Merriman two funds
Merriman two-fund portfolio (S&P 500 + small-cap value)
Where it stands today
Our calculation, 1926-07 – 2026-09
Growth of $10,000
Where it came from
Paul Merriman is a Seattle-based investment adviser who, per his own site and third-party bios, founded his advisory firm in 1983. The firm (reported under names such as Merriman Capital Management, Merriman Wealth Management or Merriman Inc.) grew to roughly $1.5-1.6 billion under management; he sold it to employees and Focus Financial in 2012 and then set up the Merriman Financial Education Foundation, which publishes free academic-based investing material. He has written eight books, including 'Financial Fitness Forever' and 'Live It Up Without Outliving Your Money'.
The two-fund portfolio is a deliberately minimal version of his approach to small-company and value stocks. His site describes it as equal parts the S&P 500 and U.S. small-cap value stocks, created to give people a very simple route to the small and value premia without needing a long list of funds. It sits beside his four-fund and 'Ultimate Buy and Hold' ten-class portfolios, which are covered separately.
The idea rests on academic evidence on size and value premia (Fama and French and others) which Merriman presents from index data going back to 1928 and fund data from 1970. His site publishes tables of best, worst and average returns over 1, 2, 3, 5, 10, 15, 20, 25, 30, 35 and 40 year holding periods for the S&P 500, small-cap value and the two-fund blend, and argues the years of loss are a better risk measure than standard deviation.
The date and context of the first two-fund presentation were not found in the sources read; the result is a retail-education product rather than a published academic portfolio.
What is in it
| S&P 500 | 50% | |
| U.S. small-cap value | 50% |
How we model it
| US large companies (S&P 500) | 50% |
| US small value stocks | 50% |
For a euro investor
How to build it with European funds
| Part | Share | Example funds (ISIN) |
|---|---|---|
| US large companies (S&P 500) | 50% | iShares Core S&P 500 UCITS ETF USD (Acc) IE00B5BMR087Vanguard S&P 500 UCITS ETF (USD) Distributing IE00B3XXRP09 |
| US small value stocks | 50% | SPDR MSCI USA Small Cap Value Weighted UCITS ETF IE00BSPLC413 |
The idea
Equity-only; a high-conviction bet that small-cap value stocks carry a long-run premium over the S&P 500, with the S&P 500 half providing familiar large-company exposure.
How people buy it
An S&P 500 index fund plus a U.S. small-cap value index fund or ETF; Merriman's site lists fund suggestions (not retrieved). Bonds are added separately by age and risk tolerance.
Rebalancing as published
Not found in the sources read.
Variants
- Four-fund portfolio (adds international and international small-cap value).
- Ultimate Buy and Hold (m_merriman_ult): ten asset classes of 10% each, described on its own page.
- Equal-weight S&P 500 vs four-fund comparison on his site.
Criticism
- All figures come from Merriman's own materials; the persistence of the small-cap value premium is debated (Early Retirement Now 2019 discussion says long-run averages should not be applied mechanically).
- No international or bond exposure in the base two-fund mix; concentrated in US equities.
- Fund-based history (1970 onward) differs from index history (1928 onward); live fund performance may trail index tables.
Through the eras
| Era | Dates | Total | Per year | Worst drop | S&P 500 |
|---|---|---|---|---|---|
| Roaring Twenties boom | 1926-07 – 1929-08 | +124.8 % | +29.1 % | −10.3 % | +153.7 % |
| Wall Street crash and Great Contraction | 1929-09 – 1932-07 | −78.3 % | −40.7 % | −85.6 % | −78.2 % |
| New Deal recovery | 1932-08 – 1937-02 | +448.0 % | +44.9 % | −46.8 % | +268.7 % |
| Recession within the Depression | 1937-03 – 1938-03 | −59.0 % | −56.1 % | −59.7 % | −49.5 % |
| Rearmament and World War II | 1938-04 – 1945-09 | +399.9 % | +23.9 % | −32.0 % | +205.8 % |
| Postwar expansion | 1945-10 – 1965-12 | +1652.2 % | +15.2 % | −29.0 % | +1212.9 % |
| Golden age of the 1950s | 1950-01 – 1959-12 | +488.6 % | +19.4 % | −18.2 % | +438.8 % |
| Go-go years and nifty-fifty | 1966-01 – 1968-12 | +77.4 % | +21.1 % | −18.5 % | +34.0 % |
| The Great Inflation (stagflation) | 1969-01 – 1982-07 | +193.0 % | +8.2 % | −42.0 % | +84.6 % |
| 1973-74 oil shock and bear market | 1973-01 – 1974-12 | −41.3 % | −23.4 % | −41.7 % | −41.7 % |
| Second oil shock and the Volcker disinflation | 1979-01 – 1982-08 | +86.4 % | +18.5 % | −15.9 % | +59.2 % |
| Great bull market in stocks and bonds | 1982-08 – 1999-12 | +2133.7 % | +19.5 % | −30.6 % | +2060.4 % |
| Black Monday | 1987-08 – 1987-12 | −24.0 % | — | −30.6 % | −21.8 % |
| Savings-and-loan crisis and 1990 recession | 1990-07 – 1991-03 | +5.0 % | — | −21.6 % | +7.4 % |
| 1994 bond market massacre | 1994-02 – 1994-12 | −3.2 % | — | −6.5 % | −3.2 % |
| Asian and Russian financial crises | 1997-07 – 1998-10 | +14.2 % | +10.4 % | −21.5 % | +22.4 % |
| Dot-com bubble and crash | 2000-03 – 2002-10 | −11.4 % | −4.4 % | −24.9 % | −37.2 % |
| Recovery and housing boom | 2002-11 – 2007-09 | +125.7 % | +18.0 % | −9.0 % | +97.0 % |
| Global financial crisis | 2007-10 – 2009-03 | −48.2 % | −35.5 % | −53.4 % | −44.7 % |
| The decade after the crisis | 2009-04 – 2019-12 | +393.7 % | +16.0 % | −21.5 % | +411.2 % |
| Fourth-quarter 2018 sell-off | 2018-09 – 2018-12 | −18.3 % | — | −18.3 % | −14.4 % |
| Covid crash and stimulus boom | 2020-02 – 2021-12 | +58.4 % | +27.1 % | −27.3 % | +53.6 % |
| Inflation shock and rate hikes | 2022-01 – 2022-12 | −13.1 % | −13.1 % | −19.9 % | −19.9 % |
Calendar years
Any N-year period
| Any N-year period | Worst | 10 % worse than | Median | 10 % better than | Best |
|---|---|---|---|---|---|
| 1 y (1192) | −67.0 % | −13.0 % | +15.7 % | +42.4 % | +271.2 % |
| 3 y (1168) | −45.9 % | −2.7 % | +14.3 % | +26.3 % | +63.1 % |
| 5 y (1144) | −24.2 % | +0.5 % | +13.9 % | +22.9 % | +48.9 % |
| 10 y (1084) | −4.4 % | +6.4 % | +14.0 % | +19.7 % | +24.6 % |
| 15 y (1024) | +0.8 % | +8.3 % | +13.9 % | +18.2 % | +22.6 % |
| 20 y (964) | +5.4 % | +9.5 % | +13.9 % | +18.0 % | +20.2 % |
| 30 y (844) | +9.8 % | +11.4 % | +14.0 % | +16.6 % | +18.6 % |
How it behaved in history
- 2000-2025. Merriman reports small-cap value beat the S&P 500 over this window; the 50/50 blend sits between. paulmerriman.com
Published results (by others)
- $10,000 invested in the two-fund mix grew to $4.48 million, more than twice the S&P 500 alone (1970-2022): $4.48 million paulmerriman.com
- S&P 500 compounded 8.3%, small-cap value 11.1% (two-fund figure not given) (2000-2025): 8.3% vs 11.1% paulmerriman.com
What we could not verify
- Date and context of first presentation of the two-fund portfolio.
- Merriman's two-fund rebalancing guidance and his own table values (tables not retrievable).
- Bogleheads wiki page on Merriman could not be opened (HTTP 403).
- Which index Merriman uses for 'small-cap value' (e.g. Fama-French or CRSP) - not verified.
- Firm name varies among sources.
Sources
- paulmerriman.com
https://paulmerriman.com/the-good-bad-ugly-and-average-risk-and-returns-of-small-cap-value-s-p-500-and-2-and-4-fund-portfolios - paulmerriman.com
https://paulmerriman.com/these-7-simple-portfolios-have-beat-the-sp-500-for-more-than-50-years - www.paulmerriman.com
https://www.paulmerriman.com/about-paul - earlyretirementnow.com
https://earlyretirementnow.com/2019/06/12/my-thoughts-on-small-cap-and-value-stocks/ - global-help.org
https://global-help.org/about-us/authors-2/paul-merriman/
Calculated on historical data. Past results do not predict the future. Models before the 1990s use stand-ins for classes that had no index yet; fees, taxes and fund costs are not included. This is mathematics, not an investment recommendation.