Tight-Fisted Investing/Rick Ferri in WSJ

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stratton
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Tight-Fisted Investing/Rick Ferri in WSJ

Post by stratton »

From the WSJ:

Tight-Fisted Investing

Anyone heard of this guy? :lol:
Low costs and a blend of stock- and bond-index funds are the hallmarks of the investment philosophy of Richard Ferri, chief executive of investment-advisory firm Portfolio Solutions LLC in Troy, Mich.
...
We follow basically John Bogle’s philosophy of investing,” says Mr. Ferri, referring to the founder of index specialist Vanguard Group Inc., who believes that investors are better off buying low-cost investments that replicate market returns, rather than trying to beat the market. Mr. Ferri considers himself “the low-cost adviser doing the Boglehead methodology.”
The ever present WSJ portrait:

Image

A typical asset allocation for someone who is 50/50 stocks/bonds is:

Image

This comment is interesting:
The advisers chose the DFA’s emerging-market fund over Vanguard’s cheaper emerging-markets ETF because the latter has a large position in a few countries that the advisers aren’t comfortable with. The Vanguard fund tracks the MSCI Emerging Markets Index, which currently has around 46% in China, Brazil and Korea.
Paul

Edit: changed the hedcut to correct one posted later in thread.
Last edited by stratton on Mon May 18, 2009 11:32 pm, edited 1 time in total.
saurabhec
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Re: Tight-Fisted Investing

Post by saurabhec »

stratton wrote:From the WSJ:

Tight-Fisted Investing

Anyone heard of this guy? :lol:
Low costs and a blend of stock- and bond-index funds are the hallmarks of the investment philosophy of Richard Ferri, chief executive of investment-advisory firm Portfolio Solutions LLC in Troy, Mich.
I congratulate Rick Ferri on showing leadership in developing alternative fee only advisor models beyond the 1% of AUM. I must also say I enjoyed Mr. Ferri's book on AA and found it very engaging, lots of informative charts and good advice.

My one nit however, is how advisors (not just Rick but also David Swensen) are now underweighting REITs in a stealth way after a huge REIT bear market. I think that in Rick's book several of the model allocations I saw were 10% REITs, but now it seems 5% is what he recommends. David Swensen was at 20% REITs until recently reducing it in an interview to 15%. Surely, given how one of the things advisors rail against is sticking to an AA, and not letting bear markets shake one out, investors are owed an explanation of why REIT allocations are being tamped down when they were embraced with enthusiasm before? Have fundamentals for REITs as an asset class and its value in portfolio construction been permanently revised?

Again, I don't want Mr. Ferri to think that the above is a big criticism, it is a minor one in the grand scheme of things. I congratulate him for making a distinction between financial planning and investment management and reducing his fees accordingly.

Saurabh
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Post by TwoCyclists »

I noticed the same thing about REITs being tamped down in
Swensen's latest interviews, compared with his book Unconventional
Success...
. I would be very interested in the reply.

At first I went along and tried revising my AA (on paper), and then
I thought I should stick to my principles.

Thanks for bringing this up.
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Post by Gabriella »

I don't have Rick's book in front of me, but sometimes the REIT allocation is stated as X percent of the stock portion of the portfolio, and in the example portfolio above it is 10% of the stock portion.

Gabriella
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Post by White Coat Investor »

I'm sure glad I didn't go with 20% REITs. 7.5% have been plenty exciting for me.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Post by SteveB3005 »

They pulled the wrong drawing or they need a new art person.ImageImage
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Post by stratton »

SteveB3005 wrote:They pulled the wrong drawing or they need a new art person.
You weren't the only one wondering.

Paul
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Post by wbond »

Bear-market-pattern baldness?
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Post by Sunflower »

wbond wrote:Bear-market-pattern baldness?
Well, I don't think that's the most current photo of him, but --


The bear market took the curl out of his hair? :P
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Post by Levett »

Here's the latest 50/50 portfolio I've seen in Rick's last book, The ETF Book (copyright 2008). It's on page 303 in the section on Life Cycle Investing. It would be a model portfolio for "New Retirees."

U.S. Stock 30%

Total Market 23%
Small Value 7%

REIT 5%


International Stocks 15%

Pacific Rim 6%
Europe 6%
Emerging Market 3%

Fixed Income 45%

Total U.S. Bond 30%
Inflation Protected 10%
High Yield Corporate 5%

Cash 5%

Bob U.

P.S. The pictures show what happens to your youthful good looks when you move to Texas and its torrid sun! :lol:
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Post by Harold »

Sunflower wrote:
wbond wrote:Bear-market-pattern baldness?
Well, I don't think that's the most current photo of him, but --


The bear market took the curl out of his hair? :P
I don't know about the hair, but it sure could've taken the smile off his face!
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Post by rec7 »

SteveB3005 wrote:They pulled the wrong drawing or they need a new art person.ImageImage
The first picture could pass for his father.
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Post by Rick Ferri »

I rather the WSJ put the wrong persons picture in the paper than getting the story wrong. Besides, there might be a silver lining in this. I have been told more than I would have more credibility in the media if I had gray hair and a receding hairline.

Rick Ferri
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Post by Index Fan »

Good article, Rick! :)
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Post by cinghiale »

What Mr. Ferri said:
I rather the WSJ put the wrong persons picture in the paper than getting the story wrong. Besides, there might be a silver lining in this. I have been told more than I would have more credibility in the media if I had gray hair and a receding hairline.

Rick Ferri
What Mr. Ferri failed to say:

Is the WSJ sketch in the article him or not? He indicates, but does not verify, that the Journal botched the illustration.

Let's hope they got it right with the asset allocation graphic.

-- Cinghiale
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Post by Rick Ferri »

cinghiale wrote:Is the WSJ sketch in the article him or not? He indicates, but does not verify, that the Journal botched the illustration. Let's hope they got it right with the asset allocation graphic. Cinghiale
The asset allocation figure is fine. They botched the illustration. My name there, but I have no idea who is in the picture.

Rick Ferri
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Post by Petrocelli »

I was kind of shocked when I saw the picture.

I thought there were three possibilities:

1. The recent market declines aged you significantly.
2. You had been using your high school yearbook picture in your books.
3. The WSJ scrwewed up.

I am glad to hear its number 3.
Petrocelli (not the real Rico, but just a fan)
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Post by ken250 »

It's your psyche.
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Post by beardsworth »

I don't know if anyone else––or Rick Ferri himself––did it, but I used the WSJ "Contact" feature to send an e–mail to the webmaster, pointed out the incorrect Ferri portrait, and provided a link to this thread. As of the time I'm writing this, clicking on the link in the original post above leads to a revised version of the article without any portrait of Rick Ferri (or whomever was earlier presented as being Rick Ferri) at all. Remains to be seen if the WSJ will actually update again with a picture of "the real McCoy."

Marc
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Post by metabasalt »

My guess, and that's all it is, is that we won't see a corrected drawing. That's because the drawing really is just that -- a drawing, not a digitally altered photo. The WSJ ran an article about the woman who does these drawings -- very interesting. It was a great surprise to me to find that they are individual drawings.
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Hedcut

Post by Dan Kohn »

MarcMyWord wrote:I don't know if anyone else––or Rick Ferri himself––did it, but I used the WSJ "Contact" feature to send an e–mail to the webmaster, pointed out the incorrect Ferri portrait, and provided a link to this thread. As of the time I'm writing this, clicking on the link in the original post above leads to a revised version of the article without any portrait of Rick Ferri (or whomever was earlier presented as being Rick Ferri) at all. Remains to be seen if the WSJ will actually update again with a picture of "the real McCoy."
That's one approach. Having a Hedcut in the WSJ is a great honor. (Well, normally it is. Bernie Madoff got one as well.) I was going to suggest that Rick straighten and dye his hair to match the Hedcut the Journal used for him.
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Post by Rick Ferri »

I have been told by the WSJ that the person in the print article and who used to be on the website also has the last name of Ferri, and the typeset people pulled the wrong print. They do have a sketch of me, and that might be corrected on the website. I don't know what will happen with the print edition except as to get a mention in the corrections section.

This could have been worse. They could have mistakenly printed that our fee is 2.5% rather than 0.25%.

Rick
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Post by SoonerSunDevil »

Rick Ferri wrote:I have been told by the WSJ that the person in the print article and who used to be on the website also has the last name of Ferri, and the typeset people pulled the wrong print. They do have a sketch of me, and that might be corrected on the website. I don't know what will happen with the print edition except as to get a mention in the corrections section.

This could have been worse. They could have mistakenly printed that our fee is 2.5% rather than 0.25%.

Rick
Tell them they can make it up to you by running another piece on PS within the next few months!
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Post by saurabhec »

Rick Ferri wrote: This could have been worse. They could have mistakenly printed that our fee is 2.5% rather than 0.25%.
Indeed, that would truly be an error for the ages. Congratulations once again on staking out a distinctive and differentiated profile with appropriate costs amongst the advisor community.

Now for the question that continues to gnaw at me :D

Since when you wrote "All About Asset Allocation", have you revised your opinion of the utility of REITs in investor portfolios? The "moderate" allocations in that book had 10% REITs, not it seems you suggest 5% REITs. What has made you reduce this other than the price performance in the 2007-2008 YTD period? Is this because you now view the REIT class differently on a permanent basis? If so, what do you think you missed earlier?
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Post by Rick Ferri »

In my book, All About Asset Allocation, I show that an equity allocation of 50% REITS was the best risk adjusted return. But I am not going there. The REIT market is much too small. There are only about 100 equity REITS trading and I am not going to overload a portfolio to 100 securities, all from the same sector. Nonetheless, in the AAAA book, I state that you could have an allocation of 20% in REITS. However, in practice, we only have 10% of the equity portfolio in REITS, and that is what I have my own portfolio as well. It is a prudent allocation.

Do I think the REITS market has changed? Not much. There was a long depressed period in the 90s when REITs underperformed. And then they outperformed for several years. I don't know the real estate market well enough to beat the pro's at this (most pros cannot beat the pros). So, I always have a small allocation. In addition, the correlation between REITs and common stock, and REITs and bonds fluctuate widely. Recently the correlation has been high, so in retrospect, having REITS for the past year have hurt. That will change over time, I just don't know when.

Rick Ferri
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Post by saurabhec »

Rick Ferri wrote: However, in practice, we only have 10% of the equity portfolio in REITS, and that is what I have my own portfolio as well. It is a prudent allocation.
My question is whether 5% has now been grandfathered in as the "new prudent" based on the model allocation in the WSJ article.
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Post by freedomfunds »

So what countries do you not like in Vanguard Emerging
Index choice matters. | | Valuations matter even more.
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Post by freedomfunds »

Furthermore. where are International Bonds,
For clients with taxable accounts who are in a high tax bracket, the advisers use municipal-bond funds instead of corporate bonds.
WHy pick Treasuries for someone in a high bracket
Index choice matters. | | Valuations matter even more.
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Post by stratton »

freedomfunds wrote:So what countries do you not like in Vanguard Emerging
Go to the dfaus.com web site and look up the fund by the symbol in the asset allocation above and compare it to the country break down for Vanguard's EM fund.

The obvious one is the low amount of Russia when I looked several months ago.

Paul
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Post by Rick Ferri »

saurabhec wrote:
Rick Ferri wrote: However, in practice, we only have 10% of the equity portfolio in REITS, and that is what I have my own portfolio as well. It is a prudent allocation.
My question is whether 5% has now been grandfathered in as the "new prudent" based on the model allocation in the WSJ article.
5% REITS is 10% of the equity allocation in a 50% stock and 50% bond portfolio.

Rick
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Post by Rick Ferri »

freedomfunds wrote:So what countries do you not like in Vanguard Emerging
That part of the interview was cut short. I also said that the DFA EM Core has a 12% cap in any country, plus the DFA fund includes small emerging market and value emerging market. So, you get it all in one fund. Generally, I do not like the all in one fund concept, but it makes sense in EM because that sector is only a small allocation in the entire portfolio.

PS, the Vanguard fund is just fine for do-it-yourself investors.
freedomfunds wrote:Furthermore. where are International Bonds
International bond funds are still too expensive for my taste. I prefer to stick with international stocks for currency diversification. I would look at it again if Vanguard came out with a ~0.15% Admiral/Signal share class international government only bond fund.

Rick Ferri
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Post by MurrayPhillip »

Rick Ferri wrote:I have been told by the WSJ that the person in the print article and who used to be on the website also has the last name of Ferri, and the typeset people pulled the wrong print. They do have a sketch of me, and that might be corrected on the website. I don't know what will happen with the print edition except as to get a mention in the corrections section.

This could have been worse. They could have mistakenly printed that our fee is 2.5% rather than 0.25%.

Rick
Or they could have run Bernie Madoff's photo.
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Post by freedomfunds »

Reading the article about Ferri, again reminds me why comparing advisors price tags is confusing.

Some firms, like Ferri, have an annual fee+ a fee for the trades.

Other firms have a flat fee that already includes the trades/
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Post by SmallHi »

deleted. We don't need another Core v Component debate :wink:

Congrats Rick!

sh
Last edited by SmallHi on Mon May 04, 2009 7:13 pm, edited 1 time in total.
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Post by cheapskate »

Rick Ferri wrote: International bond funds are still too expensive for my taste. I prefer to stick with international stocks for currency diversification. I would look at it again if Vanguard came out with a ~0.15% Admiral/Signal share class international government only bond fund.
Rick Ferri
Rick - Congratulations on the WSJ interview and article ! Awesome stuff !!

You must've researched the new iShares offerings ISHG and IGOV, each with an ER of 0.35%. Any opinions on these ? ISHG especially seems to fill an interesting hole in Intl Sovereign Bond Offerings for investors who might want to get some currency diversification beyond Intl Stocks ? Your thoughts ?

The assets in both seem disappointingly low though.
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Post by Rick Ferri »

SmallHi wrote:deleted. We don't need another Core v Component debate :wink:

Congrats Rick!

sh
THANK YOU!
You must've researched the new iShares offerings ISHG and IGOV, each with an ER of 0.35%. Any opinions on these ?
The international bond funds are getting better, but are still too expensive for my blood. As I said, when Vanguard comes to the market with a 0.15% international government fund, then I might become interested.

Rick Ferri
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Post by Rick Ferri »

freedomfunds wrote:Reading the article about Ferri, again reminds me why comparing advisors price tags is confusing.

Some firms, like Ferri, have an annual fee+ a fee for the trades.

Other firms have a flat fee that already includes the trades/
It is always better to pay for trades as they occur rather than in a wrap fee that overcharges. Our client's trading cost for a typical $1 million portfolio is only about $200 per year. That is 0.02% of a portfolio. A negligible amount.

Rick Ferri
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Post by joe8d »

An excellent article Rick and your model portfolio provides a great guideline to use.
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Post by yobria »

Great profile, congrats Rick.

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Post by grok87 »

TwoCyclists wrote:I noticed the same thing about REITs being tamped down in
Swensen's latest interviews, compared with his book Unconventional
Success...
. I would be very interested in the reply.

At first I went along and tried revising my AA (on paper), and then
I thought I should stick to my principles.

Thanks for bringing this up.
personally i never could bring myself to put 20% in real estate anyway- 15% is closer to what I was doing anyway...
RIP Mr. Bogle.
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Post by Robert T »

.
Congratulations Rick!

Also like/use IJS and BRSIX. And a very astute observation on corporate bond ETFs. :)

Best,

Robert
.
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VIPSX is actively managed? What?!

Post by bigH »

Great article! There is one line that is news to me:

"The remaining 10% is invested in Vanguard Inflation-Protected Securities fund, which buys securities whose principal adjusts with inflation. This fund is actively managed, and the advisers use it because they aren’t enthused about indexing options."

VIPSX is actively managed? I thought it was indexed similar to IPE or TIP. Can someone please enlighten me?
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Post by saurabhec »

[quote="Rick Ferri"

5% REITS is 10% of the equity allocation in a 50% stock and 50% bond portfolio.

Rick[/quote]

Wasn't the "balanced" portfolio in "All About Asset Allocation" 10% absolute in REITs, not 10% of equity portfolio?
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Post by Diablo-D3 »

Hey Rick, do you print any of your own stuff online anywhere? Google isn't helping.
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Post by saurabhec »

saurabhec wrote:
Rick Ferri wrote:
5% REITS is 10% of the equity allocation in a 50% stock and 50% bond portfolio.

Rick
Wasn't the "balanced" portfolio in "All About Asset Allocation" 10% absolute in REITs, not 10% of equity portfolio?
I note that in as recent an article as late June 2008, the basic model portfolio that is attrbuted to you is 10% of total portfolio in REITs:
http://www.marketwatch.com/news/story/h ... MidSection

To me, there definitely seems some stealth grandfathering in of 5% as the new prudent REIT allocation. I don't think it is a big deal, but given how frequently leading experts berate individual investors for "buy high, sell low", it seems like the same thing, unless you have fundamentally revised your opinion of REITs as an asset class, which I would actually have greater sympathy for.
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Post by FrugalInvestor »

That sketch was likely a 'concept' drawing similar to what is done with future versions of automobiles. Rather than a concept Ferarri it's a future version of Ferri. :D

Reaching....I know. :roll:
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Post by joe8d »

VIPSX is actively managed? I thought it was indexed similar to IPE or TIP. Can someone please enlighten me?
VIPSX is actively managed.
All the Best, | Joe
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Post by market timer »

No CCFs? :)

This thread has given me a new goal: get a WSJ hedcut.
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Post by saurabhec »

market timer wrote:No CCFs? :)

This thread has given me a new goal: get a WSJ hedcut.
At least a healthy chunk of non-investment grade bonds and mortgages are there just to thumb the noses of Messers Swensen and Swedroe :D
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Post by Chastemp »

EmergDoc wrote:I'm sure glad I didn't go with 20% REITs. 7.5% have been plenty exciting for me.
It seems pretty simple to me. Last year I had 10& REIT and now I have 5% and I didn't have to lift a finger to tamp it down. There I'm gonna leave it and if it is so minded maybe some day it will be 10% again. :wink:

Chas
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