Tom welcomes legendary investor educator and longtime friend Paul Merriman for a wide-ranging conversation about the evolution of indexing, the proposed changes to the S&P 500, and why investors should understand both the strengths and limitations of traditional index funds. Paul explains why firms like Dimensional Fund Advisors and Avantis Investors use a more flexible, evidence-based approach than traditional indexing and discusses how academic research has reshaped portfolio construction over the past several decades.

The discussion also explores lessons from market history, including the importance of understanding major bear markets, determining appropriate risk levels, and building portfolios that align with personal goals rather than chasing maximum returns. Paul shares insights from the latest Dimensional Matrix Book and explains why he believes studying 100 years of market data helps investors stay disciplined during inevitable downturns.

Finally, Paul introduces a simple but powerful strategy for helping newborns and young children build substantial retirement wealth through small annual investments that can compound over many decades.

Timestamps

0:11 Special guest Paul Merriman joins Talking Real Money
0:55 Long friendship and investing partnership between Tom and Paul
1:20 S&P 500 rule changes and earlier inclusion of major IPOs like SpaceX
2:07 Historical examples of S&P 500 additions and omissions
2:35 Microsoft’s delayed entry into the S&P 500
2:56 NVIDIA replacing Enron in 2001
3:29 How index rule changes can affect future returns and volatility
4:08 Why indexing remains the preferred strategy for most investors
5:16 Traditional versus non-traditional index funds
6:37 How Avantis and Dimensional incorporate factors beyond company size
8:05 Why factor-based investing differs from traditional indexing
9:02 Problems with rigid index reconstitution schedules
10:16 Momentum, flexibility, and portfolio management advantages
11:22 Introduction to Dimensional’s annual Matrix Book
11:53 Using market history rather than forecasts to guide investing decisions
13:09 Lessons from past bubbles, crashes, and lost decades
14:20 Why Paul trusts academic research more than Wall Street forecasts
15:14 The case for small-cap value investing
15:49 Clarifying Paul’s allocation to small companies
16:53 Investing for heirs, charities, and future generations
18:10 Remembering investor panic during the 2008 financial crisis
19:18 Determining an appropriate risk level for retirement portfolios
20:43 Different investor goals: beating the market, maximizing returns, or minimizing risk
21:28 Peace of mind versus maximum growth
21:55 Helping young people build retirement wealth early
22:54 The $365-per-year retirement funding concept
24:09 Final thoughts and appreciation between Tom and Paul

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Tom welcomes consumer advocate and longtime journalist Herb Weisbaum to discuss the surprisingly expensive and increasingly chaotic summer travel season. Herb explains why airfare and travel costs remain elevated, why airline prices may not fall even if fuel costs eventually decline, and how travelers can save money through flexibility, airline perks, and smart planning. The conversation also explores travel insurance, airline schedule cuts, baggage fees, vacation-rental scams, fake airline customer-service numbers, and the importance of using credit cards rather than debit cards for travel purchases. The episode is packed with practical consumer-protection advice for anyone traveling this summer.

0:05 Introduction to consumer advocate Herb Weisbaum and the challenges facing travelers this summer.
0:55 Airfare surge: domestic fares up roughly 18% year over year and international fares up about 8%.
1:23 Why airline ticket prices may stay high even if fuel costs eventually decline.
2:38 Airline executives signal that fare increases could become permanent if demand remains strong.
3:10 Strong travel demand despite higher prices and the impact of reduced low-cost competition.
3:42 Concerns about consumers financing vacations with credit cards and buy-now-pay-later programs.
4:36 Strategies travelers can use to reduce costs despite rising fares.
4:58 Rising checked baggage fees and how airline credit cards or elite status can help avoid them.
5:42 The value of flexible travel dates and considering less-crowded destinations.
6:30 Why booking trips sooner rather than later may be advantageous.
7:04 Travel insurance considerations, including “cancel for any reason” coverage.
7:39 Basic travel insurance limitations and war-related exclusions.
8:03 Airlines reducing schedules and eliminating routes because of fuel and operational pressures.
8:42 International carriers cutting thousands of flights and what it means for travelers.
9:24 Why this may be the most unpredictable travel season since the pandemic.
10:02 Practical advice for travelers facing uncertainty and disruptions.
10:18 The importance of airline apps for rebooking and managing travel disruptions.
10:42 Growing scams involving fake airline customer-service phone numbers appearing in search results.
11:46 A simple clue that a customer-service number may actually be a scammer.
12:19 Credit cards versus debit cards for travel purchases and fraud protection.
13:57 Why wire transfers, cryptocurrency payments, and peer-to-peer apps create major consumer risks.
14:58 Vacation rental scams involving major booking platforms.
16:25 A real-world family reunion rental scam and the challenges of obtaining refunds.
18:03 Differences between how major vacation-rental platforms handle payments and disputes.
18:59 World Cup travel, ticket scams, and avoiding fraudulent offers.
20:50 Why major events create ideal conditions for scammers.
21:46 Herb shares where listeners can find his articles, podcast, and consumer resources.

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Tom welcomes back advisor Roxy Butner for a wide-ranging discussion that begins with practical financial advice for new graduates and quickly expands into questions from listeners about student loans, emergency funds, retirement savings, portfolio construction, mortgages in retirement, and the coming frenzy around a potential SpaceX IPO. Along the way, they explore the tradeoffs between debt repayment and investing, the role of small-cap value tilts in diversified portfolios, why taxes matter when funding a major purchase from an IRA, and how investors should think about highly publicized investment opportunities.

0:05 – Roxy Butner returns to the show by popular demand as Tom welcomes her back for a summer discussion of listener questions and financial topics.
0:57 – Graduation season prompts a conversation about money advice for new graduates and young adults starting their financial lives.
1:23 – Tom references recommendations from financial journalist Jill Schlesinger, including the importance of tracking spending before creating any financial plan.
2:05 – Why understanding cash flow is the foundation of every financial decision, from debt repayment to investing.
2:31 – The surprising statistic that roughly 60% of college graduates leave school with student loan debt and why understanding loan terms matters.
3:30 – Roxy explains how graduates should evaluate student loan repayment versus investing based on cash flow and interest rates.
4:11 – Building an emergency fund and why high-yield savings accounts remain a preferred location for short-term reserves.
4:23 – Retirement savings for young workers, including the importance of capturing employer matches and establishing savings habits early.
5:39 – Why freezing your credit can be a simple and effective defense against identity theft and fraud.
6:43 – Listener question from Del Rio, Texas: Is AVGE enough small-cap value exposure for investors who follow factor-based investing principles?
7:38 – Comparing AVGE’s built-in factor tilts with the heavier small-cap value allocations often recommended by Paul Merriman.
8:32 – The long-term historical outperformance of U.S. small-cap value stocks and the tradeoff of accepting greater volatility.
9:33 – Why Avantis intentionally chooses moderate factor tilts rather than aggressive small-cap allocations.
10:25 – Roxy discusses risk-adjusted returns and the dangers of assuming that higher expected returns automatically justify larger allocations.
11:37 – The appeal of simplicity and why a one-fund portfolio like AVGE can help investors avoid behavioral mistakes.
12:31 – Listener question from Kansas City: Should retirees withdraw $1 million from an IRA to pay cash for a new home or take a mortgage?
13:00 – A retired couple with a $4.2 million net worth faces a decision between a large IRA withdrawal and a mortgage at roughly 6.3%.
14:14 – Why a massive IRA withdrawal could trigger substantial taxes and reduce portfolio flexibility.
14:41 – Tom explains the difference between evaluating cash flow needs and preserving overall net worth.
16:03 – The importance of maintaining liquidity in retirement and avoiding excessive concentration of wealth in a personal residence.
16:41 – Roxy proposes a compromise strategy: take the mortgage now and gradually make larger payments using carefully managed annual IRA withdrawals.
18:05 – A brief discussion about lake homes, neighboring properties, and the appeal of having family nearby.
18:42 – Tom asks Roxy about investor excitement surrounding a possible SpaceX IPO and whether investors should participate.
19:32 – Why investors may already gain exposure through index funds and retirement plans without purchasing shares directly.
20:38 – IPO investing as speculation, the role of familiarity bias, and why investors should be cautious about concentrated bets.
21:57 – How major IPOs eventually enter market indexes and become part of broadly diversified portfolios.
22:02 – Summer plans, weddings, Seattle sunshine, and a lighter closing conversation.
23:19 – How listeners can submit questions or schedule a free portfolio review through TalkingRealMoney.com.

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Don and Tom take on one of investors’ biggest blind spots: focusing on tiny costs while ignoring the factors that have a far greater impact on long-term wealth. Using a recent Jason Zweig article as a springboard, they explain how taxes can reduce stock market returns far more than the difference between low-cost fund expense ratios. The discussion covers tax-efficient investing, asset location, ETFs versus mutual funds, dividend taxation, capital gains, and why investors should pay more attention to portfolio design than chasing the lowest possible expense ratio. They also dissect a highly tax-inefficient YieldMax fund tied to MicroStrategy and Bitcoin, illustrating how taxes and poor fund structure can devastate returns. Listener questions cover Morningstar’s acquisition of CRSP indexes and whether it threatens Vanguard investors, plus whether a retiree working part-time can contribute earned income to a Roth IRA.

0:05 Big-picture investing versus obsessing over tiny details
0:39 Why fund expense ratios matter less than most investors think
2:06 Jason Zweig’s research on taxes reducing long-term market returns
3:20 How taxes often outweigh fund expense differences
4:06 Qualified dividends versus ordinary income taxation
5:03 Why investors should pay attention to after-tax returns
5:40 YieldMax funds and the hidden cost of tax inefficiency
7:19 The dangers of exotic income-focused ETFs
7:48 Why ETFs can be more tax-efficient than mutual funds
9:15 Tax knowledge as a critical investing skill
10:30 Asset location: where stocks and bonds belong
11:20 The YieldMax MicroStrategy fund and Bitcoin losses
11:58 The truly important parts of financial planning
13:15 Listener question from Longmont, Colorado
14:17 Morningstar, CRSP indexes, and Vanguard concerns
16:00 Why market-cap indexes are unlikely to be manipulated
17:16 Morningstar ratings and conflicts of interest discussion
17:58 Thoughts on the military-industrial complex
19:23 UFL football, soccer, and sports tangents
20:47 Listener question about Roth IRA contributions from part-time work
21:30 Filing thresholds and earned income requirements for Roth IRAs
23:21 Listener questions, voice submissions, and website tools
24:08 AI voices and synthetic Don McDonald
25:59 Romper Room memories and closing banter

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NOTE: This episode was accidentally uploaded as yesterday's podcast. To make the information match, the correct podcast for 6/16 has been uploaded in yesterday's place. If you heard this episode yesterday, please check out the newest episode in the June 16th podcast preceding this one. Sorry for the error.

Don and Tom take on the latest attempt to reinvent retirement investing: the claim that retirees should hold 90% stocks and just 10% bonds. They explain why focusing on recent stock returns ignores both history and human behavior, discuss the role bonds play in managing risk and retirement income, and remind listeners that successful investing is about meeting your goals—not maximizing returns at any cost. They also answer a listener question about claiming Social Security early versus waiting until age 70 and revisit the importance of maintaining exposure to emerging markets despite their volatility.

0:12 The newest retirement “better mousetrap”: 90% stocks, 10% bonds
1:48 Bob Pozen’s argument for aggressive retirement portfolios
3:01 Why 10-year return data can be misleading
4:16 The psychology of large portfolio losses
5:42 Bonds are not stocks: understanding the difference
7:37 How fixed income supports retirement withdrawals
8:22 Why retirees should know their actual asset allocation
10:04 Taking only the risk you need to take
12:25 Remembering how investors felt in 2000, 2008, and 2022
13:33 Using the Talking Real Money risk quiz
14:27 Summer request for listener questions
15:31 Listener Scott asks about claiming Social Security early
17:07 Why delaying Social Security can still make sense
18:32 The value of Social Security’s guaranteed increase
20:11 Risks of assuming stock market returns will cooperate
21:55 Why contrarian retirement advice attracts attention
22:25 The overlooked role of emerging markets
23:50 Why emerging markets belong in diversified portfolios
24:30 The risks and rewards of global diversification

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Should retirees live off dividends and bond interest, or use a total return strategy? Don and Tom tackle one of the most persistent myths in retirement investing: that dividend-paying stocks create safer retirement income. They explain why dividends are not “free money,” how dividend-focused portfolios can create hidden risks, and why most academic research favors a diversified total return approach. The conversation explores dividend traps, covered-call income funds, sustainable withdrawal strategies, and the importance of diversification. They also respond to a listener defending Robinhood’s platform, debate gamification in investing, and discuss Philadelphia’s new automatic retirement savings program designed to help workers without employer-sponsored plans.

0:05 Introduction: Dividend income vs. total return investing
1:44 Why retirees are attracted to dividend-focused portfolios
2:19 What a total return strategy actually means
3:37 The appeal of predictable dividend income
4:55 High-yield ETFs and the risks behind the payouts
5:03 Why dividends are not free money
6:10 Larry Swedroe’s argument: dividends are not income
6:27 Understanding the dividend trap
7:05 Extreme dividend yield example: GMEX Robotics
8:35 YieldMax and triple-digit yields
9:44 Why academics favor total return strategies
10:48 Rebalancing as an income source in retirement
11:43 The hidden risks of income-focused products
13:30 Bridge-playing and retirement banter
14:21 How listeners can submit questions
15:12 Listener question: Is Robinhood getting unfair criticism?
16:13 Robinhood, gamification, and investor behavior
18:18 Why “stodgy” may be good for money management
19:53 Philadelphia’s new retirement savings initiative
20:45 Automatic enrollment and retirement success
22:30 Why saving must be made easy
23:28 Free portfolio reviews at Appella
24:21 Discussion of The Line Uncrossed
26:47 Family history and future book possibilities

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Don takes listeners on a journey through nearly four decades of investment advice, explaining how his thinking evolved from recommending active mutual funds in the 1980s to embracing index funds, factor investing, and eventually ETFs. Along the way, he and Tom discuss Vanguard’s rise, Don’s early relationship with Paul Merriman, the emergence of Dimensional Fund Advisors and Avantis, and why their recommendations have changed over time. They also address listener skepticism about fund recommendations, compare Avantis and Vanguard products, answer a tax-efficient portfolio rebalancing question from a retired couple, and debunk a marketing pitch for “layered income portfolios.”

0:08 Don shares the story of his early days giving investment advice from Leadville, Colorado
2:56 The active management era and why great fund managers were once considered essential
3:52 Vanguard’s early growth and the gradual acceptance of index investing
5:38 Don discusses Vanguard sponsoring his radio show and maintaining disclosure transparency
6:55 Paul Merriman introduces factor investing and Fama-French research
9:10 Early Dimensional Fund Advisors portfolios and advisor-only access
10:56 The rise of ETFs, Dimensional’s hesitation, and Avantis’ origins
11:23 The 2010 ETF flash crash and why Tom and Don were initially cautious
13:29 Why factor investing remains compelling despite uncertain future returns
14:20 Addressing listener skepticism about Avantis recommendations
16:07 Comparing AVUV and Vanguard VBR small-cap value funds
17:44 Comparing AVGE and Vanguard VT global equity funds
19:15 Clarifying compensation, conflicts of interest, and transparency
21:27 Listener Anton asks about tax-efficient portfolio rebalancing in retirement
26:03 Why holding bonds inside IRAs can improve tax efficiency
27:23 Discussion of Roth conversion strategies and tax considerations
30:20 Listener asks about “Layered Income Portfolios”
31:05 Why income portfolio marketing pitches are often more sales than substance

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Don answers a diverse collection of listener questions covering Roth conversions, indexed annuities, emergency fund management, TSP contributions, inherited money, and portfolio construction. He delivers a forceful warning about indexed annuities and commission-driven insurance sales after one listener considers using an annuity bonus to offset Roth conversion taxes. Other questions explore whether short-term bond funds belong inside a Roth IRA, how much attention investors should pay to taxes, investing a potential $200,000 windfall, Roth versus traditional TSP contributions, and Paul Merriman’s popular Two-Fund for Life strategy. Along the way, Don shares his appreciation for readers of The Line Uncrossed and reminds listeners how to submit questions through the new Talking Real Money website.

0:05 Summer question slowdown, Friday Q&A format, and submitting questions through the new website
1:41 Listener asks about using an indexed annuity bonus to help fund a Roth conversion
3:14 Why indexed annuities are often misleading and how insurance commissions create conflicts
5:01 The risks of moving an entire retirement portfolio to cash at retirement
6:30 Why a comprehensive fiduciary financial plan may be essential for this listener
8:16 Question about holding VFSTX as part of an emergency fund strategy
10:36 Why taxes are often a minor concern compared with investment allocation
11:03 Why a short-term bond fund may not belong inside a 42-year-old’s Roth IRA
12:17 Balancing growth, risk tolerance, and liquidity needs
13:22 TSP lifecycle funds, Roth contributions, and planning for a possible $200,000 windfall
15:03 Separating travel money from long-term investment assets
16:09 Paul Merriman’s Two-Fund for Life strategy
17:38 The role of small-cap value funds alongside target-date funds
18:13 Fama-French factor investing and the tradeoff between simplicity and optimization
19:15 Closing thoughts on listener questions and participation
20:26 What makes a fiduciary advisor different from a commissioned salesperson
21:13 Update on The Line Uncrossed and request for listener reviews

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Don and Tom tackle rising bond yields and the anxiety they create for investors, explaining why higher bond yields mean lower bond prices and why recent moves in long-term Treasury rates have sparked comparisons to the period before the 2008 financial crisis. They discuss inflation fears, interest rate policy, and why investors should be cautious about reading too much into bond market movements as predictors of future stock returns. The conversation reinforces the role of bonds as portfolio stabilizers rather than return generators, particularly for retirees. They also answer a listener question about covered-call ETFs, explaining how option premiums create income, why the strategy isn’t “magic money,” and the tradeoffs between yield, complexity, and risk. The episode closes with a correction involving Robert Wagner and Robert Conrad and a humorous detour into reverse-mortgage celebrity spokespeople.

0:05 Bond investing versus “bondage” and why bonds are suddenly making headlines
1:07 Rising Treasury yields and concerns about the bond market
2:30 Why investors compare today’s bond yields to conditions before 2008
3:00 Bond prices, bond yields, and the inverse relationship between them
3:51 Inflation fears, energy prices, and their impact on bonds
5:50 Global bond market pressures and rising yields in Britain
7:06 Federal Reserve rate expectations and inflation control
7:51 Lessons from the bond market collapse of 2022
8:36 Can bond market activity predict future recessions or market declines?
10:06 Why geopolitical events often fail as market-timing signals
10:31 Why own bonds when long-term returns have been disappointing?
11:03 The role of bonds in diversification and retirement portfolios
12:06 Using bonds as a spending reserve during stock market declines
13:07 Listener question: How covered-call ETFs generate income
14:18 Covered-call basics and selling options against stocks
17:26 Risks, costs, and limitations of covered-call strategies
19:38 Evaluating JEPI and the tradeoff between yield and volatility
21:22 Listener correction: Robert Wagner versus Robert Conrad
24:01 Reverse-mortgage spokespeople and celebrity rankings
25:34 Why making a top-five list may be life’s greatest achievement

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Don and Tom examine the coming wave of blockbuster IPOs, including rumored offerings from SpaceX, Anthropic, and OpenAI, and explain why investor excitement often leads to disappointing results. Drawing on research from Dimensional Fund Advisors and examples such as Uber, Facebook, and Groupon, they discuss the historical underperformance of IPOs and the dangers of buying into hype. They then answer a listener’s question about assets-under-management fees, explaining the broader planning, tax, behavioral, and retirement services provided by fiduciary advisors beyond portfolio construction. The episode concludes with a look at the growing number of highly speculative ETFs, including UFO-themed and meme-stock funds, and a warning that investors should focus on diversification and discipline rather than chasing the latest financial product.

0:05 Summer IPO mania: SpaceX, Anthropic, OpenAI, and the hype machine
1:24 SpaceX’s massive valuation and why investors are excited
3:05 Anthropic and OpenAI join the trillion-dollar IPO conversation
4:29 Comparing today’s IPO wave to the dot-com boom
5:09 Why hot IPOs are usually a bad investment
6:27 Dimensional research on IPO underperformance and liquidity concerns
7:51 Uber, Facebook, Groupon, and other IPO cautionary tales
8:50 Why even great companies can be poor investments at the wrong price
9:45 Why disciplined firms delay adding IPOs to portfolios
10:59 How to submit questions to Talking Real Money
13:17 Listener question: Is a 1% AUM fee really worth it?
15:20 What advisors actually do beyond portfolio management
16:44 Vanguard’s research on advisor value
17:12 Why large portfolios shouldn’t pay a flat 1% on all assets
18:24 The emotional and behavioral benefits of professional advice
20:29 How advisors help investors stay diversified
21:45 The explosion of bizarre new ETFs
22:49 UFO ETFs, meme-stock funds, and speculative product launches
25:05 Why investors should be skeptical of niche ETFs and high fees

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Don and Tom explore the difference between smart risk and dumb risk in investing, sparked by new survey data showing younger investors increasingly believe they must take big risks to achieve their financial goals. They discuss the rise in stock trading, options speculation, and meme-stock behavior, contrasting those activities with evidence-based risks such as broad stock market investing, factor tilts, and maintaining efficient use of cash. They also answer a listener question from a recently retired investor concerned about market valuations and inflation, discussing small-value tilts, bond allocations, and the role of TIPS. Along the way, they wander into Roman and Han Dynasty history, retirement boredom, Don’s Civil War novel, podcast economics, and the launch of the newly redesigned Talking Real Money website.

0:05 Podcasting economics, removing ads, and the realities of making money from podcasts
2:34 Why investors believe they need to take bigger risks to reach financial goals
4:26 The growth of indexing and the shift away from active investing
4:59 FINRA survey shows younger investors embracing options and speculative trading
6:25 Smart risk versus dumb risk and why experience changes risk perception
7:04 Options, IPOs, hot stocks, crypto, and other forms of speculative risk
8:07 Research on options trading success rates and why most traders lose money
8:48 Individual stocks, market timing, and sector bets that historically have not paid off
10:47 Risks that may be worth taking, including all-stock portfolios for younger investors
11:22 The long-term case for owning the global economy through diversified stock funds
11:55 Small-cap, value, profitability, and momentum factor tilts
12:37 The hidden cost of idle cash and improving returns through better cash management
13:42 Why inflation is guaranteed to beat most traditional bank savings accounts
14:59 Roman and Han Dynasty history and what it says about long-term economic growth
15:42 The new Talking Real Money website and easier ways to submit questions
17:34 Listener question from a 58-year-old retiree using a Boglehead four-fund portfolio
19:15 Whether adding a small-value tilt makes sense in retirement
20:41 Thoughts on bond funds, TIPS, and inflation protection
22:02 Short-term Treasury ETFs versus high-yield savings accounts
23:11 Avoiding emotional reactions to market valuations
24:03 Retirement longevity risk and planning for a potentially decades-long retirement
24:52 Don discusses researching and writing The Line Uncrossed
27:32 Meet-an-Advisor invitation and how the free portfolio review process works

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