Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

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ThisJustIn
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Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by ThisJustIn » Mon Mar 12, 2018 10:09 pm

I have been trying to devise a taxable Ultimate Buy-and-Hold portfolio of Paul Merriman, using index funds or ETFs myself, while not hitting the minimum limits of these equities. The ideal way of course, (other than DFA, which is not low-cost), is to use Paul Merriman’s Vanguard index funds based suggestion here: http://paulmerriman.com/vanguard/ . However, I want to dollar cost average into this portfolio slowly, but most of these Vanguard index funds have 10K minimum, and even most of their corresponding investor shares have 3K minimum (some still 10K minimum with investor share version). So, I have been back-testing and benchmarking with other options: 1) Vanguard index fund, 2) Vanguard ETFs, 3) Schwab index funds, 4) Best-in-class ETFs (https://paulmerriman.com/best-in-class- ... ortfolios/). Back-test results are available in this portfolio visualizer: http://bit.ly/2p3RWlf. I didn’t include portfolio 4, because that was the lowest performer.

1) Vanguard index-fund: Taxable portfolio in http://paulmerriman.com/vanguard/ . This is the best performer, but as I mentioned above, I can’t use it for now due to high minimums. (Weighted ER: 0.1585%)

2) Vanguard ETFs: This is a slightly modified version of the portfolio here, by removing all REIT accounts, and normalizing the rest of the ETFs to sum up to 100%: https://paulmerriman.com/vanguard-tax-d ... ortfolios/ . This was the second best performer (Weighted ER: 0.145%). However, it is an ETF, meaning, (I guess) I can’t do regular contributions to an ETF fund. I was thinking of two options here:
a. Using Vanguard: If I create this portfolio using Vanguard, will I be able to make biweekly transfers to the account so that it is used to buy the ETFs in this portfolio?
b. Using M1Finance: This new M1finance tool seems to be accepting regular contributions to ETF accounts (I created a 3-fund ETF portfolio, and it works). But how does it work internally, given that it has to rebalance based on the pre-specified portfolio allocation? Does it sell some ETFs to rebalance, which will have tax implications, as this is a taxable account?

3) The third portfolio is a Schwab index fund portfolio, using the advantage of no minimum limit in Schwab index funds. This is a slightly modified version of tax-deferred Schwab portfolio of Paul Merriman (https://paulmerriman.com/schwab-tax-def ... ortfolios/), by removing REIT funds, and normalizing the rest. This is the one that has the lowest return, but very close to the performance of 2. (Weighted ER: 0.213%)

Given these three options, and given that portfolio 1 requires high minimum amounts, I’m leaning towards using portfolio 2, possibly with M1Finance. I was wondering if I’m missing something, or if you have other suggestions as to what to use for devising Ultimate Buy-and-Hold portfolio with small initial capital.

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David Jay
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by David Jay » Tue Mar 13, 2018 7:57 am

The root problem is your desire to DCA in over an extended period of time while staying balanced across a number of funds. You are making a long-term portfolio decision based on short-term criteria.

Turn it around. Which portfolio will serve you best over the next 30 years? Use that portfolio. If you don't want to put all your money in at the same time, buy ONE fund now. There is no good reason to DCA into your fixed assets. Go ahead and buy those funds if you have the savings.

Your portfolio performance in the early accumulation phase is based predominantly on your contributions, not the portfolio return. The market was up over 25% last year. If you had $1000 invested, that would have been a $250 gain. Adding another $1000 from savings last year would have grown your account 100%.

In the worst case, save up $3000 in a savings account, then purchase one fund. Save up another $3000, then purchase a second fund. But don't pick a less-than-optimal portfolio, especially in taxable (which will have tax consequences to change) because of the challenges associated with getting started.
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livesoft
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by livesoft » Tue Mar 13, 2018 8:09 am

I personally think it is a mistake to follow Merriman's portfolio verbatim. His portfolio is all about the past. Indeed, I doubt you will find more than 2 people on this forum who will report that they follow Merriman's portfolio as he lays it out. But there are many investors who follow something similar, but likely better and easier.

See for example: viewtopic.php?t=38374

Every portfolio evolves from when it is not very large and one cannot buy the minimum investments, so I think there is really no point to stress about getting this perfect to start with. You will see and experience what I mean once you get going.

And in the end, any portfolio and asset allocation that you do will become YOUR portfolio and not a Merriman portfolio.

So my recommendation is to start with
VTI
VXUS
some bond fund or even VMMXX.

Then add other things in a year or two.
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oldcomputerguy
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by oldcomputerguy » Tue Mar 13, 2018 8:12 am

ThisJustIn wrote:
Mon Mar 12, 2018 10:09 pm
I have been trying to devise a taxable Ultimate Buy-and-Hold portfolio of Paul Merriman, using index funds or ETFs myself, while not hitting the minimum limits of these equities. The ideal way of course, (other than DFA, which is not low-cost), is to use Paul Merriman’s Vanguard index funds based suggestion here: http://paulmerriman.com/vanguard/ . However, I want to dollar cost average into this portfolio slowly, but most of these Vanguard index funds have 10K minimum, and even most of their corresponding investor shares have 3K minimum (some still 10K minimum with investor share version).
Um, you do know that Mr. Merriman publishes an ETF version of his Ultimate Buy-n-Hold portfolio using Vanguard ETFs?

https://paulmerriman.com/vanguard-tax-d ... ortfolios/

The web page describes this as being suitable for tax-deferred rather than taxable, but perhaps you can use this information as a starting point.
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peterinjapan
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by peterinjapan » Tue Mar 13, 2018 9:27 am

Great thread. I love Paul and love the things he's trying to do for people. But yes, he's a guy from the past, and while his advice is generally good, I decline to follow a lot of it. I am positive there's something keeping "value" from outperforming like it's supposed to do, likely some massive celestial bodies that recently started orbiting around out solar system called Amazon, Apple, Netflix and so on. Am I wrong in not believing his pitch that small cap value is the best asset class ever made?

livesoft
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by livesoft » Tue Mar 13, 2018 9:31 am

peterinjapan wrote:
Tue Mar 13, 2018 9:27 am
I am positive there's something keeping "value" from outperforming like it's supposed to do, likely some massive celestial bodies that recently started orbiting around out solar system called Amazon, Apple, Netflix and so on. Am I wrong in not believing his pitch that small cap value is the best asset class ever made?
Ha! I think you are completely right. I've added a bit of MTUM to my portfolio and it has certainly stretched my 9-box style grid up into the Large Growth corner. I like that things like MTUM and IJS / VBR have their RBDs, so that one can easily see when to buy more of them.
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oldcomputerguy
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by oldcomputerguy » Tue Mar 13, 2018 9:42 am

peterinjapan wrote:
Tue Mar 13, 2018 9:27 am
Great thread. I love Paul and love the things he's trying to do for people. But yes, he's a guy from the past, and while his advice is generally good, I decline to follow a lot of it. I am positive there's something keeping "value" from outperforming like it's supposed to do, likely some massive celestial bodies that recently started orbiting around out solar system called Amazon, Apple, Netflix and so on.
Or maybe so many people have heard about "small-cap value" that they've jumped on the bandwagon and bid the asset class up? From what I've read, empirical data would seem to indicate that there at least once was outperformance there.
Am I wrong in not believing his pitch that small cap value is the best asset class ever made?
At one time it might have been, if one could stomach the volatility. But all things change.

I too admire what Mr. Merriman is trying to do for new investors. I'm just not sure that so strongly advocating the Ultimate Buy-n-Hold Portfolio is the best advice. I lean more toward Taylor's "keep it simple" strategy.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

ThisJustIn
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by ThisJustIn » Tue Mar 13, 2018 10:20 pm

Thank you for your answers. To clarify a couple of points, I already have a 3-fund portfolio on the side: VTSAX, VTIAX, Bonds (VMLTX, VWITX, VWLTX). I also have another separate 3-fund portfolio of Vanguard funds: VTI, VXUS, VTEB (in M1Finance). So, before trying Paul Merriman's portfolio, I also covered the basic approaches. Also, @oldcomputerguy, yes, Merriman has Vanguard ETF portfolio, which is portfolio 2 in my analysis. And, @DavidJay, DCA is the way I prefer, as I want to spread the risk over the years.

I also read about Paul Merriman's portfolio having too many slices, it being hard to rebalance. But the back-test results show ~12% gains overall long-term. All other simpler portfolios also have one way of testing, and that is by looking at the past, although we know that past performance is not an indicator of future performance. Interest enough, I get the same feedback here, despite Merriman's portfolio back-tests. I will think about it again, but I admit the portfolio is hard to balance, so I though a tool such as M1Finance would work well. I will do more analysis.

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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by Earl Lemongrab » Thu Mar 15, 2018 2:11 pm

I would suggest reviewing this thread: Ultimate Buy and Hold - 8 slices vs 4

I have a more traditional slice and dice tilter, using concepts from Merriman, Swedroe, Bernstein, etc. back in 2007. If I were starting fresh, I'd consider making things simpler.
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by doon » Thu Mar 15, 2018 2:51 pm

OP - I made that mistake early on in my investing life where I tried to mimic one of these portfolios (Merriman, couch potato etc.) The portfolio stayed close to original for a year or so. I changed jobs, 401k's changed and basically I realized I cannot for various reasons stay true to any portfolio.
Bottom line don't let perfect be the enemy of good.

I would start simple with 3 fund portfolio and then tweak it as you have more funds.

Also I would not look at my portfolio as taxable or tax deferred. From my point of view it is just one portfolio. Based on if it is taxable or tax deferred you buy equity or fixed income funds respectively.
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by TonyDAntonio » Thu Mar 15, 2018 3:43 pm

I use Merriman's portfolio for my equity. It is split up in my IRA, ROTH and taxable. I have it duplicated in a 401K that has access to DFA funds. Except for the 401K it is all in ETFs, mostly Vanguard. It's what I started with when I started to take this stuff seriously and it hasn't been hard to keep in balance. If I were starting over, especially after reading this site for 10 years, I'd probably go with VTI, VXUS and maybe some other slice. But I'm not ready to exchange a $2+ million portfolio for some simplicity. For me, at this time (retired, 58 with still a couple of marbles left) it isn't worth it. I've told my wife that if I die suddenly just call Vanguard and they can offer assistance.

livesoft
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Re: Paul Merriman's Ultimate Buy-and-Hold portfolio using various index funds or ETFs

Post by livesoft » Thu Mar 15, 2018 3:57 pm

ThisJustIn wrote:
Tue Mar 13, 2018 10:20 pm
[...]
I will do more analysis.
Well then, you don't really need any help from the bogleheads.org forum then.

I will just say that M1Finance appears to be just another toy brokerage trying to build up and perhaps sell itself to one of the big 4.
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