Paul Merriman is a long-time financial advisor known for his “Ultimate Buy-and-Hold Portfolio” that utilized a more complex 10-fund version of a low-cost index fund portfolio that includes additional exposure to certain asset classes. Although now retired from advising, he continues to add new content to his website for the that is geared more towards to DIY investors.
More recently, he has been pushing the idea of a more simple “Two Funds for Life” portfolio that is essentially holding mostly an all-in-one Vanguard Target Retirement Fund (or a similarly low-fee alternative) and the rest in US Small Cap Value ETF or mutual fund. This concept is described in detail in the book 2 Funds for Life: A quest for simple & effective investing strategies by Chris Pedersen, Director of Research at The Merriman Financial Education Foundation. (Amazon links on the website.)
Right now, you can download the PDF for free if you sign up for their . You also get a free PDF download of their other book, We’re Talking Millions!: 12 Simple Ways to Supercharge Your Retirement by Paul Merriman and Richard Buck. I would recommend downloading it now and saving it to read later. Both books also contain a lot of general personal finance advice, but if you want to understand why you hear the term “small cap value” (SCV) a lot in DIY investment circles, this book may be of interest.
2 Funds for Life strategies augment target-date funds to reduce risk with age, increase expected returns, raise safe withdrawal rates, and achieve higher overall survival rates.
Small Cap Value has long periods of severe underperformance, but also many periods of outperformance against the overall total US market and S&P 500. The hard part is to keep holding SCV through those years of consecutive underperformance. Here is a chart of asset class returns by decade that illustrates this point:
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