Q&A with Rick Ferri

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Q&As and Interviews

Q&A with Rick Ferri

Shauna O'Brien Oct 16, 2014

Rick Ferri has made his mark on the financial industry, writing several books, becoming a recognized speaker and founding Portfolio Solutions. Rick is also a financial advisor and an expert on index fund investing. With two market downfalls under his belt and a conservative investing approach, Rick answered several questions for us regarding his strategies and opinions.

Insights from Rick Ferri


Rick Ferri: My clients don’t ask, and I wouldn’t know what to say if they did. Maybe I was smarter in my younger years when I seemed to have all the answers. Not today. I just want my clients to survive.

MutualFunds.com: During market blow-ups (like the early 2000s and the 2008 financial crisis) what has been the best investment advice you have given to your most nervous clients?

Rick Ferri: When was the last time you recall the stock market not recovering and then moving to new highs after a crisis? Never. The market always comes back. So, shut off the television, turn off the radio, go outside, breathe some fresh air, and let me handle it.

MutualFunds.com: How often do you reach out to clients and in what form (newsletter updates, email updates, etc)?

Rick Ferri: Once per quarter by email and newsletter. I talk with clients who call me.

MutualFunds.com: There’s an ongoing argument about ETFs vs. mutual funds; what do you make of this often asked question?

Rick Ferri: The question shows a complete lack of understanding. Exchange-traded funds (ETFs) are mutual funds. The difference is in the way the product is packaged and distributed.

Investors buy and sell mutual fund shares directly with fund companies at end-of-day net asset value (NAV) pricing. A mutual fund may be held at a brokerage firm or in a retirement account, but trading directly with the fund company is the same.

ETFs are a mutual fund shares that trade during the day on a stock exchange. Investors buy and sell ETFs with other investors at prevailing market prices.

ETF shares are created and redeemed with a fund company only by large institutions called authorized participants (APs). APs are tasked with keeping the ETF market liquid and keeping prices in line with the underlying ETF NAV through an arbitrage mechanism.

For the record, I use both mutual funds and ETFs in every portfolio. I have no preference for either one. It’s the underlying portfolio that matters; not the box it’s delivered in.

MutualFunds.com: Finally, we would imagine that you are not interested in market timing in any way. That being said, what would you say should be reasonable investor expectations as far as markets are concerned for the next several years?

Rick Ferri: Interest rates for intermediate-term investment-grade bonds are about 2%, so investors should expect to earn about 2% from a comparable bond index fund going forward. Stocks earn about 4% over intermediate-term bonds, so you should expect about a 6% return from stocks long-term. A balanced portfolio of stock and bond index funds should earn about 4% net of fees.

If you want higher returns, you’ll have to take more risk. There’s no free lunch on Wall Street.


The Bottom Line


DISCLOSURE: The views and opinions expressed in this article are those of the author’s, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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