The Compound and Friends - The Return of Rick Ferri (with Barry Ritholtz)

Starting point is 00:00:00 Hi, I'm Barry Ritholtz. Welcome to The Compound. Today, I have an extra special guest. His name is Rick Ferry. You probably know him as the founder of Portfolio Solutions, the firm he founded a few decades ago that at one point in time was managing about a billion and a half dollars. I know Rick from his writings, from his work as a fighter pilot in the Air Force. Marine Corps. Marine Corps. You're okay. Why do I? I don't know why. I say fighter pilot. I Air Force. Marine Corps. Marine Corps. Okay. Why do I?

Starting point is 00:00:26 I don't know why. I say fighter pilot. I mean, you can't get that wrong. I automatically go to Air Force, but you're right. A Navy Marine fighter pilot. That's better. Did you ever? Marine fighter pilot.

Starting point is 00:00:38 You flew A6s. Did you ever do carrier landings? Yes, I did. A lot of carrier day and night. Really? Yes. So you were a serious pilot. Yeah, I'd like to think so. I'd love to tell about it. To say the least. Rick also today hosts a really interesting podcast, The Bogleheads on Investing,

Starting point is 00:00:55 where he's interviewed none other than Jack Bogle and a number of other really interesting people. His latest projects I'm going to tell you about, we'll talk about both of them. Let's start with Investment Solutions. This is your new consultancy. Tell us a little bit about Investment Solutions. Well, the name of the company is Ferry Investment Solutions. And basically doing two things. I'm helping individual investors on an hourly basis with their portfolios to help them restructure. I'm not managing their portfolios. I'm just helping them. And then from there, they can go on and either do it themselves, or I can help them find the appropriate advisor for them to pick it up after I help them restructure things.

Starting point is 00:01:37 So this is an hourly consulting basis, not an AUM fee or anything like that? No, it's just an hourly fee. And the other thing I'm doing is helping advisors, a lot of new advisors and advisors who want to go to the next level because of my years of experience. I'm also consulting with advisors to help them with their practice. pitching one Jamie Dimon before he was head of JPMorgan Chase about your idea for a low-cost investment portfolio management idea. And you got rebuffed and launched your own firm. How is this experience you've had, how does that help RIAs today? What do you bring to the table for those folks? So I've been in the business for 30 years. As you said, I was in the brokerage industry for 10 of those and decided to leave and start the RIA, fee-based RIA, managing investment portfolios, and did that for 20 years and then sold the business last year. So I've got a lot of experience not only in

Starting point is 00:02:40 how to run a practice and run a business and make it large, but I also have a lot of experience in working with different types of investors. And so I really understand both the investor mentality and the advisor mentality, and I understand the products, the ETFs and the index funds. So I put it all together, and I think I have some interesting insights into how people can better their portfolios and how advisors can better their business. So let's talk about advisors for a minute. I've heard from a number of the larger RIAs, some of the more famous RIAs in the industry, and they're all talking about this apocalyptic consolidation that's coming any day now, coming down the road. What do you see the industry morphing into? How is our industry going to change over the next decade or two?

Starting point is 00:03:29 Yeah, so I think that one of the things that are going to change is different fee structures, and we're already beginning to see this. Traditionally, it's been based on assets under management, but we're beginning to see subscription-based fees, flat fees. I'm doing hourly, but I'm not managing money. And then we've seen also a decoupling where advisors are charging two different fees, flat fees. I'm doing hourly, but I'm not managing money. And then we've seen also a decoupling where advisors are charging two different fees, one for anything but portfolio management and portfolio management. So I think that the trend is toward different fee structures,

Starting point is 00:03:56 and we're seeing a lot of change there. Quite interesting. Let's talk about the other project that you have working, Core4Portfolios. This is a website. Tell us about it. Well, it's a free website. Basically, I came up with the idea of a Core4Portfolio about 10 years ago. It's just four index funds. Now, let me interrupt you. You have written a number of books on the art of asset allocation, and you have shared with the investing

Starting point is 00:04:26 public a, I was going to say a multiplicity, I don't know if that's even a real word, a ton of different core portfolios that anybody can literally open a book and say, oh, that sounds like what I need, and imitate that portfolio. And that's what the website does. That's exactly right. But it's a really simplistic version of that. There's only four funds. And so- What are the four funds? Well, it depends on which portfolio.

Starting point is 00:04:51 The classic one is a total U.S. stock market, total international, a little slice of real estate using REIT funds, and a total bond fund. These are all Vanguard funds? Nope. Don't have to be Vanguard. Can be State Street, iShares, J.P. Morgan. It could be Schwab. I'm using asset classes as an asset allocation, and then from there, you go to the next level,

Starting point is 00:05:14 you can see the different funds that are available at different places. And each of these have a different – so if you want a REIT, you have a slew of choices, and they're not all the same but within an asset allocation model they're pretty interchangeable. Pretty close. US large-cap international. Pretty close. Okay. And you're talking now with the fee compression and ETFs we're talking the difference between 0.01 and 0.02% difference in fees between these funds so it's all pretty close. So a four holding portfolio what's the typical

Starting point is 00:05:46 internal expense ratio on something like that? Anywhere between five basis points, 0.05% and say 0.1% because I have a core four ESG portfolio, which is a little more expensive. But still under 10 bps is nothing. And that's where portfolio management is now. I mean, not portfolio management, but fund. The fund side is down to almost free. And the trading side is down to almost free. And that's where we are. If you wanted to do this yourself without any help, the cost to you is de minimis. Has there ever been a better time in history to be an investor than the universe of options that exist to a savvy, informed, well-read investor these days? Has there ever been a better time? I guess we'll find that out in 10 years.

Starting point is 00:06:41 I don't mean in terms of market timing. Hey, sure, March 9th would have been a great time. Absolutely. The fees are low. Tons of product choices. Transparency is much, much better than it used to be. I mean, these fund companies now are just struggling trying to get assets in, and they're lowering their fees. So it is a great time to take advantage of that. But you know, if you look at what the returns of the markets might be over the next 20 years, squeezing out every basis point, I think is going to help. Can't hurt to say the least, right? Can't hurt, right. Anything else we didn't cover you want to talk about? Anything

Starting point is 00:07:14 else you want to bring up that's worth discussing for our vast YouTube audience? No, I'm going to continue to write. I have a new book coming out called The Education of an Index Investor. The Education. Are you playing off the education of a speculator? No, actually I'm not. The Education of an Index Investor. Correct. And it just talks about the levels that people go through before they get to this sort of indexing nirvana of, okay.

Starting point is 00:07:40 At one point you get it, but then you kind of complicate things to mess it up. And then there is another epiphany, if you will, another aha moment that comes later that gets you back to something like a core force. That is the Dunning-Kruger competency curve. There you go. That's exactly what it is. And it's a perfect fit for it. for it. And then in addition to that, the book also covers the three basic necessities of being a good index fund investor, which is having the philosophy, creating the strategy for your particular need. Philosophy is universal, strategy is personal, and then having the discipline to

Starting point is 00:08:16 stay the course, as Jack Bogle would say. The discipline is key, behavior is key. Right. When the book comes out, you'll have have to come by we'll have another conversation about it and we'll definitely see if we can get some copies into the hands of various readers well thank you thanks thanks for coming by Rick we have been talking to Rick Ferry of Ferries investment solutions and the upcoming in education of an index investor that my close that you're perfect dead on thanks for coming thanks for watching and we'll see you next time in education of an index investor. Am I close? You're perfect. Dead on. Thanks for coming.

Starting point is 00:08:48 Thanks for watching. And we'll see you next time here at the Compout.

The Compound and Friends - The Return of Rick Ferri (with Barry Ritholtz)

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