What’s the single biggest mistake investors make? It’s not starting too late, saving too little, or even chasing hot stocks—it’s trusting the wrong advice. Too often, investors are told there’s only one “right” path: stay 100% in equities for life. Nick Murray, for example, argues it’s an “atrocity” to shift into bonds in retirement because equities historically return 7% after inflation compared to 3% for bonds. Why would anyone add bonds, even in retirement?

History offers the answer. Stocks do outperform bonds long term, but they also suffer brutal declines. A retiree who entered the market in the mid-1960s, or one who bought technology stocks in 2000, endured losses of 50–80% and often waited decades to recover. That kind of drawdown can be devastating when you’re living off savings. This is why many investors embrace balance: the classic 60/40 portfolio has historically delivered about 85% of the S&P 500’s return with roughly one-third less risk.

So how is diversification working today? In 2025, the Ultimate Buy and Hold Portfolio—Paul Merriman’s all-equity mix of U.S. and international asset classes—has delivered an impressive 18% so far this year, with international value and small-cap stocks leading the way. But past returns are only part of the lesson. The real takeaway is that chasing recent winners isn’t a strategy—it’s recency bias. Diversification remains the most reliable tool for long-term investors.

That brings us to another timeless question: how much Small Cap Value should an investor add to VTSAX (Total Market Index)? Research shows that allocating 20–30% of equities to Small Cap Value has historically boosted returns by about 1% per year. Over decades, that extra percentage can mean retiring earlier, protecting against running out of money, or leaving a larger legacy. But it comes with higher volatility—small-cap value funds fall harder in downturns, even if they often recover stronger.

Ultimately, successful investing isn’t about finding one perfect asset class. It’s about balancing growth, risk, and peace of mind. Some investors can handle the rollercoaster of an all-equity portfolio. Many others need the stability that bonds, balanced funds, and broader diversification provide. The key is knowing yourself, your goals, and your tolerance for loss—because the biggest mistake isn’t owning the wrong fund. It’s building a portfolio that doesn’t let you sleep at night.

During the podcast Paul references ⁠Table G-1b, Fine Tuning Table: S&P 500 vs. US SCV Equity Porfolio - Out-Performance⁠ and ⁠Table H2a - Sound Investing Portfolios: Comparison Data ⁠, Quilt Chart K1a. He also points to Chris Pedersen’s Best In Class ETF Recommendations and his 2 Funds for Life returns table. These resources provide valuable context for comparing U.S. vs. international returns, equity vs. bond allocations, and how small-cap value can enhance a long-term strategy.