The Long View
The Long View
Jul 3, 2019
Rick Ferri: 'There Are No Average Investors'
Play • 48 min

Our guest today on The Long View podcast is Rick Ferri. Ferri is an hourly fee-only investment consultant at Ferri Investment Solutions; he's also a CFA charterholder. Prior to starting his new firm in April 2019, he was the founder and head of investing at a $1.5 billion advisory firm that specialized in low-fee asset management using index funds and exchange-traded funds. Prior to that, he worked for a brokerage firm, where he was an early adopter of inexpensive index products for client portfolios. Ferri is a Marine Corps officer and retired fighter pilot.

Ferri has written several books on low-fee investing, including All About Asset Allocation, The ETF Book, All About Index Funds, and The Power of Passive Investing. He has also authored numerous investment-related articles and research papers, including a research paper on index investing that won S&P Dow Jones Indices' third-annual SPIVA Award.

Introduction and Background

"The conversation about asset allocation comes later, and the conversation about investments comes after that." Ferri discusses how his definition of value-add has changed over the past 10-15 years. (0:55-3:24)

"I've been through the whole gantlet." Transitioning from broker to Registered Investment Advisor. (3:25-5:14)

On clients who have needs that go beyond investment management. (5:15-5:56)

"You get the work done, you pay for the work." Why Ferri's new advisory practice charges clients by the hour, not by their assets under management. (5:57-9:44)

"Advisors talk about how they add value behaviorally; I think a lot of that is created by the advisor and not so much by the client." The role of advisors in managing client behavior. (9:45-11:12)

Asset Allocation

"There are no average investors." How investors of the same age can vary widely in their appetite for equity risk. (11:13-15:03)

"Those are the things that are going to add value to a client's portfolio." Focusing on keeping taxes and investment costs down, not trying to play factors. (15:03-18:21) 

"There seem to be a lot of factor renters, rather than factor owners." Ferri is skeptical that factor investing will outperform in the future. (18:23-20:44)

 "I don't use anything that doesn't have an expected real return." Why Ferri sticks with plain-vanilla asset classes. (20:45-21:56)

How to go about making return assumptions for the major asset classes. (21:57-24:14)

"It depends on how much money the client has." A total bond market index as a one-stop option for fixed-income exposure. (24:15-27:20)

International bonds as a core asset class. (27:21-28:46) 

"I don't think they're pivotal." REITs as a direct allocation.  (28:47-31:45)

Decumulation  
"The software doesn't seem to be very good at this." Decumulation is inherently more complicated and customized than accumulation. (31:46-34:19)

"There seem to be better ways of doing it than the classic way in which we've been taught." On whether the traditional declining equity glide path makes sense. (34:20-39:28)

Indexing and the Legacy of Jack Bogle
"It's been around forever." Direct indexing: the wave of the future? (39:29-42:09)

"I don't see it as big of a threat as other people do." Should investors be worried about concentration in very few ETFs, and do index funds and ETFs own too much of the market? (42:10-44:07)

"I was having a real moral dilemma." How influential Jack Bogle was in shaping Ferri's career path. (44:08-46:08)

Bogleheads On Investing Podcast
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Episode 030: Sarah Newcomb, host Rick Ferri
Sarah Newcomb, Ph.D., is a behavioral economist for Morningstar. In this role, she works to integrate the findings of her research into Morningstar's financial management applications and tools. Sarah has expertise in consumer psychology, economic decision-making, personal money management, and cognitive and social psychology. Before joining Morningstar in 2015, Sarah earned her doctorate in behavioral economics from the University of Maine, where her work focused on the psychological barriers to sound personal money management. She is the author of LOADED: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind (Wiley, 2016). This podcast is hosted by Rick Ferri, CFA, a long-time Boglehead and investment adviser. The Bogleheads are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance, and relevant information to other investors of all experience levels at no cost. The organization supports a free website at Bogleheads.org, and the wiki site is Bogleheads® wiki. Since 2000, the Bogleheads' have held national conferences in major cities around the country. There are also many Local Chapters in the US and even a few Foreign Chapters that meet regularly. New Chapters are being added on a regular basis. All Bogleheads activities are coordinated by volunteers who contribute their time and talent. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012. Your tax-deductible donation to the Bogle Center is appreciated.
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