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Paul Merriman’s Ultimate Portfolio: 10 X 10 = Winner?

Paul Merriman is a long-time established expert and educator on personal finance and investing. His Sound Investing podcast has been a massive inspiration to me and thousands of others.  He is a contributor to Marketwatch. Paul Merriman has a very interesting and diverse investing philosophy. He favors diversification and a strong portion of stocks when you have plenty of time until retirement. He also favors going into the small-cap asset classes. His Ultimate Portfolio is his portfolio that has massive diversification and has a good amount invested in small caps.

Paul Merriman’s Ultimate Portfolio, 10 X 10 = Winner?

What is the Paul Merriman Ultimate Portfolio?

The portfolio is made up of 10 asset classes, each contributing 10% to the portfolio. The portfolio has a tilt towards value and small-caps. This means that the portfolio allocates a portion of its asset to small-cap and value stocks. These have historically outperformed other asset classes.

Paul Merriman’s financial literacy videos

Asset Allocation

paul-merriman-ultimate-portfolio

 

Returns and risk for The Ultimate Portfolio

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
Merrimans Ultimate Portfolio1023.80%-0.36%9.20%9.13%-41.07%5 - very high risk0.18%2.80%
Graph from portfoliovisualizer.com

 

Building the portfolio

Below you can see which mutual funds or ETFs you can use to build the portfolio. They are the best-in-class funds and ETFs for this purpose. They are low-cost index funds that best capture the asset class. Read here how we selected the best funds.

Asset allocation for The Ultimate Portfolio

  • 10.00%  US Large Cap Value         (VTV)
  • 10.00%  US Large Cap      (VV)
  • 10.00%  US Small Cap Value         (VIOV)
  • 10.00%  US Small Cap      (VIOO)
  • 10.00%  REITs     (VNQ)
  • 10.00%  Emerging Markets           (VWO)
  • 10.00%  International All-World ex-US     (VEU)
  • 10.00%  International Large Cap Value     (EFV)
  • 10.00%  International Small Cap Blend             (VSS)
  • 10.00%  International Small Cap Value             (DLS)

How we select the right ETFs

There are a lot of ETFs out there. Most of them can be discarded because:

  • They are too expensive
  • They hold too few assets and are therefore too illiquid
  • They do not meet the criteria for representing the asset class they are supposed to mirror.

We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?

As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.

You can find the socially responsible investing ESG ETFs in the same article.

Advantages and disadvantages of The Ultimate Portfolio

Advantages

  • Thoroughly tested by Paul Merriman
  • 10 x 10 is easy to understand and even to implement.
  • You get great diversification across many asset classes.
  • You have 40% in small caps – one of the best historical performing asset classes.
  • You might outperform the market.
  • Good opportunities for rebalancing, thereby reducing risk and increasing returns.

Disadvantages:

  • Has had a higher risk than the S&P 500 in the past 10 years as measured by (standard deviation).
  • Makes a large bet on small caps which may not be desirable.
  • May consist of too many asset classes for some.

Resources

Go here for a rebalance excel worksheet.

Go here for the article on Paul Merriman’s website. Here is the condensed article on Marketwatch.

Here is his podcast for 2018 for the portfolio. He updates the portfolio every year.

Suggestions for your next steps

Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone

If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.

You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool

Summary

Paul Merriman’s Ultimate Portfolio divides your portfolio into 10 asset classes equally. While it has more risk than the S&P 500 it has also outperformed the S&P for the past 10 years. This is partly due to a 40% allocation to small caps and a healthy portion to emerging markets, 10%. I consider Paul Merriman one of the “good guys” in investing. He has a lot of (investing)knowledge he passes on entirely for free and without compensation through his Merriman Foundation.

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