Vanguard vs. DFA & Avantis

I recorded this one on the Friday before the Bogleheads Conference, with factor investing — and my upcoming debate — very much on my mind. It’s a mailbag episode, and your questions pointed me right at the topics I’ll be discussing there.First, a couple of updates. I’m still getting wonderful emails since Margie slipped news of my 83rd birthday into the newsletter — including one from a listener who started with Tom Cock and me on Sound Investing back in the 1980s and went on to put his own family, and many friends, on the road to financial independence. I also share more feedback from “Ed,” who went through PlanVision’s low-cost financial-planning service, including his experience getting help with Roth conversion decisions.Then I dig into the questions you’ve been sending:10:30 — What’s the real difference between Dimensional (DFA) and Avantis funds, and where does Vanguard fit? A short history of factor investing, and why owning both DFA and Avantis can actually add diversification18:05 — Bruce worries about the S&P 500’s concentration in a handful of tech names. Should you split your large-cap blend across a cap-weighted fund (VOO), an equal-weighted fund (RSP), and a factor fund (AVLC)?24:39 — A reader’s proposed 100%-stock-for-life portfolio, and how the DFA and Avantis all-in-one funds compare28:20 — The combination funds I keep getting asked about (AVGE, AVGV and VT), and why a simple “thirds” approach added about 1% a year over a recent stretch39:35 — John is 51, planning to FIRE this summer with $1.8 million and a 2.8% withdrawal rate, and wants to go all-in on worldwide small-cap value. Why I’d say no, and what Bill Bernstein would tell him53:08 — How to find a good small-cap value fund (and why I favor AVUV and DFSV), plus what Morningstar’s percentile rankings really tell you1:01:12 — The question I can’t wait to answer for a family of young investors at the conference: is there a good “mild factor tilt” for life? I walk through our Table G1B to show exactly what more small-cap value adds, in both return and riskAs always, thank you for your feedback, your donations, and for staying the course even on the hard days. I hope to see many of you at the Bogleheads Conference!

This week I want to look at what the first ten months of 2026 can teach us about how we invest — and why broad diversification keeps looking like the smartest seat in the house.I start with a Ben Carlson piece from November 1. If you’ve been picking individual tech and AI stocks lately, it has felt like a bloodbath: Google down more than 30% from its highs, Intel off 54%, Netflix down more than 50%, and a long list of others in the penalty box. And yet the S&P 500 is still up almost 12% on the year, with two-thirds of stocks higher. That gap is the whole case for index funds — and the same logic applies to equity asset classes.From there I go down my favorite rabbit hole: the year-to-date numbers for Vanguard, Avantis and DFA across large, small, value, REITs, international and emerging markets — and what the differences between “traditional” cap-weighted indexing and the factor-based approach at Avantis and DFA may, and may not, be telling us.I also dig into combination funds. How did a 70/30 Ultimate Buy and Hold compare with Vanguard’s global VT and with an all-in-one like Avantis’ AVGE? Why does holding these asset classes under one umbrella make rebalancing more tax-efficient in a taxable account? And I walk through a new Avantis study, Risk and Return of Tilted Portfolios, that estimates how much adding value and profitability tilts — and small-cap value — may have added to long-term returns.Finally, I talk honestly about the hardest part of all of this: tracking error, the temptation to measure yourself against the S&P 500 or your neighbor, and why your willingness to stay the course matters more than any single fund choice. Plus a preview of my upcoming Boglehead Conference debate with Jim Dahle — total market index versus small-cap value.One nice surprise was an email from Feedspot, a huge database of just about every corner of media — podcasts, blogs, influencers and YouTubers. We were pleased to be included in their Top 26 Mutual Funds Podcasts. We came in 3rd, and it was great to see Don and Tom at Talking Real Money sitting right at the top of the list. Tom and Don have been doing this work for more than 25 years, and they were my teachers when the three of us worked on a weekly radio show and, later, the Sound Investing podcast. If you know their work, you can imagine how much fun it was — some of the best days of my life!As always, thank you for your feedback, your birthday wishes and your generous support of our work. I hope this one helps.Timestamps00:57 — Thank-you for feedback, birthday wishes, and donations03:04 — The Ben Carlson article: tech/AI stocks down while the S&P 500 is up05:52 — The case for index funds and broad diversification06:55 — Our approach: Vanguard vs. Avantis and DFA (traditional vs. factor investing)09:19 — 10-month performance across the asset classes15:34 — Combination / all-in-one funds (AVGE, AVGV, Ultimate Buy and Hold)19:56 — The tax advantage of all-in-one rebalancing21:17 — How the 2-, 4-, and 5-fund strategies began (Bogle, 2017)21:53 — Preview of the Boglehead debate with Jim Dahle22:52 — Seth Godin’s “Not Yet” and the evolution of indexing29:16 — The Avantis study: Risk and Return of Tilted Portfolios32:24 — Value, profitability, and focusing on financially strong companies33:11 — The Bessembinder study41:33 — Tracking error and the patience test46:30 — A simple three-way framework for a retiree’s equities46:11 — Staying the course

Aloha from Oahu! I recorded this one from our hotel room in Hawaii, where my wife and I came to celebrate our two birthdays — three days apart, if not the same year. I promised Zan I’d only work from four to seven each morning on this trip, and this was the one podcast I wasn’t willing to miss.It kicks off something I’ve wanted to do for a long time: an honest, practical look at one of the biggest forks in the road a do-it-yourself investor ever faces — whether to manage your money yourself or hire someone to help, and if you hire help, what kind.This first episode is the view from 30,000 feet. Over the coming weeks and months I’ll dig much deeper, including interviews with organizations like Hello Nectarine, NAPFA and the Garrett Planning Network.In this episode:07:29 — Why every investor is really starting a business, and why “hiring” index funds and ETFs is step one15:29 — Why the future you’re paying an advisor to predict is one they can’t predict any better than you can27:40 — The difference between commission salespeople, assets-under-management (AUM) advisors, and hourly or flat-fee planners36:25 — The conflict of interest almost no one talks about, and why it reaches all the way to the day an advisory firm is sold47:10 — How a $5 million investor paying 0.8% ($40,000 a year) might get the same help from an hourly or flat-fee planner for $8,000–$12,00054:34 — Whether you’re a few years from retirement, already there, or just want to make this decision with your eyes open, I think you’ll find something useful54:53 — Why I recently paid $3,400 to test an hourly advisor myself, and why I’m glad I didThis is the first of at least two or three episodes on this topic. I’d love your feedback and your questions for the ones ahead — email me at [email protected].

As Paul turned 83 last week, he recorded this podcast in his studio office surrounded by piles of articles and notes for future recordings and a good deal of gratitude. He says this may be his favorite podcast he's ever made.He starts with the two biggest paydays of his life. The first was December 31, 2012, the day he sold his part of the firm he'd started in 1983 and walked into retirement with a promise to his wife that he'd never work for money again. The second happened in the last 48 hours, and not a dollar changed hands. He also has a word of caution for anyone who credits him for what their portfolio has done.Then an epiphany. After reading a recent Adam Grossman piece in HumbleDollar, Paul began to question whether John Bogle's "stay the course" really belongs as the number one rule for being a successful long-term investor. He took the question to ChatGPT, shares the whole conversation, and comes away with a new rule number one, plus a line he thinks an 18-year-old might still remember at 65.The third topic is bonds. Paul has been reading a lot of negative commentary about them lately, so he goes back to Table B1 and walks through 56 years of history: how many losing years the S&P 500 had since 1970, how many the short-to-intermediate bond portfolio had, what the worst 12 months and worst 60 months looked like, and why he and his wife hold the mix they do at 83. He also explains why long-term bonds are not the answer, and what the numbers since 1928 say about the premium you get for their extra risk.LINKSMarket Risks by Adam M. Grossman, HumbleDollar

In this special office-hours session, Albert and I answer the questions teachers have been sending in across our four NGPF classroom sessions — more than 500 educators strong.We move fast and cover a lot of ground:1. How a young person can open a first investment account (and why $1 is all it takes to start at Fidelity) 02:362. My favorite books on saving, investing and index funds 10:583. The best free websites and videos for teachers and students 12:514. How to make inflation real in the classroom — yes, the bubble-gum story 19:195. Why asset classes like small-cap value and large-cap growth behave so differently 25:156. A live walk-through of Morningstar’s style boxes and the chart function 34:457. Advice for reaching first-generation and lower-income students 47:248. What would be the job to suggest to a middle schooler to get them more interested in math and economics?Whether you teach this material or you’re just getting started yourself, I think you’ll find something here you can put to use.Watch video

WATCH THE VIDEOThis is the fourth of five presentations I recorded for Next Gen Personal Finance (NGPF.org) and am sharing with Sound Investing listeners.I titled this one “The $5 Million Payoff for a Financially Literate High School Graduate” — but I could have called it the $42 million payoff, and by the end you’ll see the math that makes it believable. I walk through the single biggest decision of all (stocks vs. bonds), 100 years of market history, why the first five years of investing matter most, and how low costs, low taxes, and automation turn small savings into a fortune over a lifetime.FREE BOOK THIS WEEKSpending Your Way to Wealth (see Appendix E)https://investorship.com/wp-content/uploads/2023/10/SYWTW.pdfTABLES AND RESEARCHhttps://www.paulmerriman.com/[email protected] (put “NGPF” in the subject line)Join us next week for the final session: Financial Literacy Office Hours with Paul Merriman.

Harry Markowitz called diversification "the only free lunch in finance." In this session, part of Paul's series for Next Gen Personal Finance educators, Paul Merriman explains what that means in practice, and why a well-diversified portfolio can help investors stay the course through good markets and bad.Paul covers the history and math behind diversification, from Don Quixote's "don't put all your eggs in one basket" to Warren Buffett, Charlie Munger, and Sir John Templeton. He explains the three kinds of risk investors face (company, market, and asset class), and shows how the "lost decade" of 2000–2009 hit S&P 500 investors hard while more diversified portfolios kept growing.You'll also hear:How adding small "baby steps" of large cap value, small cap, and REITs added about 1% a year to returns since 1970Why the two-fund strategy (half S&P 500, half small cap value) may be less risky than it looksWhat a young investor putting away as little as $1,000 a year could build over a lifetimeA simple "ultimate buy and hold" for hands-off investors: a target date fund plus a slice of small cap valuePlus, Paul shares a free book from market historian Bill Bernstein.Watch on YouTube: youtu.be/MDqaIojI8TEFree book: If You Can: How Millennials Can Get Rich SlowlyTables and research: paulmerriman.com/data-tablesSend your questions to Paul at [email protected] (include "NGPF" in the subject line)

Watch the video here.This is the second of five presentations Paul recorded for Next Generation Personal Finance (NGPF.org), whose free curriculum reaches some 150,000 teachers. The sessions weren't open to the public, but NGPF has allowed Paul to share each one with Sound Investing listeners.The subject is index funds, and Paul starts where the story starts: John Bogle, 1976, and a fund launch that nearly got cancelled before it opened.From there he looks at what the evidence actually says about active management over 20 years, why most investors never hear about the costs that quietly come out of their returns, and what happens to a fund that doesn't perform. He also introduces the non-traditional index funds from Dimensional and Avantis that he believes give young investors their best opportunity, and closes with stories from the 90 minutes he spent in Jack Bogle's office.CHAPTERS00:00 Introduction02:44 What is an index fund?04:38 John Bogle and the first index fund08:50 Active vs. passive: beat the market or be the market10:52 The SPIVA report14:53 Quartiles and the 20-year picture19:49 How long do mutual funds survive?22:05 Asset class and style drift25:14 The tax cost of active management28:51 Bogle on costs and the hidden drags on return35:18 Myths about index funds38:28 Beating the S&P 500 with index funds42:35 Traditional vs. non-traditional index funds49:06 Dimensional and Avantis50:23 The number one reason to use index funds55:46 Stories from meeting Jack Bogle59:25 Wrap-upNGPF: ngpf.org

WATCH THE VIDEOWant to build a multi-million-dollar retirement portfolio without gambling on single stocks? This is the first session of the four-part series I recorded for the teachers of Next Gen Personal Finance — and I’m sharing it here with you. In it, I break down the timeless principles, the math and the market history every long-term investor needs to know.WHAT YOU’LL LEARN IN THIS EPISODE• The Math of Compounding [01:43] — how finding an extra 0.5% to 1% in returns — or starting just five years earlier — can add millions to your lifetime wealth.• The Power of Starting Early [09:48] — why your initial investment years build your foundation, and how both bull and bear markets work in favor of young, disciplined savers.• Budgeting Strategy [19:43] — applying the “Pay Yourself First” rule and the 50/30/20 framework to establish sustainable saving habits.• Stocks vs. Bonds [22:44] — understanding why stocks are low-risk for long-term growth, while bonds carry inflation risk over decades.• Market Diversification [30:08] — why 4% of companies generate nearly all stock-market gains, and how owning total-market index funds ensures you don’t miss out on them.• Equity Asset Classes [37:59] — comparing large-cap blend, large-cap value, small-cap blend and small-cap value to reduce volatility and boost returns.• Target-Date Funds [49:38] — why automated, age-tailored allocation helps investors stay the course and avoid emotional mistakes.Tune in to discover how staying the course, keeping expenses low, and letting history guide your strategy can transform your financial future.Join us next week for The #1 Reason to Invest in Index Funds.

Paul opens with news of a new opportunity to reach young investors: a five-part series for Next Generation Personal Finance (NGPF.org), available to some 150,000 teachers who use NGPF's free curriculum. Topics include the math and history of investing, the case for index funds, the inside story on diversification, the $5 million payoff for a financially literate high school graduate, and a teacher Q&A session. Each presentation will be shared with Sound Investing listeners the following week.Then Paul turns to two listener questions that go to the heart of how people actually experience the market.The first asks whether broad diversification really produces the best returns, or whether a more focused portfolio would do better. He walks through the Bessembinder research showing that roughly 4% of companies drove most of the market's long-term return, Fama and French data on small cap value going back almost 100 years, and Vanguard's own real time returns since 1998 comparing $10,000 invested in the S&P 500, mid cap, small cap blend and small cap value asset classes.The second is a letter from an investor who put his first real savings, earned at $7 an hour, into Fidelity Magellan in 1985, lost 30% on Black Monday in October 1987, and pulled everything out. Forty years later he still fears the next crash and asks whether Paul's Ultimate Buy and Hold portfolio could leave him waking up with half his money gone.Paul closes with a story about five 24-year-old engineers he met on Bainbridge Island, and an offer to anyone who can gather a group that would benefit from a conversation about investing.LINKSFine-Tuning Your Asset Allocation tablesNGPF: ngpf.org