6th Annual Financial Education Series

Bainbridge Island Community 2021Take Control of Your Financial Future

6th Annual Financial Education Series

Bainbridge Island Community 2021

How to Invest in a BubbleApril 3, 2021

Paul Merriman

Why is financial

literacy so important?

• Improves ability to make better decisions

• From birth to death, we must make financial decisions

• May be step from striving to thriving

• We are being asked to make more financial decisions

How big is the payoff for

financial literacy?

• 12-million-dollar financial decisions

• Make decisions in their own best interest

• Take on less debt and pay less for it

• Invest earlier

• More equities in portfolio

• Retire earlier

• Have more money in retirement

• Set better example for children

• Not as likely to panic during normal market declines

• Have a plan

3 giant challenges for

consumers

• More sources of easy credit

• More sources of products for sale

• More savvy marketing capabilities

What 55 years of experience

taught me about financial literacy

• Most investors don’t have good understanding of

process

• Most don’t realize they have two powerful enemies:

the financial industry and themselves

• Successful investing is built on defending against risk

• The best defense is a good education

• Most investors focus on what happened recently

All knowledge about how

investing has worked, is working

and is likely to work in the future

The Universe of all

Investment Knowledge

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You KnowYou Know

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You KnowYou Know

What You Know You Don’t Know

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You KnowYou Know

What You Know You Don’t Know

What You Know You Know but

You Are Wrong

What You Don’t Know You Don’t Know

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You KnowYou Know

What You Know You Don’t Know

What You Know You Know but

You Are Wrong

What You Don’t Know You Don’t Know

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You knowYou Know

What You Know You Don’t Know

What You Know You Know but

You Are Wrong

What You Know You Know but You Don’t Do Anything About It

What You Don’t Know We

Don’t Know

All knowledge about how

investing has worked, is working

and is likely to work in the future

What You knowYou Know

What You Know You Don’t Know

What You Know You Know but

You Are Wrong

What You Know You Know but You Don’t Do Anything About It

What You Don’t Know We

Don’t Know

What investors are worried and asking

about now?

• Is the market too high to invest now?

• Tesla is down 30% from the high. Time to buy?

• With inflation heating up how should I invest?

• Interest rates are rising so are bonds a lousy

investment?

• Is Bitcoin likely to be a good investment for the long

term?

The future of Bitcoin

and other cryptocurrencies

• Cryptocurrencies are form of cash to pay for goods &

services

• No expected return for cash

• Currencies rise and fall

• Not all currencies survive

• Unregulated, fraud, theft, complete loss of money

Speculating vs. investing vs.

gambling

• Day trading: 3% make money

• Hedge funds: 5% last more than 10 years

• S&P 500 77/77 15-yr. periods profitable

• S&P 500 40-yr. periods 11% ave.12.5% best and 8,9 worst

• 1/25 stocks made huge profit long term

• 24/25 stocks averaged 3% long term

• Own all for ~10%

Top 50 companies of all time

Company Name Starting date- 2016 Last 15 year return

MacDonalds 1966-2016 17.9% 14.7%

Pfizer 1944-2016 15.0 5.2

Walt Disney 1957-2026 16.5 14.0

Coca-Cola 1926-2016 13.1 8.4

GE 1926-2016 10.7 -2.5

Walmart 1972-2016 18.4 8.4

IBM 1926-2016 13.8 5.8

Exxon 1926-2016 11.9 2.8

S&P 500 1926-2016 10.0 9.9

The magic of compounding

• Impact of long-term compounding hard to believe

• Make $2.7 million contribution to BCF

• Universe 1,000,000,000,000,000,000,000,000 miles across

Inflation is the magic of

compounding in reverse

• $2.7 million has $173,000 in buying power 3% inflation

• Is 3% inflation good for planning purposes?

• Carnac the Magnificent answers inflation question

• Inflation is the biggest bear market for most investors

What are the best investments

to address inflation?

• Stocks net 7% after 3%

• Stocks earnings and dividends grow at 5% a year

• Short to intermediate term bonds better than long term bonds

Worst inflation from 1968 to 1981

• Inflation 7.6%

• S&P 500 (LCB) 6.0

• Small Cap Blend 9.5

• Large Cap Value 10.7

• Small Cap Value 13.6

• 4-Fund Combo 10.0

• T-Bills 7.2

• 5-Yr Treasuries 6.2

• LT Govt. Bonds 3.3

Major bubbles from the past

• 1636-1637 The Dutch Tulip Bubble

• 1929-1933 U.S. stock market collapse

• 1989 Japanese real estate and stock market Bubbles

• 2000-2002 Dot-com Bubble

• 2009 U.S. housing and financial industry Bubble

Why bubbles hurt so many

investors

• Arrive late to the party when commission salespeople sell very

aggressively

• High level of belief so no reason for diversification

• High level of belief so add leverage

• Large losses become reason not to take risk in reasonably

risky investments

Are we in a bubble now?

• FOMO is very high

• Retail day traders volume higher than institutions

• Biggest fool theory hard at work

• Always good news and bad

• Always calls for bubbles

• Average bear market loss over 30%

How to invest in a bubble

• Carry on with your Personal Ultimate Portfolio

• Build massively diversified portfolio

• Build portfolio to personal risk tolerance

• Opportunity to clean up your portfolio

• Bubbles and bears lead to great buying opportunities

• Market timers do what system say to do

Is there such a thing as a

free lunch?

• Shop CDs

• Diversification of stocks and asset allocation

• No load funds

• Expense free mutual funds

• Commission free trading

• Target date funds

Can you make as much money

with ESG funds?

• Expenses, turnover and diversification

• Fidelity® U.S. Sustainability Index FITLX

• Vanguard FTSE Social Index I VFTNX

• Vanguard ESG International Stock ETF VSGX

Who is the investors

worst enemy?

• "The investor's chief problem – and even his worst enemy – is

likely to be himself."

– Benjamin Graham, The Father of Security Analysis

• “Not a second goes by that our ancient dog brains aren’t

conferring with our modern cortexes to influence their

choices.” – Gardiner Morse, “Decisions and Desire”

• “The best investors make a habit of putting procedures in place,

in advance, that help inhibit the hot reactions of the emotional

brain.” – Jason Zweig

What keeps investors from making better

financial decisions?

• Emotions trump intellect

• Brain likes easy decisions

• Greed and fear powerful forces

• Overconfidence

• Memory not dependable

• Hate to lose $

• Trust the wrong sources of information

Some of the Best Financial

Education Sites

https://www.thebalance.com/

https://www.morningstar.com/

https://www.kiplinger.com/

https://ngpf.org

Click here for a free pdf copy of If You Can: How Millennials Can Get Rich Slowly

Click here for a free pdf copy of Your Money & Your Brain

Sign-up for free twice-a-month newsletter and receive a copy of We’re Talking Millions pdf.

April 8, 4:30-6 p.m. PTSix Retirement Blind Spots and How to Fix Them

Many of the risks we face in retirement are relatively under our control, while others are not. In this presentation Christine Benz, Director of Financial Planning for Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances, shows pre-retirees and retirees how to manage your portfolio and financial plan to protect against six very serious risks. Those risks include retirement date risk, sequence of return risk, low-yield risk, inflation risk, health care and long-term care risk and longevity risk. She will also share her favorite in-retirement mutual funds and exchange-traded funds (ETFs), and discuss her model bucket portfolios geared toward retirees.

•Who should attend? Pre-retirees and retirees•RSVP by clicking here or email RSVP@bainbridgecf.org with the title of the event you’d like to attend.

April 15, 4:30-6 p.m. PTWe’re Talking Millions! 12 Ways to Supercharge Retirement

This presentation is about Paul Merriman’s new book and is mostly focused on new investors and those who are in the accumulation stage of building their retirement investments. Learn how 12 decisions investors make could be worth an additional million dollars, which funds first-time investors should own and which funds different types of retirees should own, and two major decisions that can each add $5-$10 million more for your retirement, for your children, or for your favorite charities.

•Who should attend? First time investors (18 -35) and anyone who wants to understand the basics of successful investing•RSVP by clicking here or email RSVP@bainbridgecf.org with the title of the event you’d like to attend.

April 22, 4:30-6 p.m. PTHow to Plan for a Successful and Secure Retirement

Larry Swedroe, a sought-after speaker and prolific writer on the science of investing, will speak about helping pre-retirees and retirees make the best of their retirement by making sound investments. Larry has written over a dozen books on this topic, many of which have been translated into seven different languages.

Paul will interview Larry about his latest book The Complete Guide to a Successful and Secure Retirement, and topics covered will focus on the most important steps to take in retirement planning, avoiding common mistakes investors make, what we need to tell heirs about our financial plan, what women should know about investing, and much more.

•Who should attend? Pre-retirees and retirees•RSVP by clicking here or email RSVP@bainbridgecf.org with the title of the event you’d like to attend

April 29, 4:30-6 p.m. PTThe Most Important Class You Never Had

Tim Ranzetta, President of Next Generation Personal Finance (NGPF), will present his work. NGPF was created on the belief that financial literacy is the key to creating stable futures for the next generation. It promotes financial education in our public schools, and provides free curriculum for any educator who is interested in the program.

Among the many resources NGPF offers, Paul recommends this video, “The Most Important Class You Never Had,” (watch on YouTube) which explains the critical impact of financial literacy on our lives — and how improving an understanding of finance during youth can change behavior into adulthood. NGPF focuses on helping students grades 6-12.

•Who should attend? Parents, teachers and other educators including home-schoolers•RSVP by clicking here or email RSVP@bainbridgecf.org with the title of the event you’d like to attend.

Thank you.

If you have any questions,please email Paul@paulmerriman.com

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DisclaimerEverything on this presentation is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice.

Nothing contained here or in books, articles, podcasts, videos and other means of communication by Paul A. Merriman or those associated with The Merriman Financial Education Foundation implies a consulting or coaching relationship.

Please consult a licensed financial or legal professional for advice on your own situation.