2 Funds for Life: A quest for simple & effective investing strategies Paperback – September 10, 2021

For years investment educator Paul Merriman has promoted academic research showing two-decade returns from funds consisting of small companies have yielded higher earnings than the stock market's largest companies. More precisely, he recommends funds with small companies sold at low prices compared to earnings, called small cap value companies. Now the research director for Merriman’s educational foundation, Chris Pedersen, has linked the idea of investing in a small cap value fund with investing in a target retirement date fund.In the book “2 Funds for Life,” Pedersen shows how retirement savings can be boosted by first investing partly or entirely in a stock fund, then ramping up investing in a target date fund during final years of employment. The examples are too numerous to describe, but “2 Funds” can be downloaded for free here.The idea of hacking the ubiquitous target date fund is really the original idea in “2 Funds.” The book’s exploration of that idea is by itself worth a read, even if patiently investing in a small cap value fund is not for you.Target date funds are popular because they are an “all-in-one” portfolio. They have US stocks and international stocks, and as the selected retirement date approaches, they automatically decrease the portfolio’s allocation to stocks and increase the portfolio’s allocation to fixed income investments like bonds. They are designed so the investor effortlessly experiences smaller drawdowns and volatility as the worker approaches retirement.But they are also constructed to be cautious and can earn noticeably smaller returns than a fund 100% invested in US stocks, at least in years and decades where US stocks outperform other investments. For example, if 10 years ago an employee had invested in the CalPERS 457 plan's US stock index fund, the employee saw annualized returns averaging 11.71%, after fees as of December 30, 2022. That was 4.5 times the rate of inflation during those 10 years.If, on the other hand, an employee had invested in the CalPERS 457 plan's 2045 target date fund – with 56% invested in US stocks, 38% in international stocks, and 6% in bonds and other fixed income – 10 years later the employee would have achieved annualized returns of 7.03%, after fees. That was far better than earnings from a bank account, but only 2.8 times the rate of inflation for that period.The CalPERS target date fund is much like other target date funds. At the year selected for retirement, the CalPERS fund reaches 58% percent in fixed income and 42% in stocks. Five years after the selected target date, the percent invested in stocks finally drops to 32%. Some would argue that until bonds once again yield at least 2% more than inflation, a portfolio with 68% allocated to fixed income could generate disappointing amounts of retirement income.One of the many scenarios in “Two Funds,” found on page 183, explores a retiree keeping 30% invested in an all-stock fund, with 70% invested in a target date fund. In the CalPERS example, that would result in a 2-fund portfolio with no more than 48% allocated to fixed income, compared with 68%.Of course, if someone liked the performance of the US stock market, they could just invest entirely in a 100% US stock fund until shortly before retirement, ignoring the volatility during their working years. Perhaps four years before retirement they could shift half their investment into the appropriate target date fund. That way no more than 34% of their 2-fund portfolio would be in fixed income like bonds, while 66% would remain in stocks during retirement. This would be a portfolio with a similar ratio of stocks and bonds as America's longest enduring mutual fund, the Wellington Fund.It's likely the Merriman Foundation will continue to refine and simplify options for implementing 2 Funds for Life. They examine an intriguing idea.

I highly recommend this book for existing or new do-it-yourself investors, whether you are a young adult beginning your investing journey or someone who is nearing or already in retirement. All time periods in one's investing life are addressed in this book. Chris Pedersen develops the rationale and method for an "ordinary" person to create a simple and effective investment portfolio for leading up to, or continuing throughout, retirement by investing in just two funds - a Target Date Fund plus a second small-cap value exchange traded fund (ETF) or mutual fund. Mr Pedersen's writing style is easy to follow and understand and all terms or concepts potentially new to an investor are explained well in the presentation or defined in its glossary. The book can be read and understood in six hours or less and the concepts can then be easily implemented by the reader. I agree so much with the concepts and easy-to-follow presentation that I gave a copy of the book to each of my adult children, siblings, and parent.PS - Be aware that the many money growth graph illustrations in the book are intricate and detailed, so much so that I found they are best viewed either in the print copy of the book or, if a Kindle copy of the book is purchased, on a screen larger than a smart phone. Zooming in on parts of the illustrations on Kindle on a smart phone is workable and effective, however I found zooming in and moving around to different parts of the illustrations to be less convenient and cumbersome. I therefore subsequently purchased the print copy of the book after purchasing/reading the Kindle version of the book.

2 Funds for Life is for everyone, from young first-time investors to retirees and everyone in between. I am 34 years old, investing in my 401K, and this book helped me chart a plan I can follow for the next 60 years.This book finds a simple way to maximize long-term investing results. Chris shows how adding complexity is not needed. He does a fantastic job at creating a simple plan that is easy to follow yet results in exceptional long-term results.Chris distills down complex topics into a clear and actionable plan. Keeping plans simple will mean there is a much higher chance of adherence. I most enjoyed the book because his approach was tested and validated by historical data, giving one the confidence to stay the course. To be successful in investing (and really everything in life), you need to remain consistent over time. Learning this discipline in investing is how you will meet your long-term wealth goals. The best thing anyone can do to prepare for the financial future is buy this book, pick one of his three suggested plans (easy strategy, moderate strategy, or aggressive strategy), follow that plan, and ignore all daily variations.

I bought 4 copies: Two Kindle editions and two printed copies for our sons and their wives. I gave our two sons the Kindle editions and their wives the two printed editions (they will share). Why? The advantage of the Kindle edition is that it will always be present on their iPhones, and that way it is much more likely that they will read the book, in brief moments of spare time However, the figures are difficult to see and understand on an iPhone. So, the printed edition helps to understand the figures. Chris Pedersen gives the results of his calculations in real dollars at the future dates, as well as the much larger nominal figures. This alone makes it worth the price of the book. I am 83 years old, but my investment time horizon is 30 years or more because part of my portfolio is for my wife and part for my grown children.

leitura muito fácil, amplamente fundamentado em análises sérias e bem realistas. Aconselho fortemente para quem quer investir com bons ganhos, riscos reduzidos e sem ter que se meter a analisar o mercado como se fosse um expert.

Easy to understand by the not expert minds of new or existing investors who are looking for a simple, automatic way forward to investing. An excellent piece of work which is also fun to read.