• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Optimized Portfolio

Investing and Personal Finance

  • Beginners Start Here
  • Investing 101
    • Beginners Start Here – 10 Steps To Start Building Wealth
    • What Is the Stock Market? How It Works & How to Invest in It
    • How To Invest in an Index Fund – The Best Index Funds
    • Portfolio Asset Allocation by Age
    • How To Invest Your Emergency Fund
    • Portfolio Diversification – How To Diversify Your Portfolio
    • Dollar Cost Averaging vs. Lump Sum Investing (DCA vs. LSI)
    • How To Invest Your HSA (Health Savings Account)
    • Factor Investing and Factor ETFs – The Ultimate Guide
    • more…
  • Lazy Portfolios
    • All Weather Portfolio
    • Bogleheads 3 Fund Portfolio
    • HEDGEFUNDIE’s Excellent Adventure
    • Warren Buffett Portfolio
    • Golden Butterfly Portfolio
    • Paul Merriman Ultimate Buy and Hold Portfolio
    • Ben Felix Model Portfolio
    • Permanent Portfolio
    • David Swensen Portfolio
    • 60/40 Portfolio
    • more…
  • Brokerage Reviews
    • The 5 Best Stock Brokers
    • The 4 Best Investing Apps
    • M1 Finance Review
    • Brokers with the Lowest Margin Rates
    • M1 Finance vs. Fidelity
    • M1 Finance vs. Vanguard
    • Webull vs. Robinhood
    • Stash vs. Robinhood
    • M1 Borrow Review (How M1’s Margin Loan Works)
    • more…
  • ETFs
    • VOO vs. VTI – Vanguard S&P 500 or Total Stock Market ETF?
    • The 7 Best International ETFs
    • The 8 Best Small Cap ETFs (4 From Vanguard)
    • The 5 Best REIT ETFs
    • The 5 Best EV ETFs – Electric Vehicles ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • The 5 Best Tech ETFs
    • The 7 Best Small Cap Value ETFs
    • The 6 Best ETFs for Taxable Accounts
    • The 5 Best Emerging Markets ETFs (1 From Vanguard) for 2022
    • more…
  • Leverage
    • What Is a Leveraged ETF and How Do They Work?
    • How To Beat the Market Using Leverage and Index Investing
    • The 9 Best Leveraged ETFs
    • Hedgefundie’s Excellent Adventure
    • Leveraged All Weather Portfolio
    • Leveraged Permanent Portfolio
    • Leveraged Golden Butterfly Portfolio
    • NTSX – Review and Summary
    • TQQQ – Is It A Good Investment?
    • PSLDX – A Review
    • SWAN – A Review
    • RPAR Risk Parity ETF Review
    • more…
  • Dividends
    • The Best M1 Finance Dividend Pie
    • The 11 Best Dividend ETFs
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • 8 Reasons Why I’m Not a Dividend Income Investor
    • QYLD – A Harsh Review
    • more…
  • Bonds
    • The Best Vanguard Bond Funds – 11 Popular ETFs
    • The 11 Best Treasury Bond ETFs
    • Treasury Bonds vs. Corporate Bonds
    • The 3 Best TIPS ETFs
    • The 5 Best High Yield Bond Funds for Income
    • The 3 Best Municipal Bond ETFs
    • How To Buy Bonds Online: The Ultimate Guide
    • The Best Bond Funds Out There – 13 ETFs
    • The 3 Best Corporate Bond ETFs
    • more…

Paul Merriman 4 Fund Portfolio Review & M1 Finance ETF Pie (2022)

Last Updated: March 22, 2022 4 Comments – 3 min. read

The Paul Merriman 4 Fund Portfolio is a simple, equal-weighted equities portfolio that tilts toward small caps and Value stocks. Here we’ll take a look at its components, performance, and the best ETFs to use in its implementation.

Interested in more Lazy Portfolios? See the full list here.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Who Is Paul Merriman?
  • What Is the Paul Merriman 4 Fund Portfolio?
  • Paul Merriman 4 Fund Portfolio Performance vs. the S&P 500
  • Paul Merriman 4 Fund Portfolio ETF Pie for M1 Finance

Who Is Paul Merriman?

Paul Merriman is a financial advisor and educator who is referenced often in the financial blogosphere for his impactful and approachable analyses on index investing and asset allocation in relation to long-term buy-and-hold investing strategies.

Merriman founded an investment advisory firm in Seattle in 1983, from which he has since retired. He is regularly published on MarketWatch.com, and offers free podcasts, articles, newsletters, and more on his website PaulMerriman.com.

Merriman has written a number of highly-rated books that you can find on Amazon here. His newest one from November, 2020 is We’re Talking Millions!: 12 Simple Ways to Supercharge Your Retirement. You can read more about him on his website here.

What Is the Paul Merriman 4 Fund Portfolio?

The Paul Merriman 4 Fund Portfolio, as the name suggests, is a lazy portfolio designed by Paul Merriman that utilizes equal weightings of 4 assets. The portfolio is 100% stocks and is thus considered more risky than his Ultimate Buy and Hold Portfolio.

To design the portfolio, Merriman looked within stocks at the styles and cap sizes that have paid a risk premium historically. Basically, the portfolio places large bets on the well-established Size and Value factor premia, tilting heavily to small cap stocks and Value stocks, to hopefully deliver market outperformance over the long term. The research is sound and the concept is simple.

Unfortunately the Size and Value factors have suffered in recent years, lagging the market. I don’t employ or advise market timing, but AQR maintains that Value is basically the cheapest it’s ever been right now relative to history, suggesting that now may actually be the worst time to give up on the factor, and that it’s due for a comeback. We would also expect factors to have negative premiums from time to time, even for extended time periods.

Merriman suggests that this 4 fund portfolio can indeed provide a “comeback” after all the recent market volatility. Note again though that this is a high-risk portfolio that is likely better suited for investors with a high risk tolerance and a long time horizon.

The Paul Merriman 4 Fund Portfolio looks like this:

25% S&P 500
25% Large Cap Value
25% Small Cap Blend
25% Small Cap Value

Just as with his Ultimate Buy and Hold Portfolio, Merriman walks us through each “building block” of the portfolio.

  1. The S&P 500 is considered to be a sufficient proxy for the U.S. stock market and is a good, diversified “work horse.” It provides a solid foundation for the portfolio across large-cap Growth and Value stocks.
  2. Large cap Value stocks have beaten large cap Growth stocks historically, so the 2nd building block is to tilt large-cap Value with 25%. This is again known as the Value factor premium.
  3. Small stocks have beaten large stocks historically, presumably because investors demand higher returns for riskier, more volatile small-cap stocks compared to large-cap stocks. This is known as the Size factor premium.
  4. Small cap Value stocks have beaten small cap Growth stocks historically, so we’re tilting small cap Value with 25%. This enhances exposure to both the Size and Value factor premia.

My own personal portfolio tilts toward both of these factors.

Paul Merriman 4 Fund Portfolio Performance vs. the S&P 500

Going back to 1928, the S&P 500 index had a compound return of 9.9% through 2019.

Large cap Value: 11.1%
Small cap stocks: 12%
Small cap Value: 13.2%

These 4 combined: 11.8%.

These results are summarized in a table from Merriman’s website here.

Paul Merriman 4 Fund Portfolio ETF Pie for M1 Finance

M1 Finance is a great choice of broker to implement the Paul Merriman 4 Fund Portfolio because it makes regular rebalancing seamless and easy, has zero transaction fees, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here.

Using mostly low-cost Vanguard funds, we can construct the Paul Merriman 4 Fund Portfolio like this:

  • VOO – 25%
  • RPV – 25%
  • IJR – 25%
  • AVUV – 25%

You can add the Paul Merriman 4 Fund Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Save to my account.”

Canadians can find the above ETFs on Questrade or Interactive Brokers. Investors outside North America can use eToro or possibly Interactive Brokers.


Disclosure: I am long VOO and AVUV in my own portfolio.

Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

m1 finance get started

Related Posts

  • M1 Finance vs. Ally Invest Brokerage Comparison (2022)
  • BND vs. AGG – Comparing 2 Popular US Total Bond Market ETFs
  • The 12 Best Small Cap Value ETFs (3 From Vanguard) for 2022
  • How To Invest Your HSA (Health Savings Account)
  • Gone Fishin’ Portfolio Review (Alexander Green) & ETFs (2022)

About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Comments

  1. Tom Schaber says

    April 2, 2022 at 2:27 pm

    John,
    Just Portfolio Visualized Paul Merriman’s 4 Fund portfolio using the funds you suggest. It only went back to 2019 for AVUV so I substituted IJS which is also a small cap value. Then because VOO’s inception date is more recent than VFINX, I used VFINX to represent the S&P 500.

    Well, significantly different results if the start date is Jan 2007 rather than the “way back” you used. CAGR for S&P 500: 10.00 %; Merriman’s 4 fund portfolio: 9.28.

    Value funds haven’t outperformed growth and the S&P since 2004. I think the bloom is off the rose.

    AND, while I’m at it, you have the wrong definition of risk. Who cares how volatile a portfolio is during the accumulation phase so long as it’s final value is greater at the end of the accumulation phase. In this regard, merely investing in the S&P in the long run will always give superior results. I can prove this using Portfolio Visualizer.

    Reply
    • John Williamson says

      April 3, 2022 at 12:14 pm

      Tom, I’ve noted many times that Size and Value have both suffered recently, that we would expect extended periods of factor underperformance, and that volatility per se is not risk. I delved into those ideas here and here.

      Reply
  2. Aakash says

    January 30, 2022 at 8:26 pm

    Hello! Since this includes Small Cap Blend, which includes Small Cap Growth, is that a problem per your reference here?

    Thanks.

    Reply
    • John Williamson says

      January 30, 2022 at 9:32 pm

      Impossible to know the future. I wouldn’t call it a “problem” but it is arguably suboptimal, though we can’t say for sure. SCG has done pretty well in recent years.

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

  • Facebook
  • Instagram
  • Twitter
  • YouTube
  • Reddit

Most Popular

Ray Dalio All Weather Portfolio Review, ETF’s, & Leverage

HEDGEFUNDIE’s Excellent Adventure (UPRO/TMF) – A Summary

Golden Butterfly Portfolio Review and M1 Finance ETF Pie

David Swensen Portfolio (Yale Model) Review and ETFs To Use

Harry Browne Permanent Portfolio Review, ETFs, & Leverage (2022)

Corporate Bonds vs. Government Bonds (Treasuries) – The Showdown

VIG vs. VYM – Vanguard’s 2 Popular Dividend ETFs (Review)

Warren Buffett ETF Portfolio (90/10) Review and ETFs (2022)

The 60/40 Portfolio Review and ETF Pie for M1 Finance

Bogleheads 3 Fund Portfolio Review and Vanguard ETFs To Use

m1 sidebar

Paul Merriman Ultimate Buy and Hold Portfolio Review, M1 Pie (2022)

Lowest Margin Rates Brokers (2022 Comparison)

M1 Finance vs. Vanguard Brokerage Comparison [2022 Review]

M1 Finance vs. Fidelity Brokerage Comparison [2022 Review]

The Best M1 Finance Dividend Pie for FIRE & Income Investors

Portfolio Asset Allocation by Age – Beginners To Retirees

The 5 Best Stock Brokers Online for Investing (2022 Review)

The 4 Best Investing Apps for Beginners (2022 Review)

The 7 Best Small Cap ETFs (3 From Vanguard) for 2022

The 6 Best REIT ETFs To Invest in Real Estate for 2022

The 6 Best Tech ETFs To Buy Tech Stocks in 2022

9 Best Clean Energy ETFs To Go Green in Your Portfolio (2022)

The 12 Best Small Cap Value ETFs (3 From Vanguard) for 2022

Why, How, & Where To Invest Your Emergency Fund To Beat Inflation

VOO vs. VTI – Vanguard’s S&P 500 and Total Stock Market ETFs

9 Best International ETFs To Buy (6 From Vanguard) in 2022

Ben Felix Model Portfolio (Rational Reminder, PWL) ETFs & Review

Factor Investing and Factor ETFs – The Ultimate Guide

Gone Fishin’ Portfolio Review (Alexander Green) & ETFs (2022)

TQQQ – Is It A Good Investment for a Long Term Hold Strategy?

Recent Posts

Tail Risk – What It Is and How To Hedge Against It

I Bonds (U.S. Government Savings Bonds) – The Ultimate Guide

JEPI ETF Review – JPMorgan Equity Premium Income ETF

Sharpe Ratio vs. Sortino vs. Calmar – Risk Adjusted Return

Investing Risk Explained (My Take on Portfolio Risk & Volatility)

HNDL ETF Review – Strategy Shares NASDAQ 7HANDL™ Index ETF

NUSI ETF Review – An Income-Focused Option Collar ETF

3 Best SPAC ETFs To Invest in SPACs in 2022 – But Should You?

VOO vs. VOOV vs. VOOG – Vanguard S&P 500, Value, or Growth?

VXUS vs. VEU – Which Vanguard Total International ETF?

VT vs. VTI – Global Stock Market vs. Total U.S. Stock Market

RPAR Risk Parity ETF Review – An All Weather Portfolio ETF?

PSLDX – A Review of the PIMCO StocksPLUS® Long Duration Fund

The 7 Best Value ETFs To Capture Value Stocks in 2022

SWAN – A Review of the Amplify BlackSwan ETF for Downturns

View All...

Footer

  • Facebook
  • Instagram
  • Twitter
  • YouTube
  • Reddit

Amazon Affiliate Disclosure

OptimizedPortfolio.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Email Newsletter

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

About - My Toolbox - Privacy - Terms - Contact


Copyright © 2022 OptimizedPortfolio.com

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Ok, Got ItReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT