Today, Paul explains that fund companies that offer your 401(k) plans are choosing investments that seem safe and popular. These low-cost funds focus heavily on large U.S. companies and keep your money out of the highest-performing markets of 2025. Paul explains how these fund companies have ditched academic research, forcing them to make it up as they go along. Later in the episode, Paul discusses the disillusionment of the youngest generation of investors and what might lead them to find purpose and success in their work and investing.
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Paul Winkler: Yeah, just hearing Bell’s voice, “Following program brought to you by Paul Winkler.” He and I were talking, “You’re not actually going to do a live show after Christmas, are you?” And I said, “Well, yeah.”
Nik: Yeah, why not?
PW: Yeah, I know, Nik. I mean, he’s like, “Really? Really? What?”
“Yeah. Bell, how long have you known me?”
I remember I used to have, man, back when I first started this show, I had this unit, and this is back when you had to do this over telephone line. Now you have the Comrex, right? And it’s over the internet, but we used to have to do it over telephone line, and I would be up at my in-laws’ in their garage doing the radio broadcast around Christmas, but not on Christmas, mind you; it was around Christmas.
So I don’t know, I’ve been doing this show so long it’d be so weird for me not to. Every once in a while, I won’t be here, but I’m here today.
Okay, so yeah, this is me. I’m live. All right, so this is “The Investor Coaching Show.” I am Paul Winkler, your host.
There is just a ton of stuff to talk about today, and I just don’t even know exactly where I’m going to start. So I got a stack of stuff. I might as well start at the top. I might as well start at the stop, but there’s a lot of stuff on financial nihilism.
“Why There Will Never Be Another Warren Buffett” is something I want to talk about today. Experts warn that 86% — that’s almost nine out of 10, for those of you that are math-challenged — of high-risk retirees fail vital diversification tests. This is what I’ve been saying.
And it’s interesting who did this study. None other than the company that’s failing the test themselves. I think that is telling right there.
There’s just a lot to talk about today. So I’ll just jump into it because there’s so much.
The thing I’ll cover first is, okay, so you have a 401(k) at work. Chances are, chances are really good if you have a 401(k) at work, there’s one of just a handful of companies that is actually managing your 401(k).
I actually got into that area years ago, started doing some of it. I still have some 401(k)s that I do, that I manage, but I don’t do a whole lot of them anymore.
And I’ve had people that say, “Hey, could you manage my 401(k)?” And I’m going like, “How many employees you got?” “Well, 50.” And I’m like, “No.”
They’re like, “Why?” Because with that many people, anytime you have more than a couple people, you’re dealing with headaches when it comes to 401(k)s.
And a lot of it has to do with just the feeling that “I’ve got this.” There are some employees that just feel like they’ve got it, and they want to be able to do whatever they want to be able to do with their money and their 401(k). And you think, Well, it’s a free country. You ought to be able to do what you want to do.
But what they’ll do is sabotage their investments and they will mess them up and they want to be able to do it. And I’m just like, “No, you’re not going to. I’m going to be a benevolent dictator. I am going to make sure you don’t screw things up.”
And I’ve had a few companies where the owner’s been like, “Yeah, that’s exactly why we want you doing it because we don’t want these people screwing things up.” We don’t want anybody screwing up their stuff.
But even mutual fund companies tend to do that. And the biggest fund companies, I guess what fund companies tend to do in my mind, and the big ones are managing all the big 401(k)s, they’ll just let them do whatever they want to do, and they’ll let them sabotage their portfolio. They’ll tell them, “Let them screw it up,” because the fund companies, they want to keep you. And if they give you all that freedom, you’re happy with the freedom.
They make money off it, you blame yourself. What a great country, as Evan likes to say, right?
It’s a beautiful thing, but they’re enablers.
And the handful of fund companies would be like the Vanguards, the Fidelities, the Voyas increasingly. I see that more out there.
Used to be Principal was really big in that area. And I remember representing them and having a wholesaler come in to talk to the owner of the company. And I was clueless back then. I didn’t know what on earth I was doing.
And I brought the company in. I said, “Hey, these guys do 401(k)s.” And I brought them into a company owner, and the company owner looks at me and goes, “Paul, what funds do you think we ought to choose?” And I was like, “I don’t know.”
So I looked at the wholesaler, and what the wholesaler does is exactly what you’d expect the wholesaler to do: Choose all the funds that just recently had the best performance. So instead of buy low, sell high, they’re buying high, buy high, buy high, buy high.
And that’s what they did is they added all of the best performing in the most recent period of time. And that is one of the worst things that you can do as an investor: Choose the things that recently did well.
You think, Well, the reason I’m choosing them is because they apparently are very skilled managers. That’s why I want them managing the money because they seem to be really good because they’ve gotten good performance recently.
Well, 91 and 94% of your investment performance is just surely due to what asset category is being held. Now, if you have a fund that has beaten the asset category that it’s in, so let’s say asset category, large U.S. growth stocks, asset category, small U.S. growth stocks, asset category might be U.S. small value or something like international large or whatever, that’s an asset category.
If the fund has beaten the asset category, now you’re down to … they had a 6% shot of doing it over the last 15 years, not a very good shot at all. But when somebody does it, people typically attribute that to skill. They don’t attribute it to luck.
The thing that this guy was doing was making those choices based on, A, the asset category, and then B, on top of that, the area of the market that had done well, but on top of that, the fund managers in that area of the market that had done better than their peers. Which, that’s a really bad way of doing things, but that is what sells investments in the investment industry. And then you have a big fund company name, huge fund company names, and they come out and they say something, and you go, “Well, these guys are really, really big. I better listen.”
And my contention is, “No, you may not want to listen. I don’t care how big they are.”
Maybe they got big because they went in there and they tried to become the low-cost fund leader and that’s what fund companies do. They compete on that now. Who can be the lowest cost?
And low cost is important. I always have to make this with this caveat out there. Low cost is important, but simply looking at that alone is very myopic because the lowest areas of the market cost-wise to manage are big companies, and they’re overfocusing on them now.
They’ve been overfocusing on them forever because it is just a competition to have the lowest cost funds out there. And the problem is that area of the market would have the lowest long-term expected return, but because people focus on that, Americans typically are focused on big U.S. companies because of ethnocentrism.
The idea, “Hey, we’re the best, aren’t we?” There’s American exceptionalism, and there may be American exceptionalism. I wouldn’t argue that that’s not the case, but that doesn’t mean that American big companies want to pay you more than everybody else to use your money.
That doesn’t make any sense. That would make them very unexceptional. If they were dumb enough to pay you more than anybody else to use your money, that would mean that they’re not that smart.
So the reality of it is the area of the market that would have a lower long-term expected return is the area that’s most popular, and it’s the cheapest to manage. Therefore, that’s why we’re seeing what we’re seeing out there in the investing landscape.
Now, if we look at the area of the market that absolutely had far and away the best returns so far year to date, and here we are just about right at the end of 2025, what area had the best return? Well, it was international small value.
Now, how many small international value funds does Vanguard have? Zero.
How many international small-value funds does Fidelity have? Even though they have over a thousand mutual funds, how many funds do they have investing in that area of the market? Answer, yes, you guessed it, zero. How many funds?
So you look around, and you go, “Well, wait a minute. The area of the market that had the best return is nonexistent at these fund companies. What’s going on?”
It’s not an area that you demand. It’s not an area that you think about. So therefore, why offer you something that you don’t think about?
Now, there’s an article that showed up in USA Today: “Vanguard Wants To Flip the 60/40 Rule.” Now, 60/40, we’re talking about how much in stocks, 60%, how much in bonds, 40%.
That’s the 60/40 rule that comes from, if you look at asset management, you’re looking at typically how much in the asset categories that you would hold. You want to hold various areas of the market.
So you’re going to be looking at that. That’s going to be the first decision you make.
Now, the second decision you’re going to make is going to be how much in large companies versus small. In my world, that’s what I look at. And there are fund companies that actually add mid-caps in there, but I’m going to tell you that that asset category is not a good diversifier, medium-sized companies. They’re not a good diversifier.
And then you’re going to look at how much in growth versus how much in value. So those are the three things that are going to be the biggest determinants of your return is those three decisions that you make.
But the first one is how much in stocks versus how much in bonds. More in stocks typically when you’re younger, got lots of time because your biggest worry is about outpacing inflation. And inflation, what protects us against that historically is stocks, because inflation is prices going up, and you’re owning the entities that are raising prices when you own stock, so therefore that’s what we want to do.
Now, Vanguard wants to flip that. Instead of being 60% stocks, 40% bonds, we want to have 40% of stocks, 60% bonds.
Why do they want to do that? Well, the reason has to do with number one, they didn’t do very well over the past 25 years. I’ve got workshops on this — and not that it’s just them. I added the data on Fidelity and other fund companies, the same thing, same problems.
So not just to pick on them, and it’s just I don’t have anything against the fund company. There are people with 401(k)s and sometimes I’ll use Vanguard funds in there, but I’m a whole lot more particular on which ones I’ll choose than what you’ll see in the default choices in 401(k)s.
But basically, the issue that I have is that they cut corners in areas that I’m not terribly happy about when it comes to smaller companies and value companies. But basically what they say in here is this, that they’re flipping it. They’re suggesting that investors park 60%, that they’re looking at 60% in bonds and 40% in stocks.
And you go, “Well, why?” Well, partly because they just didn’t do so well following the rules, because the problem when you’re ignoring diversification is you’re increasing, you have increases in risk at the worst times. And when you’re taking income from a portfolio like you would from a 60/40 mix, and you have lots of volatility because you haven’t diversified enough, you can run an investor dry.
And when you have too much volatility, you have to sell more stuff when the market’s down. And if you look at the past 25 years, we’ve had some pretty significant downturns 2000 through 2002, and then 2008, early 2009, late 2007, arguably, and 2022, you’ve had some pretty nasty downturns, three of them that I just named right there in the past 25 years, and a 60/40 portfolio only focusing on big U.S. companies is a mess. So hey, rather than fix it and follow the academic research, let’s just change it.
Let’s just go to something else that none of the academic research actually backs, which is overweighting bonds in the portfolio. And they basically said, “This is a problem, so we’ve got to go and change this.”
And here’s the other reason that they’re doing it. They’re basically saying in this article that the reason that they’re doing is the CAPE, the cyclically adjusted PE ratio — that’s what that stands for. The CAPE ratio for the S&P stands at 40.40.
What does that mean in English? What price are companies selling for compared to earnings?
That’s an incredibly high number. It hasn’t been that high since 1999, 2000, which, as I just pointed out, was one of those nasty downturns. There’s a 40% downturn, over 40% downturn for the S&P 500.
So basically what they’re doing here is they’re saying, “Since the area of the market that we focus on is so overpriced, we’re just going to back off of it.” Well, if you were really, really confident that it was going to go down, why don’t you just get rid of it all?
Why even put 40% of your money there? That’s a question you might want to ask yourself. Why even put 40% of your money there?
Then you look at that and you say, “Okay, so what else is going on here?” But let me back up for a second. I want to just make a comment about the CAPE in general. Is this a good predictor of where the market’s going to go?
In my book, “Confident Investing,” I actually used the CAPE data and I went back. I can’t remember even how far I went back.
I’ll never forget when I did the research and I told Michael up here in the Goodlettsville office, I said, “Hey, Michael, I want you to go do this research. I’m going to give you the CAPE data, cyclically adjusted price-to-earnings ratios. And what I want you to do is I want you to look at where the CAPE was high and then what was the subsequent market return? What was the return of the stock market after it was high? And what was the return after it was low?”
And I had him look at all the different years throughout history, and I had him look at the data. Now, you would think if the price was super, super high compared to the earnings, that the subsequent returns would be bad, that they’d be low because you’re buying high, right? And you think that’s how it’s sold, that is the idea that it tells us if the stock market’s too high or it’s too low.
Then what I did is I said, “Okay, now look at the returns after the price was really low, what were the subsequent returns?” You would think, Well, if the price was super low, the returns subsequently would be very high.
And I told him before he ran the data, I said, “It’s going to look like when you do this chart, an XY, just basically a chart crosshairs, think of a crosshairs, one of those types of charts with an X, Y axis.” I said, “It’s going to look like somebody shot at the chart with a shotgun. That’s going to be my prediction.”
And he came back and he showed me the chart and he was like, “Oh my gosh, Paul, you’re exactly right. That’s exactly what it was.”
I said, “Yeah, because you look at that and you think you can use it to predict future market direction.” That’s what fund companies do. They use this data to try to predict what the market’s going to do going forward and they can’t do it because it doesn’t work.
Investors look out there and go, “Well, what price should I pay for what the earnings are likely to be not just next year, but the year after that, the year after that, year after that, year after that. ” Now, it’s a really high price, like I said right now, but that does not mean necessarily that it’s going to go down.
And that’s the mistake that they’re making here — Vanguard’s making. Not only are they making the mistake not being diversified, but they’re also making the mistake of trying to predict the future because they’re looking at a ratio that just doesn’t work in predicting future market direction. You just don’t know.
So how many mistakes can we make in one fell swoop right here? Now, is the 60/40 rule dead? Did it not work over the past 25 years?
And I would submit, no, it has worked lovely. If you followed the rules, but very rarely do you find fund companies actually follow the rules as laid out by William Bengen, who did the research on this starting in 1994. And he did the data going back to the year 1900, and he was very specific on what rules you follow.
Now what happened is also that they said that bonds haven’t fared so well either, is what they said in this article. “The Vanguard Total Bond Market Index Fund, for example, has a five-year average return of -0.5%.”
Now, what was the problem with their bond fund that they use in these target date funds and these asset allocation funds? I can’t think of one of their asset allocation funds that they don’t use this bond fund in. Let me just put it that way.
In other words, they lent the money too far out in the future, and when interest rates went up in 2022, the bonds went straight down with the stock market. The S&P had one of the worst returns that year, and their bond fund was pretty abysmal in that year as well.
So basically what happened is over that same period of time — I looked at every bond fund I have in my portfolio, and not one of them had a negative return over that period of time because you don’t go that far out. You keep the duration shorter.
Let’s say if I have a 10 duration, what that means is if you have a 1% increase in interest rates, you have a 10% decline in your bonds. That’s the problem you run into. When those interest rates go up, they can drive stocks down and bonds at the same time.
So the problem is they’re oversimplifying the investing process, they’re focusing on areas of the market with lower cost, a lot easier to manage, a lot cheaper to manage, and high demand from investors because investors don’t know any better, and they’re not following the research. That’s the problem that I have in the investing industry, and my hope is that investors will wake up to it.
That’s my hope. That’s my hope for 2026. We’ll see. If I have a prediction for 2026, it’s that they won’t.
All right, back here on “The Investor Coaching Show,” Paul Winkler. Paulwinkler.com is the website for audio, video, educational material, the podcast, everything right there at your fingertips.
“Why My Generation Is Turning to ‘Financial Nihilism.’” “Millennials and Gen Z are accused of treating finance like a game.” This is interesting. “They trade options, buy meme coins, play prediction markets and bet on sports as if the entire economy were a casino,” says this writer in the Wall Street Journal.
They said, “Baby boomers and members of Gen Z say this is reckless.” They’re gamifying money. It’s known as “financial nihilism,” a term coined by a podcaster, I guess, Demetri Kofinas, however you pronounce that, several years ago. “It describes the sense that the economic system no longer rewards prudence or long-term planning.”
So, basically, what’s happening is that they are saying, “Hey, things don’t work the way they used to. So we’ve got to change how we do things.” All you had to do back in the day was just play the rules. Play by the rules.
They said, “Deindustrializing America answered the collapse of union jobs by elevating the college degree.” They said, “The postwar idea of upward mobility was always contingent on certain fundamentals: strong institutions, affordable education, accessible homeownership and stable work. Now these conditions are buckling.”
And we’ve done a lot of shows on this in the past, talking about homeownership. And I’ve talked about the very first home that I owned — well, there’s a lot of stuff that I’ve talked about there — and how that home is still very affordable.
It would be very affordable compared to the rent that people are paying. But the problem is that they’ve changed zoning, they’ve changed codes, they’ve changed so many different things about homes that used to be the norm in the 1950s and 1960s that they basically made the affordable home illegal, as one guy put it.
But there’s that. There’s also the college degree, what people are getting degrees in.
There’s a lot that can be talked about right there. We’ve talked a little bit about how it’s not a shame to go into a trade, but a lot of people have made it shameful not to go get a degree in something, and they say stay away from the trades. We’ve taken some of those trades out of the high schools. And there’s just a lot of that stuff we’ve talked about here on the show before.
But I think a lot of it comes down to what they’re saying, that “the economic system no longer rewards prudence and long-term planning.” And I’ve thought a lot about this.
I mean, is this true? Is it just greed and impatience? Because if you think about it, they’re playing prediction markets, meme coins, betting on sports.
Is that really a better system? Is that a better way of getting ahead, if you just forget it, chuck everything, and just go and gamble with your investment money, whatever money that you can put together?
Proverbs basically said that “Wealth gained by haste will dwindle.” And 21:5 says, “Haste leads to poverty.”
But this is what we see a lot of people doing. And I see this with Bitcoin. I see this with gold. I see it with silver.
I don’t see it with just younger people. I see it everywhere. And some of it’s driven by fear.
Somebody was telling me about somebody that had taken out a whole bunch of money and they were going to go and stick it all in Bitcoin. And a friend of mine was talking them off the ledge, and just, “You’re going and doing this.”
And I’ve been kiddingly saying recently that a 30% decline in the price of Bitcoin is a good start. And if I had my wish for 2026, it would be the same thing with gold and silver.
There was a chart I saw this week. Oh, my goodness. It was on silver, and it was showing the price of silver, just the meteoric rise. I mean, just taking off, just shooting straight up.
But what I loved about the article is it went back in history and it had three spikes that looked exactly like what we have just seen. And one was in the early ’80s. There was a huge spike in the price of silver.
And then it came crashing down. It was a spike. Just to visualize it, it was straight up and then straight down. I mean, it was just like that.
And then you had another spike in between then and now, way up and then it came crashing way back down. And the point was that saying, “Hey, this kind of stuff happens with these metals, and you just don’t know when it’s going to happen to be able to predict that.”
As people say, “Well, people are worried about inflation.” And I often point out that in the early 1980s, we had lots of inflation, and that actually led to gold dropping in value.
It was because what ended up happening is inflation didn’t get nearly as bad as what people were predicting it was going to be, and it came down, and then gold came crumbling down. And so did silver at the same time.
But the point being that this is what people are turning to. They’re basically saying, “The system doesn’t work anymore.” And I look around and go, “Yeah, there’s opportunity. How is it that people move into this country from other countries and they make things work?”
I was telling my son, we were just talking about early days for me. And this is the early ’80s. And early ’80s, it was rough. People forget how difficult that period in time was.
I couldn’t get a paper route. I couldn’t find a job anywhere. I was applying at grocery stores and being turned down.
It wasn’t because I was a bad worker or anything like that. It was just that there were so many people applying. They were looking for the absolute best person for the job. And it was probably somebody that was willing to work at midnight or whatever, and I just wasn’t, right?
But here’s what happened: I will never forget applying to work at a convenience store, and I got turned down for that. Applying to work at a shoe place — and this was after college — and no, no job there.
There were several different places that I applied to. I can’t even remember. Dozens of places that I had applied to, turned down at every single one of them.
And finally, what happened, I was actually working at a company swapping out computers. It was a very low-skilled job. I was swapping out computers when they would break down.
And this guy, I told this guy, “I’m looking for a job. I’m looking for work. I’m looking for anything.” And this guy goes, “Oh, this fellow over here, he’s always hiring.”
Well, it was insurance sales. Of course, they’re always hiring. They want somebody to sell annuities. They want somebody to sell whole life insurance.
They’ll take anybody to sell this stuff. And I was, “I’ll take anything. I’ll take anything.”
And I walked in there. And luckily, I fell in love with the financial industry and started collecting designations, started collecting degrees and licenses, and fell in love with the industry.
But I think, What would have happened? I couldn’t find anything.
And I think about it and I go, I had to become an entrepreneur. It’s an entrepreneur that works inside of a system, of a company. And I literally had to do that to find any work.
And I think, well, we have a pretty entrepreneurial generation right now. Maybe they ought to start thinking more about taking risks in their work and taking risks on being even more entrepreneurial, and then just recognizing that maybe that’s the way forward right now.
It’s just an interesting time to be alive. So I just thought that was an interesting article that I wanted to comment on.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
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