“There is risk, there is return and there are costs, all else is marketing.” – Rick Ferri
When I get sick of music or sports talk radio on my commute into work I often like to fill that time with podcasts. My iPhone plugs right into my car radio so it’s an easy change of pace from my normal listening habits.
This week I listened to an interview with Rick Ferri on the Dough Roller podcast with Rob Berger. Ferri is one of my favorite investment gurus to follow.
He carries the John Bogle torch of instituting simple, common sense investing solutions like keeping costs low, diversifying broadly across the globe, rebalancing and thinking long term.
Ferri has written a number of books on the topics of index funds, ETFs, asset allocation and retirement planning. He also runs his own investment shop where he uses these ideas for client portfolios.
He is a very sharp guy but like all of my favorite investors he is able to explain complex topics in an easy to understand manner.
In the podcast Ferri shared a story about his daughter during the financial crisis in 2008. She had a retirement portfolio that was invested 100% in stocks because of her long time horizon but was sick of losing money.
She wanted to sell and get out of stocks to stop the bleeding (as many investors did at the time).
Ferri made a bet with her. He said that if her stocks were still showing losses in 5 years that he would personally cover those losses to make her whole. But, if she was showing gains in 5 years she would have to split them with him 50/50.
Thinking in those terms made here reassess the desire to sell. She chose to stay invested and I’m sure she’s glad she did, considering the gains in the markets since 2008.
Not everyone has a backstop to make up for stock losses but this is a great way to put your investments into perspective. It’s never fun to see your portfolio fall in value, but you have to weigh your ability to take short term losses against your need for longer term gains.
Thinking in terms of 5, 10 or 15 year intervals is a great way to keep you focused on the long term, even when the majority of investors are worried about next week’s economic or earnings data.
If you don’t have the ability to continue buying stocks or wait it out for the inevitable rally then you should adjust your asset allocation accordingly.
Having the correct perspective on your time horizon is probably one of the biggest advantages individual investors have over fast paced Wall Street.
Keep yours in mind whenever you plan on making a big decision with your portfolio and try not to confuse your time horizon with other investors.
In the podcast, Ferri also covers the asset allocation decision, how much you need to save for retirement and how to generally view the various markets. It’s worth a listen.