'Financial Fitness Forever' With Guest Paul Merriman

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney

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'Financial Fitness Forever' With Guest Paul Merriman
Jim Lange, CPA/Attorney
Guest: Paul Merriman
Episode 101

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TOPICS COVERED:

  1. Introduction of Guest – Paul Merriman
  2. Choose A Fiduciary Advisor
  3. Understanding Asset Allocation
  4. DFA vs. Vanguard
  5. Importance Of A Well-Diversified Portfolio
  6. What Should You Expect From Your Advisor?
  7. Resource Recommendations

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Welcome to The Lange Money Hour: Where Smart Money Talks with expert advice from Jim Lange, Pittsburgh-based CPA, attorney, and retirement and estate planning expert. Jim is also the author of Retire Secure! Pay Taxes Later. To find out more about his book, his practice, Lange Financial Group, and how to secure Jim as a speaker for your next event, visit his website at paytaxeslater.com. Now get ready to talk smart money.


1. Introduction to Guest – Paul Merriman

David Bear:  Hello, and welcome to this edition of The Lange Money Hour, Where Smart Money Talks.  I’m David Bear, here in the KQV studio with Jim Lange, CPA/Attorney and author of two best-selling books, “Retire Secure!” and “The Roth Revolution: Pay Taxes Once and Never Again.”  Planning for retirement is an ongoing process.  Today’s topic is ‘Fostering Financial Fitness Forever.’  Our guest is Paul Merriman.  Since retiring from the investment advisory firm he founded, Paul’s been passionately committed to educating and empowering individuals to invest wisely and get the most from their retirement investments.  With no other agenda, he represents no companies and donates all proceeds from his work to a foundation that supports his financial education mission.  A nationally recognized authority on mutual funds, index investing, asset allocation, both buy and hold, and active management strategies, Paul is the author of four books on personal investing, including “Financial Fitness Forever.”  He also blogs weekly for The Wall Street Journal’s MarketWatch.com and recently released a series of free investing eBooks on his own website, PaulMerriman.com.  This is Paul’s third time on the show and clips from those earlier interviews were included in our recent 100th special program.  It’s sure to be an interesting hour and listeners, since our show is live, Paul and Jim are available to answer your questions.  To join the conversation, call the KQV studios at (412) 333-9385.  With that, I’ll say hello, Jim and welcome, Paul.

Paul Merriman:  It is great to be here and David and Jim, what a treat this is.  Thank you for inviting me.

Jim Lange:  Well, I think it’s a treat for us, Paul.  You know, you have been my hero for many years and David mentioned in your introduction your education role, now in your “retirement,” but guys who write three eBooks in a short period of time, finish another book, go around speaking, that doesn’t sound like the classic retirement.  But I remember when you were still “working,” your main mission, it seems, was educating clients and prospects, and you had a radio show like this that was very informational, and your marketing consisted of you doing wonderful workshops for clients and prospects.  So, I would say that you educating the public about financial matters is not a recent development, but something that you’ve been doing. I hate to say it, but for about fifty years.  Is that right?

Paul:  Well, it certainly seems like fifty, but I do love it and a lot of people thought it was a strange way to build a business, to teach people how to do everything on their own, but you and I both know that most people, whether we’re trying to lose weight (and I’ve been doing that for over fifty years), or investing, we need help, even though intellectually we understand the process, it’s that enemy within that gets us in trouble every time.

Jim:  Well, Paul, one of the problems that I had in preparing for this show was you have so many wonderful resources for readers, and at first, I was very interested in talking about your book “Financial Fitness Forever,” which, by the way, I should mention that I’ve bought many copies of that. I put it out in what I call my ‘no return library,’ and I encourage people to take it because I think it’s a terrific book, and I didn’t really particularly want to talk about your three eBooks until I looked at them, and I thought, “Wow!  These are great!  And these are free.”  So, if you don’t mind, at the risk of deluding them, I’d like to talk a little bit about all four of those books or at least three of them.

Paul:  Wow, that’s great!

Jim:  But I was really impressed.  And for the listeners who didn’t catch that, Paul has three eBooks that, frankly, would normally sell for $19.95 or $29.95 or some price, and it would be totally worth those prices, but these are free.  Paul’s just saying, “Here!  Here ya go!  Just go to the website and download them.”  And for people who are interested, and I think as you hear more about Paul and some of his thoughts, you’ll be even more interested, they are available at www.PaulMerriman.com, and he has three eBooks, one better than the next, particularly your second one about how to pick an advisor and how, if you excuse my French, not to get screwed.  I thought it had some great thoughts, I really did.

Paul:  Good!  Good.  Well, I appreciate that, Jim.  When I retired, I promised my wife I would never work for money again and that’s what this is all about.  This is about all the listeners right now, me doing whatever I can and I know you do this too.  That’s what this radio show is about, your workshops are about, it’s about education first and foremost.  And that’s the biggest impact that you and I can have on other people.  Whether they’re a client or not, they still need to be educated.

Jim: I agree and that’s how I do my marketing, is I have this show and I write books and give workshops, but frankly as much as I am about education, the truth is I do have an ulterior motive that I hope at least some of the listeners, or viewers, or people who attend workshops will actually have us prepare their will or estate plan, or will have us invest some of their money with us.  So, no matter how good my intentions are, I still have a secondary or ulterior motive, where you’re at complete liberty to say anything you want about any group of anything you feel like it.  So, I think that’s probably a little bit liberating too.


2. Choose A Fiduciary Advisor

Paul:  Let me say something about that, because I always look for a bias in somebody and I look for the conflicts of interest and those are two very different things.  I think that both of us have a bias about what is in the best interest of investors.  We can’t get away from that and if there’s any kind of a challenge in what I have to share is that I may write an article entitled ‘The Ultimate Buy and Hold Strategy,’ but that ultimate simply means that’s the best that I know and I know from an article I came out with today at MarketWatch, other people have their own idea what the best thing to do is.  So, that’s one of the interesting challenges for your listeners, is to figure out what with all of this information out there, what’s the best source of advice, because that’s what we’re all looking for, competence and ethics.  I know you got it, but I’m afraid as you read in “Get Smart or Get Screwed,” there’re eighty reasons why I don’t trust stockbrokers in there and I really believe that’s the wrong path to go, so our job is to hopefully guide people down the right path. 

Jim:  One of the points that you bring up in the ‘Don’t Get Screwed’ section…and actually, by the way, this is consistent with what John Bogle was saying on this same show, is it’s important to work with somebody who has your best interests in mind, and from legal parlance, we would say that an advisor who has the legal obligation to do what is in the best interests of their client is a fiduciary to the client. Hopefully, there’re good advisors and even good stockbrokers who might arguably have a moral obligation to do what is in the best interests of their client, but frankly, their best interests might be to their stock brokerage firm or to an annuity firm or increasing production.  But the true fiduciary advisor has a legal obligation to do what is in their client’s best interest and you make a big point of that and that’s something that I find very important, too.

Paul:  Well, you know, Jim, I think that common sense would lead people to find the person who’s acting in their best interest because, as you and I know, this is not as complex a field as people make it.  Now, taxes, and all of that other stuff that you do, estate planning, all of that is very complex, but investing itself, it’s just a handful of rules that people need to know.  So, if you’ve got an advisor, and the advisor is not getting you the lowest expense that they can in the underlying security, the question ‘Are you acting in my best interest?’…if the mutual fund they recommend is not highly tax efficient, it’s another fork in the road.  If it isn’t, then you’re not working for me, you’re working for the house, and there are a whole bunch of these very simple decisions that any really ethical and competent advisor will have already figured out that is in your best interest.  And by golly, if they’re not, then we shouldn’t be doing business with them because who would ever hire a doctor whose first interest was the firm they worked for as opposed to healing the patient?  And we are healers, of sorts, financial healers, and that same obligation, always do what’s in the interest of the patient or the client, that’s it!  That’s the end of the discussion about what’s right.


3. Understanding Asset Allocation

Jim:  Well, I think you do that very well and you give away, frankly, some information that people really would covet and I’ll be very specific.  In your book “Financial Fitness Forever,” not only do you explain a lot of very important concepts, but then, in your appendix, you actually go so far as to make specific recommendations for people who are in a specific set of funds in their 401(k) or 403(b).  So, for example, if you’re a university professor, you work for a non-profit organization and one of your choices of how to invest your 403(b) or 401(a) is TIAA-CREF, you can go to your book, and whether you are conservative, moderate or aggressive, you have a very specific asset allocation recommendation for, for example, TIAA-CREF.  Or if you work for Shell, you provide that for Shell.  Or if you work for Target, you provide that for Target or Prudential or Pfizer or Motorola or Morgan Stanley or Microsoft and the companies that you actually give that specific allocation for are just…I can’t read them all because there’s too many… 

Paul:  Pages.

Jim:  …I just think are a wonderful resource and I can’t tell you how many times somebody has come in, they tell me what company that they work for and they’re looking for an asset allocation recommendation for that particular set of funds and then there it is right there in your book. 

Paul:  Well, that’s the good news.  Let me tell you the bad news.  The bad news is that those companies make changes in their 401(k) plans.  Right now I have in my database in the book and in a piece I did for PBS, I evaluated 100 different public companies and the Thrift Savings Plan for the United States government.  But they’ve changed and so I am in the middle of reevaluating all of those plans and they will be updated on my website within the next six months and my goal, Jim, since I have all of this extra time now that I’m retired…

Jim:  Yes, you’re “retired!”

Paul:  …my goal is to get that up to 250, the 250 largest plans, and the database that I used to develop that is from a company called BrightScope. They charged a lot to have access to all that information.  But even that information is a little old and so once in a while, somebody will go to my recommendations and say, “This doesn’t fit what I have,” so we have to update that.  But that will be a regular feature on our website.  What’s so important to me and I know to you as well, is that it’s not just the recommendation, but why am I recommending so much large cap and small, and why am I recommending value and growth and U.S. and international and emerging markets, why are those recommendations being made, and why the percentages?  Because I think that if people just follow my work or your work, blindly, they’re not going to understand.  And the first time it’s not working, they start thinking, “Oh, no, this information’s not any good.”  No, it’s based on eighty-plus years of evidence, real evidence, in the market to determine that asset allocation.  It’s important to know ‘why,’ not just ‘what.’ 

Jim:  Well, I think that’s true, and I think your book gives a very good model of why, but I’ll just say that there are other resources that tell you why and then they don’t tell you what, and yes, I would agree with you that yes, some of these change and it might not fit exactly, but I think it’s still a great resource…

Paul:  Thank you.

Jim:  …even just for Vanguard, and I know that both you and I are Vanguard fans, you know that you’re telling people, “Okay, if you like to have low cost and you’re a do-it-yourselfer, you can go to Vanguard, and I recommend 10% or 6%, depending on whether you’re moderate, aggressive of the S&P 500, and then the value index, and the small cap index, etc., which I just think is a great thing. And then you also, of course, have a recommendation for Dimensional Fund Advisors, which is one particular set of index funds that I know that you have had a history with, and frankly, this probably goes back more than ten years ago.  You tried to get me to represent DFA to my clients.  I don’t know if you remember this.

Paul:  I do remember it well.

Jim: What happened, as a follow up, was at the time, I was working with an active money manager.  I actually still am, a group called Fort Pitt Capital, and the way my business model was I would do the Roth IRA planning, the tax planning, the safe withdrawal planning, the Social Security planning, etc., and Fort Pitt would actually be doing the actual investments.  Then we would share a fee, which was one percent or less.  And when I went to Dimensional Fund Advisors, because you said, “Hey, this is the best low-cost set of index funds there are and you should represent this to your clients,” and when I went to them, they said, “Well, you know, since you’re working with Fort Pitt and they’re an active money manager and we’re passive, we only want to work with passive guys.”  And I said, “Well, I’d like to give my clients a choice.  They can go active, they can go passive, or they could do some of each.”  And they said, “Nope!  You have to drink the Kool-Aid or you can’t work with us!”

4. DFA vs. Vanguard

Paul:  I understand!

Jim:  So, I wasn’t able to work with them and then years later I was in California, and I was talking to a DFA guy, a Dimensional Fund Advisor, and he’s telling me how wonderful the returns are and the strategies and the philosophies, etc., and I was kind of envious. And he said, “Well, why don’t you become a DFA guy?”  And I said, “Well, I tried but they said no.”  And he said, “Are you kidding?  You have two bestselling books.  You have this national expertise in IRAs and retirement plans.  Here, call my buddy.”  And he gave me the name of his friend, and I called him, and the guy said, “Well, send me your books,” and I sent him the books, and the books passed muster and they did due diligence. Anyway, I have since become a DFA advisor.  Since I didn’t want to be the financial advisor myself, I wanted to keep doing what I do, which is the Roth conversions, the estate planning, the big picture, I combined locally with a very good DFA guy, his name is P.J. DiNuzzo, and together, we’re offering, let’s say, my tax, Roth, Social Security strategy and estate planning with his DFA money management, and he’s a terrific DFA manager, for one percent or less, depending on how we are doing that.  And frankly, you’re the one who got me into that in the first place.  So, I should publicly thank you.

Paul:  Well, and you couldn’t make me feel any better.  You are welcome, of course, and I think one of the things I want to say quickly, if I might, Jim, is I am such an advocate of Vanguard, and then when I tell people, “You know, you’d be better off to hire an advisor and work with the DFA funds than doing Vanguard, particularly if you won’t do what I say to do, or you won’t do what you know you should do yourself, because most people don’t do the rebalancing as they should.  There’s a lot of things that they don’t do right.  They don’t do any tax loss harvesting and other things that are in the best interest of the investor, which a good advisor will do, but what people need to understand, and it’s in “Financial Fitness Forever” in spades, and so, I would encourage…if you’re letting people come down to your office and pick up a non-returnable…check out a book you don’t have to bring back, and get my book, what that book does, it explains ‘Why is DFA better than Vanguard?’  I have my own personal money with DFA funds and I could use Vanguard.  There’s no law against that.  In fact, from time to time when I was in the business, we even used a couple of Vanguard bond funds.  So, it’s not like Vanguard doesn’t have something to offer, but Vanguard is the best for a do-it-yourselfer.  But I believe that even after the fee that you pay for an investment advisor like yourself that you will end up with at least as good a return over time as you would have at Vanguard doing it by yourself.  In other words, it’s one of those free lunches that we get.  Diversification is a free lunch and I think using DFA over Vanguard is also, in essence, a free lunch because you get an advisor in the process and it may sound like I’m working for you, Jim.  I’m not working for you.  I’m working for people doing the right thing with their money and DFA is just terrific.

David:  Well, let’s take a quick break here, and when we return, if you have a question or comment, call the KQV studios at (412) 333-9385.

BREAK ONE

David:  And welcome back to The Lange Money Hour with Jim Lange and Paul Merriman.

Jim:  Paul, if I’m one of our listeners, I’ll tell you what I’m thinking: well, this Paul guy sounds like he knows what he’s talking about, and he’s independent, and maybe they don’t know that you literally, with a few of your partners, built up a billion dollar business, but they’re thinking, “How the heck can DFA (where there is a fee involved), how can that be better than Vanguard?”  So, I want to call you on that and say, well, how can…I mean, it’s not like DFA is sitting around with a bunch of MBAs analyzing different stocks and coming up with better picks than Vanguard…

Paul:  Nope!

Jim:  …so how can DFA, and I know that you’re very concerned about cost, but how can DFA outperform Vanguard?

Paul:  Well, let me give you an example.  Right now, people could go to MarketWatch.com and they could read the article ‘One Fund Every Investor Should Own.’

Jim:  Which by the way, is a terrific article.

Paul:  Thank you.

Jim:  And I didn’t include that because there were so many other things to include…

Paul:  I know, I know.

Jim:  Well, you’re pretty prolific, Paul!

Paul:  Well, listen, I’m retired.  I’ve got time.  The article is about one of many asset classes that…and when I say an asset class, like a whole bunch of big stocks or small stocks or value or growth, what I did was, I looked at small cap value.  That’s an asset class.  There are thousands of companies that qualify as small cap value.  And what if you bought them all?  And you can buy that at Vanguard, you can buy that through an ETF at WisdomTree, or you can buy that at Dimensional Funds.  Now, I looked at small cap value going all the way back to 1927.  I looked at every twenty-year period.  Now, I want to, just for a second, talk about comparing small cap value to the S&P 500 because I notice one of your workshops is about management versus the S&P 500.  If you looked at every twenty-year period, the small cap value asset class has compounded, on average, 16.1%.  That’s compared to 11.3% with the S&P 500.  The worst twenty-year period was from 1929 to 1948, a gain of 6.2% a year.  The best was from 1942 to 1961, 22.7% a year.  Now, S&P 500?  It compounded at about 11.3% instead of the 16.1% and the best return was 17.9%.  The small cap value had ten periods that it made more than 20% a year for a twenty-year period.  The S&P 500 didn’t have one.  Okay, now, the case I’ve just made is you ought to have some of this in your portfolio.  Maybe not a lot, but enough to get the premium for that asset class.  If I look at the last ten years, just because people have lived through it and will recognize how difficult it was to make money, when I look at how the small cap index at Vanguard did, it compounded at 11%.  The DFA compounded at 12.3%.  Now, why did it do better than Vanguard?  Because on average, the companies are smaller in the DFA portfolio.  On average, the companies are more deeply discounted than in the Vanguard portfolio, and the smaller and the more deeply discounted the way they put their portfolio together gave them a 1.3% a year advantage over the Vanguard fund.  It’s also a small cap value.  And that is true.  That’s in the book.  If you get your copy of “Financial Fitness Forever,”…

Jim:  It’s in front of me, Paul.

Paul:  Pardon?

Jim:  It’s in front of me.

Paul:  Well, then, in one of the appendices that is comparing each of the Vanguard asset class funds, the index funds, with DFA, plus looking at the average MorningStar fund in that category.  So, it’s not about them being smarter.  It’s about how they construct the portfolio.  And somebody out there right now is saying, “Well, why doesn’t Vanguard do that?  If it’s better, they should be doing that for their clients.”  Well, the problem is, is that in order to do that and do it right, you have to have a kind of investor that stays the course and isn’t jumping in and out of the market all the time.  Vanguard faces that.  They must have a more liquid portfolio than DFA clients because DFA clients are all being managed, if you will, by professional advisors.  It makes a huge difference for the managers of the funds to have a good, stable group of investors.  DFA has that and unfortunately, Vanguard does not.

Jim:  You mentioned the construction of the index fund and that’s what I think sometimes people don’t get.  They think, “Well, an index fund is an index fund and a small cap value index is a small cap value index.”  But, as I understand it, what you’re saying is that DFA defines the type of companies that are included in the index differently.  For example, there will be even smaller companies than Vanguard would consider.  They would have a lower price earnings ratio that would make it more value.  You used the words ‘steeper discount’ than Vanguard.

Paul:  Yes.

Jim:  So, it’s not like they’re sitting there trying to pick better stocks.  They have different criteria of which stocks go into their index fund and the criteria that they use, both in terms of a return and safety, have done better than Vanguard. And I think what you’re saying and I believe is that you can actually have a DFA portfolio and that the over performance over Vanguard is actually more than what you would pay an advisor.  So, you can get all the benefits of an advisor and still do at least as well or better than being a do-it-yourselfer with Vanguard.

Paul:  Well, that’s what I’m saying, Jim, but it’s even more than that.  The fact is, as you and I know from the Dalbar studies, that very few people achieve what they should in the ownership of the funds that they have.  The difference between investor returns and what the mutual funds report is just huge.  The first question I would have is, would the individual on their own even get the return they should have buying the funds that I recommend they buy at Vanguard?  Most people won’t.  I know, right now, I’m sure you’ve got listeners that are worried because the market’s been down the last few days.  And now, they’re worried…”Oh my god, you know, the end of the world is here.  This is where the big turn is coming, and we’re going to lose 30% or 40% of our investment.”  And that kind of psychological fear, a paralysis of sorts, keeps people from doing the right thing.  It is so much easier to do the right thing for other people than it is to do it for yourself.  That’s why I even have an advisor.  I have an advisor that takes care of our money because I don’t want to do it.  I don’t want to be involved in that process.  I’m an emotional person.  You can hear it in my voice!  I want it to be mechanically taken care of by somebody who is disciplined and trained and trustworthy.  That’s what I want and that’s exactly, of course, what you’re doing for people.

Jim:  Well, the other thing is, you mentioned the Dalbar studies, and for our listeners, basically, if I’m going to take the risk of oversimplifying, it’s saying that investors don’t do as well as the funds that they invest in.  So, let’s say, for discussion’s sake, you say, “Well, I’m basically an S&P 500 investor.”  And then, you take a look at your historic returns compared to the S&P historic returns, and it turns out yours is a lot worse because, in fact, you might have panicked in 2008, or you thought you would time the market or you did something that wasn’t just consistent with good or even a mutual fund, or even a set of funds.  I think what Dalbar was saying is is that people shoot themselves in the foot because we are hardwired that when we see danger, like the assets going down, that we want to run, and that’s the exact wrong instinct for good long-term investing.


5. Importance Of A Well-Diversified Portfolio

Paul:  And you’ve overlooked one thing that I think is so very important about Dalbar, and that is those numbers that they have determined is the difference between what the average investor got versus what the S&P 500 got.  It’s about 4% a year less, maybe even almost 5% a year less, and in one of those free books that people can get at PaulMerriman.com, the book is entitled “First-Time Investor.”  Now, I know your listeners are not first time investors, but their kids might be or their grandkids.  But in that book, there’s a table, Table Three and Table Four, that show the difference between compounding money up to retirement and in retirement at four, five, six, seven, eight, nine, ten percent a year and the difference between a 4 percent a year return and an 8 percent return per year is gigantic!  I mean, it’s mind- boggling.

Jim:  It’s the difference between being a pauper and being a millionaire. 

Paul:  Exactly!  I mean, living it up in retirement and leaving lots to others, or just barely getting by and that difference between 4 percent and 8 percent, what is so amazing, I think, Jim, is that you can get that difference without taking any more risk, which is wonderful if we can do that, because most people think in order to get higher returns, they have to take more risk.  No!  You can probably take less risk if you do it right! 

Jim:  Right, and by doing it right, I think what you’re talking about is having a well-diversified portfolio of low-cost index funds with regular rebalancing and not panicking if the market goes down, and not getting so jubilant that you put all your eggs in one basket when the market goes up.

Paul:  That’s right.  And just be cool!  Ignore the day-to-day fluff, the noise that goes on.  There’s always list A, the good news.  There’s always list B, the bad news.  They’re always out there.  And yet, a day like today is unsettling to people.  Just for fun, before I came on, I went to MorningStar to see how the funds that I hold myself, my wife and I hold, how they’ve done over the last year, because what is important?  A day?  A year?  A decade?  But I thought, well, since today was a big day, why don’t I go back and look at the last year?  S&P, up 30%.  Small cap, up 38%.  Large cap value, up 46%.  Small cap value, up 44%.  Emerging markets, up 19%.  International REITS, up 28.2%.  Large cap, 32% internationally.  International value, 34%, and on and on and on.  This has been a huge twelve months in the market.  And yet, today, we’ll get people worried, and that’s what we have to fight, and if you can’t do this on your own, you need to get help. 

Jim:  Perhaps it’s a little bit self-serving of me to promote this, but I actually do believe it and I also think, you mentioned the first of your set of three books, but your second book, talking about how to select a financial advisor, the questions to ask, and not to get screwed I thought was very helpful for listeners, and very frankly, I will have to admit that if somebody reads that, and then they know about me, I fit some of the criteria, hopefully all the criteria, that you include for picking an advisor.

David:  The good criteria!


6. What Should You Expect From Your Advisor?

Jim:  So, I would also tell readers that that would be a very good choice.

Paul:  You know something else that comes out of that book that I like a lot?  There are eighty reasons, as I said in that book, why I don’t trust stockbrokers, but what I do like that’s a little different, which I’ve seen in other books about picking an investment advisor, is a list of the things that you should be able to get from an investment advisor.  People don’t know because, in many cases, they’ve never had one.  And so, it’s just like if you didn’t have experience managing people at work, you might not know what to expect out of people if you didn’t have some experience doing that.  It’s the same thing with hiring an advisor.  People don’t generally understand the whole investment process, so how can we expect them to know what their employee, the advisor…that they’re the boss, they have the money, and they’re hiring somebody.  What should you expect out of that person?  It just floors me that the thing…

Jim:  Well…

Paul:  Hmm?  Go ahead.

Jim:  Well, I was going to quote you to you.  ‘Your advisor should be truthful and honest with you at all times.  Your advisor should actively earn your full trust, not just assume he has it.  Your advisor should conduct himself in a manner that makes you feel comfortable opening up to him and telling him everything.  Your advisor should be…”  And then, you go on and on, and what I always think is there’re a couple elements that people need: one, I think, is this kind of steady hand, this true fiduciary of keeping people invested appropriately, not panicking when the market goes down, not overly getting excited when the market goes up, but on the other hand, just regular rebalancing.  But I also think people need help on the tax end, on the Roth IRA end and on when they should take Social Security.

Paul:  Yes.  You’re absolutely right.

Jim:  And I know, for example, when you had your radio show, I was a guest and we often talked about Roth IRA conversions, and you were then, and I imagine now, a fan of Roth IRA conversions.

Paul:  I am.  I am.  I think it depends on the individual, which is why I can’t give advice to people through a column on how to do a lot of these things because the answer is always ‘It depends.’ 

Jim:  You sound like a lawyer now, Paul.

Paul:  I know it, I know it!  But I will tell you one thing…

Jim:  Because that’s what I say all the time! 

Paul:  Of course!  You have to because that’s the way it is.  In fact, if you’ve got a good advisor, they can make one guarantee without any question: if you follow my advice, I guarantee you will lose money.  And a smart investor would then say, “How much?”  And a good advisor says, “Well, that depends on you.  We’ve got to figure out how much you can lose and not panic,” because part of the process of investing is not just making money, but also losing money, and that’s what we’re here to help you manage, and if you don’t have an advisor who will talk about the bad times as easily as they do about the good times, you don’t have an advisor.  You got a salesperson.  Anybody can sell to the path of least resistance.  Don’t ever talk about anything that’s uncomfortable.  But that’s not the relationship you want with an advisor.  You want an advisor that pushes you to do the right thing, not sell you what the latest, kind of, fun or exciting or profitable deal is.  And I’ve got to say one other thing, if I might, Jim.  That third book, “101 Investment Decisions,” is guaranteed to change your financial future.  Let me tell you why this is an important book in terms of working with an advisor.  The book is about 101 forks in the road that every one of us comes to, either by design or by default.  We’re going to have to go one way or the other.  We’re going to end up with no-load funds or load funds, funds with high expenses or low expenses.  All I did in that book was look at those 101 forks in the road and say, “As far as I’m concerned, best practices would indicate that we should do X, not Y.”  And so, if you’re looking for an advisor and you believe what I have written in that book about whether to go to the right or the left and they’re suggesting, “You know what?  You should have a load fund.  You should have a fund with high expenses and low-tax efficiency.  You should have a fund with lots of turnover.”  I mean, if they’re doing those things to you, those are forks in the road that you say, “Hey, wait a minute!  According to Merriman, and according to Jim Lange, as well, I’m sure, in virtually every case, according to these people that appear to be working for me and not the house, I should be looking for low expenses.  I should be looking for no-load funds.  I should be looking for passive management instead of active.”  But those 101 are not only good for somebody doing it on their own, but also for somebody who’s trying to hire somebody, because you should make sure they’re doing what is in your best interest.  That’s the whole idea of good advice. 

David:  Well, good advice is let’s take one more break here.

BREAK TWO


7. Resource Recommendations

David:  And welcome back to he Lange Money Hour with Paul Merriman and Jim Lange.

Jim:  And we might run out of time…well, we are going to run out of time, but one of the things I thought I would do is to make sure that I told listeners about some of the resources that were available.  What I think is my favorite book of Paul’s that has all the analysis that I’d mentioned, and then actually has specific recommendations for all those funds, and it is actually the book that I have given away a cartload of in my office in the no-return library, is called “Financial Fitness Forever: 5 Steps to More Money, Less Risk and More Peace of Mind.”  And then, the other thing that I’m going to recommend readers do, and this is great for people who don’t want to spend a nickel, is to go to PaulMerriman.com, and that’s Paul’s website, and he is offering at zero charge three wonderful eBooks.  The first one is called…he calls them the “How to Invest” series, and the first one is called “First-Time Investor: Grow and Protect Your Money.”  The second one is “Get Smart or Get Screwed: How to Select the Best and Get the Most From Your Financial Advisor,” and the third one is “101 Investment Decisions Guaranteed to Change Your Financial Future,” and really, Paul, I can’t even tell listeners how valuable these books are, and the fact that you offer them for free is just, I think, a wonderful thing…

Paul:  Thank you, Jim.

Jim:  …and what you promised your wife that you’re not going to make any money, you’re just going to be this really cool guy dispensing fabulous financial information to anybody’s who’s interested, I just think you’re doing a great job for investors.

Paul:  I am not a cool guy, but I am possessed and I absolutely love the opportunity to do this work.  It’s what I know.  I’ve spent my lifetime doing it and there was plenty of money in the business.  In fact, the business was sold last December to a very, very large investment advisory firm, that I think the company is a part of a $60 billion organization now.  So, I’ve had my day in the sun.  I don’t need to do that anymore, but I got to tell you one more thing: that if people come to that site, they’ll be able to listen to podcasts.  If you go to iTunes, it’s at Sound Investing, but you can get it right there at PaulMerriman.com, and the reason I’m bringing that up is in the next couple of months, I am doing podcasts that will each last somewhere between thirty and forty-five minutes where I talk about asset class selection, another one on indexing, another one on asset allocation, how much in stocks and bonds, and finally, one on distributions in retirement, and I know that you’ve got some very strong feelings about distributions, but for people who are looking forward to retirement, or trying to figure out how can I take money out of my investments in retirement, I promise that that is going to be an absolutely super podcast, helping people with tons of numbers.  You know how I am about numbers!  I want to see it on paper.  I don’t want to talk generically about stuff.  I want specifics.  And I will show you exactly how my wife and I take money out of our investments in retirement, and it’s very different from what most people do.  So, I hope not only will they read those books, but they’ll listen to my podcast.  I do them weekly, and hopefully, it’ll help them in some way.

Jim:  Well, you know, there’re not that many people who I really trust the information, and you’re one of those guys.

Paul:  Thank you, Jim.

Jim:  Because I think the experience of a lot of our listeners and it’s not just financial advisors, it’s when they have the plumber, when they take their car to the car shop, when they have the electrician come in, when the gardener does whatever he does, and just in our everyday dealings with different people who provide different services, so many times, like Charlie Brown, we really want to be able to trust the person we go to.  And we go and we start running towards the football and what happens most of the time, Lucy pulls the football and we end up on our you-know-what and then we just get disillusioned.  And this is happening again and again and again, and this is what I would promise to anybody going to your information, or for that matter, by extension, my information and the services that I do.  We will not pull the football away.  We will stand there and hold it, and Charlie Brown, you can kick that football without fear.  Now, we can’t promise performance…

Paul:  Well, let me…I’ll hold a football in front of you, Jim.  I’ve got just a minute, I’m sure, but I want to put a football in front of you that you can kick or choose to pass.  But I am in the final months of helping to build a brand new university course, it’s a four-credit course, at Western Washington University, my alma mater out here in the state of Washington, and a professor is teaching the course.  I’m helping to develop it.  I’m writing the checks to support the professor and they’re going to do a six-year study to follow up on the students to see the impact of this course.  When that course is done and when that course has been tested, it is actually helping students do better and do the right thing when they go to work and do a 401(k) and do it right, etc., I’m hoping people like you in your area will take all of this work that I’ve done because you won’t have to…you know, forty hours is a lot of work to put together, and what I’m hoping is is that people in other areas of the country will in some way figure out a way to sponsor that kind of a class in a community college or in a local university.  My goal is to have it in all of the public institutions, college institutions, in the state of Washington, but I need help elsewhere.  So, I’m putting the football down, and if you want to take a whack at it, you’re going to be on my team, and we’re going to be educating not just people who’ve got a lot of money, but people who are just getting started, and I think it’s the best work I will ever do.

Jim:  Well, I’ll tell you, that’s really something because you say a lot of very wise things in many different types of forms and for whatever it’s worth, I would love to see something like that, not just taught personally in a course, but actually to go viral and I know that this isn’t about money for you and I know that one of the trends in education is to have classes taught by the best be available to both students at the university, and frankly, people who aren’t at the university.

Paul:  It will be a mook. 

David:  A mook.

Jim:  Yeah, and frankly, I just think it’s a great thing and I know a lot of authors and creators have, let’s say, some kind of ego or ulterior motive or there’s something behind it, but for you, I can genuinely say you just want to see people do the right thing, and you’ve been helping probably traditionally older and wealthier people because that’s how you built a billion dollar business, but now in your new role, that you want to educate young people to get them started off and do it right immediately. 

Paul:  That’s the goal.  And by the way, my wife would disagree with you.  She said that I do have an ulterior motive.  I like all the attention.  She says it’s an ego trip, partly, Jim, so maybe there’s something I don’t understand going on.  But in the meantime, if we educate some people while we do have some personal fun in the process, that should be okay.

Jim:  Well, I think it’s actually okay to have a little ego.  I mean, frankly, I have it.  I like my clients to win. 

Paul:  Yes, exactly.  I love the e-mails that say, “I’ve been following your work for ten years at Vanguard, and I’ve had a tremendous return, blah, blah.”  I love it.  It just makes me feel so good.

Jim:  And we’re going to have to end, but I will just say that I also have people that come in and say, “I’ve been following Paul Merriman for years,” and they have nothing but nice things to say, and they’re very happy to see somebody who’s holding the mantle in Pittsburgh.

Paul:  Thank you. 

David:  Thanks to Paul Merriman.  You can reach him directly at his website, www.PaulMerriman.com.  Thanks also to Dan Weinberg, our in-studio producer, and program coordinator, Amanda Cassidy-Schweinsberg.  As always, you can hear an encore broadcast of this show at 9:05 this Sunday morning, here on KQV 1410, and you can always access the audio archive of past shows, including written transcripts, at the Lange Financial Group website, www.paytaxeslater.com.  While there, check out the series of video clips from Jim’s interview with John C. Bogle, founder of the Vanguard Group.  You can also call the Lange offices directly at (412) 521-2732.  Finally, please join us on Wednesday, June 19th at 7:05 for the next edition of the Lange Money Hour when we’ll welcome back to the show Dr. Laurence Kotlikoff, noted Social Security expert, author of fourteen books, and Professor of Economics at Boston University.

END

 

James Lange, CPA/Attorney

Jim is a nationally-recognized tax, retirement and estate planning attorney with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania.  He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again.  He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, will and trust preparation and intricate beneficiary designations for IRAs and other retirement plans.  Jim's advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger's Retirement Reports and The Tax Adviser (AICPA).  Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.

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