For most of my adult life I have been doing everything I can to teach people how to be better investors.

I enjoy writing articles. I enjoy making podcasts and videos. And I enjoy answering questions from do-it-yourself investors who want to take control of their financial future. I’ve created all sorts of tools, including suggested portfolios, massive tables of historical data, a sophisticated online calculator, and I’ve spoken to countless groups of people.

And yet the most powerful teaching tool I have is a quilt.

I’ll show you what this tool looks like, how to read it, and describe some important things it has to teach us. Here’s what it looks like.

This quilt chart teaches more than mere words ever could. This particular chart packs a lot of data into an easy-to-digest format, it was created by Daryl Bahls of the Merriman Financial Education Foundation.

Here you’ll find annual returns, going back to 1928, of the four major U.S. equity asset classes:

• Large-cap blend (the S&P 500)
• Large-cap value
• Small-cap blend

Each asset class has its own color on the quilt, and investors can see all sorts of patterns at a glance.

When I teach financial literacy to students, this chart makes it easy for them to see, for any given year, which asset class performed best, which performed worst, and how dramatically these rankings can shift from year to year. The students in the financial literacy program are bright, curious, and motivated. But like most Americans, they arrive with very little formal education about how investing actually works.

And of all the tools we use to teach, this quilt chart consistently produces the biggest “aha” moment. The most obvious lessons jump out immediately: Returns are unpredictable, and an asset class that is a hero one year can be the goat the next — sometimes for long stretches.

The wide gap between large-cap blend and small-cap value surprises almost everyone seeing this for the first time.

And yet there’s a deeper lesson hiding in plain sight. Most experts agree that the biggest free lunch from Wall Street is diversification. But most investors miss the second free lunch: Diversification not only among stocks but among asset classes.

By owning multiple types of stocks that respond differently to economic conditions, investors dramatically reduce the risk of being stuck in the wrong place at the wrong time.

The lesson in gold

The quilt chart takes the lesson even further.

You’ll notice there’s a gold box for every year. This shows the return of a portfolio equally weighted in each individual asset class, which I call the four-fund portfolio.

The individual asset classes regularly appear at the extremes — both best and worst. They soar. They stumble. They take turns leading and lagging.

But the four-fund portfolio behaves very differently.

It is never at the top — and just as important — it’s never at the bottom. Year after year, it clusters in the middle.

And that middle ground is where risk quietly disappears.

Boring turns out to be brilliant

At first, many students find the four-fund portfolio unexciting. No annual bragging rights. No eye-popping headlines.

But when they see decades of rankings laid out visually, they can quickly realize that this four-fund portfolio dramatically reduces extremes.

• It avoids the devastating years that test investors’ resolve.
• It avoids the euphoric peaks that tempt investors to chase performance.
• And by doing so, it quietly reduces volatility.
• 
  

Suddenly they don’t need to know about tricky concepts like standard deviation or Sharpe ratios.

Their eyes do the math, and they can see a much smoother ride through the years and decades.

Lower volatility changes behavior — and outcomes

Lower volatility is not just about comfort. It’s about survival. Investors who experience fewer extreme losses are far less likely to panic, abandon their strategy, or chase the latest stock-market winners. They are more likely to stay invested.

As the late John Bogle said so many times: “Stay the course.” He liked to say that having a good plan and sticking with it is the most important step to being a successful investor.

The four-fund portfolio has historically delivered higher long-term returns than the S&P 500 alone, while exposing investors to meaningfully lower volatility. That combination — better returns with a smoother ride — matters a lot.

Why this matters so much to young investors

Discipline and diversification. For people just beginning their financial lives, this lesson lands with particular force.

They realize they don’t need predictions. They don’t need stock tips. They don’t need confidence in their ability to outguess the market. What they need is a plan that stacks the odds in their favor.

This quilt chart can teach that lesson in seconds.

Year after year, I keep coming back to these charts. They don’t argue. They don’t try to persuade. They don’t promise.

They simply show that a disciplined, diversified approach offers something rare in investing: higher odds of success with fewer sleepless nights.

That’s a lesson worth teaching — and worth learning—whether you’re 22 or 72.

The quilt chart I’ve shown and described will be sufficient for most investors. But there are many more on my website, showing comparisons for other asset classes and Sound Investing portfolios and for periods of 5, 10, 15, 20, and 25 years. You’ll find them here.

Many of these require more explanation, and that will be a topic for another article. (The data on these quilts ends with 2024. But they will be updated before long on my website.)



Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.” Buck, Merriman’s longtime writing partner and collaborator, died on Feb. 5, 2026.

Delivery Method. Paul Merriman will send stories to MarketWatch editors on a biweekly basis. Licensor may republish such stories 24 hours after publication on MarketWatch with the attribution.