Rick Ferri's Portfolio

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Rick Ferri's Portfolio

Postby petrico » Mon Aug 09, 2010 5:34 pm

Rick Ferri has (once again?) made his own portfolio public.

One quick caveat before we share that: he says what’s more important than the exact funds you use, assuming you’re in globally diversified low-cost index funds and not expensive actively managed funds, is the asset allocation. “Let’s think of it as baking a cake. The cake is 80 percent equity and 20 percent fixed-income. Those are the two ingredients,” he said. “How you get to that allocation and what the funds are doesn’t matter very much. It’s the icing on the cake.”

80/20 stocks/bonds
70/30 US/International

Code: Select all
34% Vanguard Total Stock Market ETF (VTI)
10% S&P SmallCap 600 Value Index Fund  (IJS)
 5% Ultra-Small Company Market (BRSIX)
 8% Vanguard REIT ETF (VNQ)

 7% Vanguard Pacific ETF (VPL)
 7% Vanguard European ETF (VGK)
 5% DFA International Small Cap Value
 5% DFA Emerging Markets Core (Vanguard Emerging Markets ETF would do)

12% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
 4% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
 4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

(Yeah, that's 101%. Must be some rounding in there.)

NYT: Products of the Pros: Index Funds

Thanks Rick.

--Pete
Last edited by petrico on Wed Aug 18, 2010 8:11 pm, edited 1 time in total.
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby SSSS » Mon Aug 09, 2010 6:04 pm

petrico wrote:(Yeah, that's 101%. Must be some rounding in there


Or he's just too badass to stop at 100.

Oddly enough, that's almost the same as my asset allocation. I stole it from a book called All About Asset Allocation. What are the odds? :P

The book had a foreign bond allocation, though... wonder what happened to that?
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Postby chaz » Mon Aug 09, 2010 6:34 pm

His 101% portfolio covers all sectors nicely.
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Postby Adrian Nenu » Mon Aug 09, 2010 6:38 pm

Here's my current portfolio (rounded off, 100% in stocks):



US - 42.6%

Dreyfus Small Cap Index - 12% (tax deferred 457 plan)

Dreyfus Midcap Index - 9% (tax deferred 457 plan)

Dreyfus S&P 500 index - 7.2% (tax deferred 457 plan)

Vanguard Total Stock Market Index - 6.8% (taxable account)

Vanguard REIT Index - 7.6% (Roth IRA)




International - 57.4%

Dreyfus International Stock Index - 25% (tax deferred 457 plan)

Vanguard Emerging Markets Index - 22.8% (taxable account & Roth IRA)

Vanguard FTSE All World ex US - 4.6% (taxable account)

Vanguard FTSE All World ex US Small Cap - 5% (Roth IRA)



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Postby Rick Ferri » Mon Aug 09, 2010 6:51 pm

That was an interesting conversation with the NY Times journalist. She was very thorough.

7% Vanguard Pacific ETF (VPL)
7% Vanguard European ETF (VGK)

Should be:

6.5% Vanguard Pacific ETF (VPL)
6.5% Vanguard European ETF (VGK)

That's the extra 1%. I guess they don't do fractions.

Rick Ferri

BTW, I also own about $3k in BRKB to get that personal invitation from Warren Buffett to visit him in Omaha each year, along with 40,000 of his other friends.
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Rick's portfolio

Postby shawcroft » Mon Aug 09, 2010 7:15 pm

Great to see the personal selections of someone with recognized expertise in the area....
The asset allocations are very well explained. As for the
asset locations, is it safe to surmise the REIT ETF and the three bond funds are in tax-deferred accounts? (or is this just another of my usually dumb questions?)
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Re: Rick's portfolio

Postby Rick Ferri » Mon Aug 09, 2010 8:42 pm

shawcroft wrote:is it safe to surmise the REIT ETF and the three bond funds are in tax-deferred accounts? (or is this just another of my usually dumb questions?)


Not a dumb question. It's this way because of what you say: Taxes!

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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby nonnie » Mon Aug 09, 2010 8:52 pm

SSSS wrote:Oddly enough, that's almost the same as my asset allocation. I stole it from a book called All About Asset Allocation. What are the odds? :P

The book had a foreign bond allocation, though... wonder what happened to that?


The second edition of the book doesn't have foreign bond allocation--unless I missed it. It's also same portfolio from his 2008 ETF book except US Small Cap Value and US Micro Cap have been added.

If I may ask a question of Mr. Ferri--you say, "“Let’s think of it as baking a cake. The cake is 80 percent equity and 20 percent fixed-income. Those are the two ingredients,” he said. “How you get to that allocation and what the funds are doesn’t matter very much. It’s the icing on the cake.” Does it also follow that let's say 6% in VPL (vs your 7%) and 6% in DFA Emerg Mkts Core vs 5% in yours-- or any other subcategory %--doesn't matter very much? Once one decides the ratio between equity/fixed-- how important are the sub-categories?

Thanks,
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Thanks for your answer

Postby shawcroft » Mon Aug 09, 2010 8:56 pm

Thanks...I've read both the first and second editions of your book on Asset Allocation and guessed that would be the strategy. (Being Scottish by ancestry, I "gifted" my copy of the first edition to a nascent Boglehead once I had received the second edition. He enjoyed it and proceeded to "dump" his Edward Jones Advisor once he finished the book)
Still, I suspect there are only a few truly dumb questions. Being absolutely certain of what location is best to place an asset is fundamental to both economic survival and, more importantly, avoiding a diet of Alpo in one's "golden years" (Arf!!)
Thanks for your response.
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Postby 1210sda » Mon Aug 09, 2010 9:25 pm

Unless Rick is twenty years old, he is not doing his age in Bonds ! :lol: :lol:

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Postby arthurdawg » Mon Aug 09, 2010 9:36 pm

"The name is Bond. Domestic Bond."


I think my allocation is similar to that... it seems to be in my signature line, although it needs some updating most likely.
Portfolio: TSM / SCV / FTSE Big World / FTSE Small World / TBM / REIT
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Postby aaronl » Mon Aug 09, 2010 9:52 pm

I'm amazed at how similar this is to my portfolio. I also use VTI, IJS, BRSIX, and VNQ in similar proportions. The main difference is that I get my international exposure from VEA.
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Postby sschullo » Mon Aug 09, 2010 9:55 pm

Rick
This is a first for a pro to reveal what they do with their money. The bookstores are full of investment books IMO, all in the abstract.
This is a first!
Steve
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Postby FredPeterson » Mon Aug 09, 2010 9:57 pm

Rick,

Thats quite a tilt towards small value, you must have strong beliefs in the SCV tilt.

Is this a floating belief or are you pretty much a B&H with this AA? Meaning, you can be a Boglehead style investor but that does not mean you never change tilts or styles. Yes you could call that market timing if you want, but market timing doesn't have to mean you make multiple adjustments in a year.
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby woof755 » Mon Aug 09, 2010 10:05 pm

petrico wrote:Rick Ferri has (once again?) made his own portfolio public.

One quick caveat before we share that: he says what’s more important than the exact funds you use, assuming you’re in globally diversified low-cost index funds and not expensive actively managed funds, is the asset allocation. “Let’s think of it as baking a cake. The cake is 80 percent equity and 20 percent fixed-income. Those are the two ingredients,” he said. “How you get to that allocation and what the funds are doesn’t matter very much. It’s the icing on the cake.”

80/20 stocks/bonds
70/30 US/International

Code: Select all
34% Vanguard Total Stock Market ETF (VTI)
10% S&P SmallCap 600 Value Index Fund  (IJS)
 5% Ultra-Small Company Market (BRSIX)
 8% Vanguard REIT ETF (VNQ)

 7% Vanguard Pacific ETF (VPL)
 7% Vanguard European ETF (VGK)
 5% DFA International Small Cap Value
 5% DFA Emerging Markets Core (Vanguard Emerging Markets ETF would do)

12% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
 4% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
 4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

(Yeah, that's 101%. Must be some rounding in there.)

NYT: Products of the Pros: Index Funds

Thanks Rick.

--Pete



It's boring.

:idea:
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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Postby Rick Ferri » Mon Aug 09, 2010 10:14 pm

FredPeterson wrote:Rick,

Thats quite a tilt toward small value, you must have strong beliefs in the SCV tilt.


To the contrary. I'm not counting on a SCV tilt to make or break my retirement account. While the tilts are there, my belief is that I shouldn't do any worse with them in relation to the TSM. If I do better, that's icing on the cake.

Rick Ferri
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby petrico » Mon Aug 09, 2010 10:27 pm

woof755 wrote:It's boring.

:idea:

Right!

OK, running Rick's stock allocation thru M* (if I got the correct DFA tickers)
Code: Select all
42.50% Vanguard Total Stock Market ETF (VTI)
12.50% iShares S&P SmallCap 600 Value Index Fund (IJS)
 6.25% Bridgeway Ultra-Small Company Market (BRSIX)
10.00% Vanguard REIT ETF (VNQ)

 8.125% Vanguard Pacific ETF (VPL)
 8.125% Vanguard European ETF (VGK)
 6.250% DFA International Small Cap Value (DISVX)
 6.250% DFA Emerging Markets Core (DFEMX)

Yields these results:

18 18 17
07 07 04
11 11 06


72% No. America
12% UK/West. Europe
7% Japan
2% Latin America
8% Asia ex-Japan
1% other

Yield: 2.24%
Avg. Market Cap: $8,062 mil
Avg. ER: 0.23%

8)

--Pete
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Postby tc101 » Mon Aug 09, 2010 10:44 pm

I forget, how old is Rick? I was thinking he was close to my age (60) so I am surprised by the 80% in stocks. Also, I am wondering, but too polite to ask, how rich is Rick? Is he 80% stocks because he is so rich he can afford to gamble, or 80% stocks because he needs a high rate of return, or 80% stocks because he is younger than I thought?
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Postby petrico » Mon Aug 09, 2010 10:57 pm

tc101 wrote:I forget, how old is Rick? I was thinking he was close to my age (60) so I am surprised by the 80% in stocks. Also, I am wondering, but too polite to ask, how rich is Rick? Is he 80% stocks because he is so rich he can afford to gamble, or 80% stocks because he needs a high rate of return, or 80% stocks because he is younger than I thought?

Probably better to let Rick speak for himself, but this was in the article:

Meanwhile, since he has a pension and defined-benefit plans from former employers and thus can handle some risk, he’s more aggressive when it comes to his own retirement savings.

(Might not get a very detailed response on at least one of your questions.)

--Pete
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Postby MrMiyagi » Mon Aug 09, 2010 11:08 pm

Thanks for sharing!
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Postby bdavidson » Mon Aug 09, 2010 11:27 pm

tc101 wrote:I forget, how old is Rick?

The linked NYT post mentions he is 52. Still young.
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Postby Pacific » Mon Aug 09, 2010 11:33 pm

Now, if we can only get The Munchkin Man to reveal his portfolio . . .
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Postby JustinR » Tue Aug 10, 2010 6:44 am

I'm curious what Rick's methodology is for his stock/bond ratio since he's not doing age in bonds
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Postby stratton » Tue Aug 10, 2010 7:34 am

JustinR wrote:I'm curious what Rick's methodology is for his stock/bond ratio since he's not doing age in bonds

Read the article linked above. He answers the question.

No, I'm not going to tell you. :twisted:

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Postby jeffyscott » Tue Aug 10, 2010 8:59 am

Rick Ferri wrote:
FredPeterson wrote:Rick,

Thats quite a tilt toward small value, you must have strong beliefs in the SCV tilt.


To the contrary. I'm not counting on a SCV tilt to make or break my retirement account. While the tilts are there, my belief is that I shouldn't do any worse with them in relation to the TSM. If I do better, that's icing on the cake.

Rick Ferri



So a weak belief in EMH, then? As in small cap value is riskier (but not really).
press on, regardless - John C. Bogle
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Postby RaleighStClaire » Tue Aug 10, 2010 9:03 am

Pacific wrote:Now, if we can only get The Munchkin Man to reveal his portfolio . . .


:thumbsup
Where's that red one gonna go?
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby HomerJ » Tue Aug 10, 2010 9:26 am

petrico wrote:
Code: Select all
34% Vanguard Total Stock Market ETF (VTI)
10% S&P SmallCap 600 Value Index Fund  (IJS)
 5% Ultra-Small Company Market (BRSIX)
 8% Vanguard REIT ETF (VNQ)

 7% Vanguard Pacific ETF (VPL)
 7% Vanguard European ETF (VGK)
 5% DFA International Small Cap Value
 5% DFA Emerging Markets Core (Vanguard Emerging Markets ETF would do)

12% Vanguard Total Bond Market Index Fund Investor Shares (VBMFX)
 4% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
 4% Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)

(Yeah, that's 101%. Must be some rounding in there.)



Rick seems to be pretty broke for an author and world-renowned financial advisor... You only need $100,000 to qualify for Total Bond Market Admiral shares, yet 12% of his portfolio isn't enough to qualify...

(Just kidding, I'm sure he has the Admiral shares, but listed it as VBMFX anyway) :) :)
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby KyleAAA » Tue Aug 10, 2010 9:54 am

rrosenkoetter wrote:
Rick seems to be pretty broke for an author and world-renowned financial advisor...


Well authors don't generally make very much unless they have a string of bestsellers and the type of financial advising he does doesn't seem to lend itself to stockpiling huge sums of cash.
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby Rick Ferri » Tue Aug 10, 2010 10:01 am

rrosenkoetter wrote:Rick seems to be pretty broke for an author and world-renowned financial advisor...Just kidding


Well, I wouldn't call it broke, but for many years after starting Portfolio Solutions in 1999 I was probably the lowest paid author and world-renowned financial advisor in existence. How much money do you think I earned over the years by charging 0.25% to manage money? And remember that I spent the first 8 years out of college serving in the Marines. It's only been a few years since my firm has grown to the point when I've been able to enjoy higher standard of living. These were my choices, of course. I could have gone to work for Wall Street right out of college, and then probably started a hedge fund that has 2% + 20% in fees. But I didn't go that direction, and have no regrets.

Rick Ferri

BTW, I'm 52, married for 27 years, we've already put our three children through college and they all have full time jobs!, and my financial goals are to be debt free by age 62 and to save enough money so that we can live comfortably in retirement (which isn't that much because we'll have a military pension and other pension income, plus whatever comes in from Social Security). So there you go!
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby jeffyscott » Tue Aug 10, 2010 10:23 am

rrosenkoetter wrote:Rick seems to be pretty broke for an author and world-renowned financial advisor... You only need $100,000 to qualify for Total Bond Market Admiral shares, yet 12% of his portfolio isn't enough to qualify...

(Just kidding, I'm sure he has the Admiral shares, but listed it as VBMFX anyway) :) :)



For $100,000 to be 12%, he'd have to have over $800,000...that's quite a standard for being considered "pretty broke". I guess I'm destitute and probably should switch to eating cat food by the standards around here.
press on, regardless - John C. Bogle
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Postby HomerJ » Tue Aug 10, 2010 10:30 am

Foot, insert into mouth...

:oops: :oops:

Well, if the world was fair, I think your excellent books and articles should have made you a millionaire by now... :)
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Postby Dan Moroboshi » Tue Aug 10, 2010 10:37 am

Pacific wrote:Now, if we can only get The Munchkin Man to reveal his portfolio . . .


He did, in this thread:

viewtopic.php?t=57888
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Postby Rick Ferri » Tue Aug 10, 2010 10:40 am

rrosenkoetter,

Forgetaboutit! Clarification was needed anyway.

Someone asked about 'age in bonds'. That's not a rule of thumb that I adhere to because everyone has their own situation. It's fine for younger people who tend to have similar financial situations, but it doesn't work as well for those of use who are older. We all need to do more thinking about asset allocation based security of employment, other retirement income sources, family situation, tolerance and understanding about market risk, and a host of other issues.

Rick Ferri
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Postby SteveB3005 » Tue Aug 10, 2010 10:43 am

Rick is very modest and truly one of the good guys.

All the royalties I earn from the sale of books is donated to the Wounded Heroes Fund. This non-profit organization helps wounded war veterans and their families. The person who is co-chair of the fund is a highly decorated Gulf War veteran who I served with in the Marines. Every dollar donated to Wounded Heroes Fund goes to directly to assist those who sacrificed so much to protect our freedoms and way of life.


edit: link added
Last edited by SteveB3005 on Tue Aug 10, 2010 10:58 am, edited 1 time in total.
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Postby Tabs » Tue Aug 10, 2010 10:58 am

SteveB3005 wrote:Rick is very modest and truly one of the good guys.

Yes indeed! Thanks Rick, and people like yourself in this community, for all that you do and all that you share. Sorry you guys don't get paid more for it, but you've earned my respect.
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Postby mpt follower » Tue Aug 10, 2010 11:39 am

Rick Ferri wrote:That was an interesting conversation with the NY Times journalist. She was very thorough.

7% Vanguard Pacific ETF (VPL)
7% Vanguard European ETF (VGK)

Should be:

6.5% Vanguard Pacific ETF (VPL)
6.5% Vanguard European ETF (VGK)

That's the extra 1%. I guess they don't do fractions.

Rick Ferri



BTW, I also own about $3k in BRKB to get that personal invitation from Warren Buffett to visit him in Omaha each year, along with 40,000 of his other friends.



I remembered you mentioning a while back that you had a higher commitment to high yield bonds. I thought you said 30% of your bond portfolio, but I may be wrong.
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Postby Specialized » Tue Aug 10, 2010 11:40 am

Rick Ferri wrote:
FredPeterson wrote:Rick,

Thats quite a tilt toward small value, you must have strong beliefs in the SCV tilt.


To the contrary. I'm not counting on a SCV tilt to make or break my retirement account. While the tilts are there, my belief is that I shouldn't do any worse with them in relation to the TSM. If I do better, that's icing on the cake.

Rick Ferri


Rick, could you elaborate a little bit more on this? If you don't need the expected return from SCV, why do you take the risk? Thanks for being such a great example for all of us!
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby caklim00 » Tue Aug 10, 2010 11:51 am

petrico wrote:
woof755 wrote:It's boring.

:idea:

Right!

OK, running Rick's stock allocation thru M* (if I got the correct DFA tickers)
Code: Select all
42.50% Vanguard Total Stock Market ETF (VTI)
12.50% iShares S&P SmallCap 600 Value Index Fund (IJS)
 6.25% Bridgeway Ultra-Small Company Market (BRSIX)
10.00% Vanguard REIT ETF (VNQ)

 8.125% Vanguard Pacific ETF (VPL)
 8.125% Vanguard European ETF (VGK)
 6.250% DFA International Small Cap Value (DISVX)
 6.250% DFA Emerging Markets Core (DFEMX)

Yields these results:

18 18 17
07 07 04
11 11 06


72% No. America
12% UK/West. Europe
7% Japan
2% Latin America
8% Asia ex-Japan
1% other

Yield: 2.24%
Avg. Market Cap: $8,062 mil
Avg. ER: 0.23%

8)

--Pete
Just checked mine as a comparison

11 12 08
16 12 05
15 13 08

U.S. & Canada 48.93
Europe 19.32
Japan 7.96
Latin America 2.00
Pacific Rim 11.93
Other 2.37
Not Classified 7.49

Mkt Cap: 4,025.72
Yield: 2.02
P/B: 1.38

Rick, that's quite a big bet on North America in your allocation...
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A story about Rick Ferri

Postby Taylor Larimore » Tue Aug 10, 2010 11:58 am

Hi Bogleheads:

Rick is truly one of the "good guys." I'll tell a story to illustrate.

Prior to our Bogleheads Reunion in Chicago in 2002, Rick came to me and offered to sit on our "Panel of Experts." Although Rick probably had more experience and knew more about investing than anyone on the panel (except Jack Bogle), we had no more room on the panel and he was regretfully declined.

Despite the rebuke, Rick paid his registration and came anyway, quietly sitting in the back of the room (unlike other experts who were offended when we turned them down).

This generous, humble, former Marine fighter pilot and 10-year Wall Street stock broker, is now one of our most valuable experts on the Panel.

Thank you, Rick Ferri.
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby Rick Ferri » Tue Aug 10, 2010 12:32 pm

I don't take praise well. But thanks.

Rick Ferri
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby Jack » Tue Aug 10, 2010 4:09 pm

Rick Ferri wrote:And remember that I spent the first 8 years out of college serving in the Marines. It's only been a few years since my firm has grown to the point when I've been able to enjoy higher standard of living. These were my choices, of course. I could have gone to work for Wall Street right out of college, and then probably started a hedge fund that has 2% + 20% in fees. But I didn't go that direction, and have no regrets.

Congratulations on your career choices. Perhaps the priceless part of it is that you have the freedom of being your own boss.
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The priceless part

Postby Taylor Larimore » Tue Aug 10, 2010 4:13 pm

Hi Jack:

Perhaps the priceless part of it is that you have the freedom of being your own boss.


I will be interested to read Rick'response.
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Postby DTSC » Tue Aug 10, 2010 4:27 pm

Of course, Rick's favorite car has wings and flies! So he can't be that poorly off!
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby amarone » Tue Aug 10, 2010 6:05 pm

nonnie wrote:
SSSS wrote:Oddly enough, that's almost the same as my asset allocation. I stole it from a book called All About Asset Allocation. What are the odds? :P

The book had a foreign bond allocation, though... wonder what happened to that?


The second edition of the book doesn't have foreign bond allocation--unless I missed it.

Well dang - there's a second edition? I bought the book only a few months ago and now discover it is (partially) obsolete. Well, I am not buying it again, so what is the deal on Emerging Market Bonds? I have created an AA after reading the book and started putting in place asset movements just yesterday. I was about to start buying PCY to get some EM bonds. Is that out of favor now?
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby SSSS » Tue Aug 10, 2010 6:33 pm

amarone wrote:Well dang - there's a second edition? I bought the book only a few months ago and now discover it is (partially) obsolete. Well, I am not buying it again, so what is the deal on Emerging Market Bonds? I have created an AA after reading the book and started putting in place asset movements just yesterday. I was about to start buying PCY to get some EM bonds. Is that out of favor now?


I'd guess that changing investments based on what's in or out of favor would probably be a really bad idea.

I just compared the editions side-by-side (received my 2nd Edition today). In the Early Saver slice & dice portfolio, Total Bond was increased from 10% to 20% by dropping the 5% foreign bond entirely & reducing the high-yield bond from 10% to 5%.

The relevant section of the book is also more pessimistic than before, citing high expense ratios as the major negative. Which is valid; 0.5% for PCY and 0.6% for EMB, not terrible but higher than most index ETFs... any good, cheaper options out there? The second edition book lists EMB and IGOV (foreign but not emerging market, 0.35%) as good choices for the asset class even though the class isn't included in the sample portfolios.
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Postby stemikger » Tue Aug 10, 2010 7:07 pm

Posted by Taylor

This generous, humble, former Marine fighter pilot and 10-year Wall Street stock broker, is now one of our most valuable experts on the Panel.

Thank you, Rick Ferri.


I could sense how Rick is a good guy. I am constantly impressed how people take the time to answer my very basic questions. However, even though I am new I did get the impression that Rick is a legend and very respected in this fourm. I was very impressed that he took the time to answer a question of mine and he did it in a way that was basic and humble. Truly the heart of a teacher. I did feel a little intimated, but I was still impressed. The personal finance field needs more guys like Rick.
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Re: Rick Ferri's Own (Index) Portfolio Revealed

Postby amarone » Tue Aug 10, 2010 9:59 pm

SSSS wrote:
amarone wrote:Well dang - there's a second edition? I bought the book only a few months ago and now discover it is (partially) obsolete. Well, I am not buying it again, so what is the deal on Emerging Market Bonds? I have created an AA after reading the book and started putting in place asset movements just yesterday. I was about to start buying PCY to get some EM bonds. Is that out of favor now?


I'd guess that changing investments based on what's in or out of favor would probably be a really bad idea.

I just compared the editions side-by-side (received my 2nd Edition today). In the Early Saver slice & dice portfolio, Total Bond was increased from 10% to 20% by dropping the 5% foreign bond entirely & reducing the high-yield bond from 10% to 5%.

The relevant section of the book is also more pessimistic than before, citing high expense ratios as the major negative. Which is valid; 0.5% for PCY and 0.6% for EMB, not terrible but higher than most index ETFs... any good, cheaper options out there? The second edition book lists EMB and IGOV (foreign but not emerging market, 0.35%) as good choices for the asset class even though the class isn't included in the sample portfolios.

The first edition specifically mentioned Emerging Market bonds, not foreign bonds. PCY is the cheapest I have found.
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Postby Rick Ferri » Tue Aug 10, 2010 10:29 pm

The only asset class that changed between the 1st and 2nd edition of All About Asset Allocation is EM bonds. When I wrote the 1st edition, EM bond spreads were about 700 bps over US Treasuries, and that was compelling to me. By the time I wrote the 2nd edition, EM bonds had railed to about 250 bps over Treasuries. That's just not enough to justify the higher costs of EM bond funds. These are only BB rated securities, after all. All of this is explained in the 2nd edition.

Rick Ferri

PS. About the "priceless part of it is that you have the freedom of being your own boss", this has advantages and disadvantages. The advantage is never having to worry about being laid off, the disadvantage is having to worry about everything else the goes along with running a business. And THAT isn't getting any easier or cheaper these days!
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Postby amarone » Tue Aug 10, 2010 10:34 pm

Rick Ferri wrote:The only asset class that changed between the 1st and 2nd edition of All About Asset Allocation is EM bonds. When I wrote the 1st edition, EM bond spreads were about 700 bps over US Treasuries, and that was compelling to me. By the time I wrote the 2nd edition, EM bonds had railed to about 250 bps over Treasuries. That's just not enough to justify the higher costs of EM bond funds. These are only BB rated securities, after all. All of this is explained in the 2nd edition.

Rick Ferri

Thanks - that makes my life easier (and cheaper).
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Postby simplesimon » Tue Aug 10, 2010 10:42 pm

I met Rick at Bogleheads 8. I would've never guessed he was 52 with 3 adult children. Looking good, dude.
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