see the difference. And, for example, if you looked at a large cap blend, uh, actively managed load fund, you would see that over 1% in extra tax expenses to be in that actively managed fund. So now we’ve got expenses to manage. Oh, and by the way, very often those are load funds. Expense a load cost. An expense, cost a tax cost. But there’s more. There is. There truly is more. And this is the one that people don’t think about. Because when somebody’s selling us something, I promise you, they’re showing you good performance, suggesting you’re going to get that performance. But let me tell you what Spiva does in that report. They show you the quartile returns. So I can see, if you were in the top 25% and you were the worst of the top 25%, how much you made as an active manager. I can go to the next 25% and see the worst performer in that quartile, and then I can go to one more, and there are people below that, and you can end up between the top quartile and the bottom quartile. You can end up with more than a 2% year difference in return. Before we look at taxes, before we look at the load. And guess what? Bill Miller outperformed the S and P 500 with Lake Mason value trust for 15 years every year. Number one, the money just rolled in. He became so famous, and then he became the worst performer for the next decade, because nobody knows how to select the best performer for the next 20 years. But I can tell you what you can do. You can just put the probabilities in your court and invest in an easy, simple, low cost, broadly diversified, low tax impact index fund. Um, that’s all there is. To it.

Jonathan DeYoe: I wasn’t going to ask this question. I’m now going to ask this question. I might regret it. What do you think about the 1% advisor fee? And I was interviewed for the book not too long ago, and they said, jonathan, what’s the goal of the book? And I said, the first go goal of the book was to educate people, end users, investors. And the second goal of the book was to suggest to the advisory community that if they’re going to charge 1%, they have to bring a lot more planning and other things to the table. It can’t just be investment advice. So what do you think about advisors charging 1% for investment advice?

Paul Merriman: I think it’s okay. And, uh, let me tell you what. I was just an investment guy. I was not a financial planner. I look at what my old firm, we just celebrated. They’re still kind enough to invite me to come by when something important is going on. The company had a party for their 40 year anniversary, and I was touched that they thought to invite me. But what they do today for clients, remember that 1 hour presentation or sit down one, one and a half hours? It’s a six hour period of hard work before, uh, an account is opened with a professional advisor today and the list of responsibilities. Listen, we all know the portfolio part is a piece of cake. Somebody, an, uh, advisor, could just use my portfolios and put them to work and make a living doing that, because that’s what a lot of advisors do right now. But that’s not the problem for investors. And the best story I have to share in this regard is my own, because I’ve been on a diet almost all of my life. I started in the fifth grade. I remember it so well. Somebody made a bet with me that I couldn’t eat a second helping of macaroni and cheese in the fifth grade. Well, I mean, there was money on the table. I think it was a nickel, probably. But I took the bet, and I gobbled down, uh, the extra macaroni and cheese. I went from being a skinny guy. I started eating, and I haven’t stopped. But I’ve been, um, on virtually every diet known to man. I’ve lost thousands and thousands of pounds, and I am still 30, 40 pounds overweight. What is my problem? Am I smart enough? Of course I’m smart enough. Am I undisciplined? I think so. I see food and I just get happy. Or if I’m sad and I want a lift, food is good. If I’m rejoicing in something fun, food is good. Now it just turns out that investing has a lot of, uh, that same property about it. Things are enticing. Doing the wrong thing is just so tempting for people. As a matter of fact, if you look at, ah, what is behind successful investing is almost all about being a contrarian. Doing the opposite, certainly doing the opposite of what people did when I was in the business. Because you are tempted to chase performance, you are tempted to believe there’s somebody who knows better about the future than you do. Now, uh, keeping the discipline is worth the advisory fee. And again, what I always liked about what we did was we showed people how to do it on their own.

Jonathan DeYoe: Right.

Paul Merriman: And then if you didn’t want to do it, because the only way to get these returns is to stay the course. And that just turns out to be more difficult than people know. Now, having said that, jonathan, I do believe with the hard work of what I’m doing and you’re doing and Tim Ranzetta and others are doing, there are going to be fewer people for people in the investment advisory industry to service. Because if people could get started, keep from doing the wrong thing, learn to do the right thing with a little bit of money, then I think they might make it. But let me tell you, I talk to people all the time who have now concluded they want to start working with an advisor. Why? Because my account has gotten bigger than I can take responsibility for.

Jonathan DeYoe: That’s right.

Paul Merriman: And remember, you don’t have to remember this because you wouldn’t have any reason to know this. I have an advisor. I don’t want to do this stuff. Uh, remember, I’m the guy that’s disorganized. I know what they’re doing. I was there when it was all, I can’t say all developed. But I was there during the building for 30 years. I was there in the middle of it all and proud of the people who helped me do it. Just like I’ve got some great people working with me now. I had some wonderful people working with me then who were helping us to do the right thing for the client. I love having an advisor. Do I worry about tax loss harvesting? Not for a minute. If I call up and want mine, do I call up and say, would you please, uh uh, send me $2,000 from account XYZ? No, I just say I want money and they send it. And if I need to talk to a professional about some topic, whether it’s estate planning or taxes, they’ve got the connections. That’s what they’re supposed to do.

Jonathan DeYoe: I think that the way you set it up, the way your sales process worked, I love the idea that this is 30 something years ago, 40 years ago, you were saying, here’s how you do it yourself. If you don’t want to do it yourself, we’ll help you. But it’s really just a teaching process. And then the client got to make the choice. Oh, there’s the fee. That’s what it costs for you to do it. You can do it for me. Great. That’s the right way to do it. I’m just a little afraid about how people sell today, convince performance, et cetera.

Paul Merriman: Well, uh, of course, in people selling tax advantaged investments, indexed annuities and things that are really questionable products, by the way, there’s another level, and I think we need, uh, to take it seriously, and that is the hourly people that are out there. There are more organizations that are forming for advisors who are hourly only. They kind of sit in between what you’re trying to do and the teaching you’re working on and that I am doing. Uh, and a full time advisor. These are people who are willing to solve a problem now, they are not saying that they’ll be there for you every day. They’re solving a problem for you now for you to do it on your own. Now, having said that, they’ll do anything you want as long as you pay them by the hour. You want to talk about fishing? Come on in. We’ll talk fishing. But there’s an awkwardly rate because they are getting paid a small amount compared to what an investment advisor a company is making under billing on assets under management. Uh, the hourly business is going to grow. Those people, to me, are like nurses, honestly, because they are willing to do everything they can that the doctor might do if they could, but to do it for very little. Mean, I say they’re willing to. That’s the nature. They are people who are. In fact, I think this is interesting, Jonathan. In the tests that I don’t know if they still do this, that the old Merriman wealth management gave to potential advisors, they would do these character tests or trait tests. And what they were looking for, it turned out, were nurses, people who had the concern and the thinking process of a nurse. And my mother was a nurse, and I get it. I know what they’re talking about because we had an advisor at Merriman once who really was not nurse like. He would only treat the people who had a lot of money with kind of respect that we thought he should treat them, and he just didn’t fit for our organization because he was focused on the money. And generally speaking, even though investment advisors are going to make a good living, it’s not about making the big sale to get money right now, because they’re looking for a lifetime commitment. The salesperson who gets a commission can get rich right now for a few minutes worth of work. Investment advisor doesn’t work that way. If you don’t like me after six months, I’m out of there.

Jonathan DeYoe: Right. Um, just before we close, I want to go back and ask a couple of personal questions. So can you name a place that you visited that had a big impact on who you are today? And what’s that impact?

Paul Merriman: Well, a place that I visited, uh, New York, had a huge impact on me. I mean, I grew up in Wanatchi, and when I went back to New York to go to the New York Institute of Finance, when I went to work for, uh, Harris Upham. And by the way, the New York Institute of Finance was a sales training program. It wasn’t. Not as fancy as it sounds, but I asked if I could take the train across the country to go to New York, and they let me do that. But going to New York and being exposed to Broadway, being exposed to. I mean, through the opera. I saw Carmen, my first opera. I saw wait until dark. I saw love. I saw people who were just amazing. And I learned to deal with fear at another level, and that is, I one night walked across Central park. Two of us did at night. And the only time that we felt. Had a feeling of fear, by the way, I think we had been drinking, I’m not sure was when we walked. I mean, this was such a great lesson. We walked behind a black man, and it just. Because we were in the dark park and we come with natural biases. I mean, these are things that are not easy to overcome. And because it was a black person, and I learned from that, I realized what happened. And, um, I don’t feel that way now. I don’t. But, uh, as far as the place I mentioned, my father in law, those years with him, that was one constant lesson after another. And he had one child, and he had wanted to have a son as well as a daughter, and he never did, so he taught me. And remember, I mentioned I had this, uh, stepfather who wasn’t exactly easy to get along with. And Boris loved me, and so it was heaven. And so I learned a lot of things at his feet.

Jonathan DeYoe: So do you get back to New York now? You go to more shows? Broadway?

Paul Merriman: Yeah. And we’ve been. I’ve been involved over the years in theater. My wife was president of the board at the Bainbridge performing arts. I was on a theater board in Seattle. I loved the theater. And matter of fact, a dear friend of ours who was going to the theater here with my daughter, and they’re very close friends. He got the role of Frank in, uh, Oppenheimer. Oh, wow.

Jonathan DeYoe: Oh, yeah. You mentioned.

Paul Merriman: Yeah.

Jonathan DeYoe: Awesome. In the movie. Yeah.

Paul Merriman: Big break. And, uh, I hope that, uh, changes his career.

Jonathan DeYoe: Should open some doors. I’m actually headed to New York in one month, so I like to go back once every couple of years, go to Broadway and know, see some clients and head out there. So I love it. I love New York, too. So, one last question. If you could get the truth about any question about your life or the future, what question would you ask?

Paul Merriman: Oh, man. Well, I mean, you’re talking about, uh, as a fairy tale.

Jonathan DeYoe: M. Yeah, I can’t answer the question.

Paul Merriman: I’m just wondering what you want to know. Okay, well, I can tell you what I want to know. I want to know when I’m going to die. Uh, because John Bogle retired at about the same age I did. He worked until he was 88. I would like to think I can work until I’m 90. Now I’m held together with prescription drugs, so I know that I’m not doing myself any favors in that regard. But, boy, if I knew that I had a good ten years, I would know what my commitment to what I’m doing is. But I think I fear not making it mentally. When I do presentations, I’ll often mention to people, during this two hour presentation, I will forget where I am. I don’t mean I’ll forget where I am physically, but I will lose my way. I will forget a word or something, and it always comes back. Sometimes I have to change topics. I don’t know what the last topic was, but I see signs. I know the signs.

Jonathan DeYoe: Well, you seem pretty sharp to me. I hope you get those ten years, and I really appreciate your time here. I look forward to the next conversation. Let people know how they can find you, where they can find, uh, the foundation and the work you’re doing. And by the way, I’m going to recommend people go. The resources are awesome. Resources.

Paul Merriman: It’s just Paulmerman.com, free books, podcasts, 700 articles, podcasts, and videos. And not everyone is evergreen, but most of them are evergreen. They’re as good today as they were in terms of applicable to today’s decision making as they were and I got to tell you that on October 11, Chris and I are making a two hour presentation to the New York chapter of the American association of Individual Investors. It’ll be on Zoom. It will go nationally to all of the AII and people who follow our work. And it is going to be, I promise, some of the best work we have ever done, and it’ll be archived if you don’t join us live. It will be archived for people to see it later, but it is kind of the pinnacle of the work that I’ve been doing since John Bogle.

Jonathan DeYoe: Wow. I look forward to seeing that link after the fact. And thank you once again, Paul, for coming on.

Paul Merriman: Thank you, Jonathan, and good luck to all your, uh, followers.

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