Investing your money can be a scary, overwhelming, and confusing process. How do you create an investment plan that will not only support you through your golden years, but also give your children and grandchildren a strong inheritance? These are exactly the questions Rick Ferri has been answering for over thirty years, and some of his answers may surprise you.

Rick has worked in a variety of finance roles, from his beginnings as a stock broker in a large Wall Street firm to running an industry-changing private advisory firm. At its peak, Rick’s firm was managing over $1.5 billion in assets and had a revolutionary low rate of just 0.25 percent per year. Today, he offers as-needed financial advice to families looking for the best way to build a more secure future.

We sit down with Rick this week to talk about what really goes into making good investment decisions. He explains the machine that drives market fluctuations, the importance of a diversified portfolio, and the simple approach to investing that gives you the best chance at a solid return. Cut through the media hysterics and bad counsel from unethical financial advisors to discover how you can take back control of your money and your future.

Key Takeaways:

  • Advocate for your own interests. Just because someone says they’re a fiduciary doesn’t necessarily mean they’re acting in your best interests. It’s best to learn all you can and be proactive in making sure you’re getting the best investment setup for you.
  • Good investing is not sexy. It’s incredibly difficult for even the most educated financial advisors to outperform the stock market. You have a better chance of success if you invest in a solid, diversified portfolio and give it lots of time to grow.
  • Investing in the stock market is betting on capitalism. As long as we continue to believe capitalism works and that it’s going to persist as the global financial system, the stock market is going to continue to grow and thrive. 

Rick Ferri (00:00:00):

Okay. The answer is to take control. Do it yourself. Keep your costs really low. Be super tax efficient about doing it, and have the right asset allocation for your needs in the long term. That’s the answer.

Maria Monroy (00:00:11):

In law school attorneys are taught to challenge everything, tear things apart, break them down. But the qualities that make lawyers great can be some of the worst for running a business. At every stage of growth, running a business and practicing law can feel overwhelming. And what happens when you try to add life and family to the mix? It can feel nearly impossible. You don’t have to do it alone. I’m Maria Monroy, president and co-founder of LawRank, a leading SEO agency for ambitious law firms. Each week, we hear from industry leaders on what it really takes to run a law firm, from marketing to manifestation. Because success lies in the balance of life and law, we’re here to help you Tip the Scales. Today I am live with Rick Ferri. Rick Ferri is a former stockbroker, adjunct college professor, a former low-fee advisory firm founder, and now an hourly fee consultant. He is also an author, and I am super excited to speak with him today. We discuss how the stock market works, how to make smarter investments, and what you need to know to plan your future. This is something that we have personally struggled with, so I am super excited to have him on the podcast today. I am actually a huge fan. Hi, Rick. Thank you so much for joining me. I really appreciate it.

Rick Ferri (00:01:33):

Well, thank you for having me today.

Maria Monroy (00:01:36):

No, I’m super excited. My husband is such a big fan of yours. He’s read your book twice. He is, like, obsessed, so he’s, like, super excited that I, I get to do this. So we really appreciate it. So let’s get right to it. Can you give me a little bit of your background?

Rick Ferri (00:01:54):

Well, I am a financial advisor. I’ve been a financial advisor for 35 years. Uh, I just do an hourly model now, so I charge people by the hour for advice, which is a little bit unusual. Uh, how I got here was back in college in the 1970s, uh, I have an undergraduate degree in business. And then I went into the Marine Corps for eight years and flew fighter aircraft off aircraft carriers for a while. Did a few deployments, stayed in the reserves, but, uh, got out of active duty and went into Wall Street back in the 1980s. I was a broker. Routine, you know, series-seven broker, uh, like a Me— Merrill Lynch broker, if you will, for 10 years to sort of get my feet wet in this industry. Turned around and got my Master’s of Science in Finance, became a chartered financial analyst, which is a securities analyst, and then left and started a portfolio management company that I founded.

Rick Ferri (00:02:51):

Uh, our forte was just to do very low-cost money management using index funds and exchange traded funds, which were kind of unique and growing at the time. And our fee was extremely low. We charged only a fraction of what everybody else was charging. I grew that business to about $1.5 billion in assets.

Maria Monroy (00:03:09):


Rick Ferri (00:03:10):

And then recently sold it. Yeah, it sounds like a big number, but . Uh, sold it about five years ago, uh, when I turned 60. Now I’m 65, uh, this week as a matter of fact. So, uh —

Maria Monroy (00:03:20):

Happy birthday.

Rick Ferri (00:03:21):

Yeah, thanks. I’m on Medicare. Yay. Anyway, . Uh, but about — uh, once I sold the business, I decided I wasn’t ready to retire, but I still wanted to help a lot of people, particularly people who are managing their own portfolios using the low-fee John Bogle Vanguard approach. And, uh, I, I just, uh, help them, uh, put together portfolios for themselves and sometimes for family members and, uh, manage them. But again, I just get paid an hourly fee, much similar to how most attorneys get paid.

Maria Monroy (00:03:53):

Got it. Yeah. We, we learned the hard way with financial — your typical financial advisor. And then once we started learning and realized, “Wait a minute, why are they investing in these random things that make zero sense?” And that’s when we learned about a fiduciary. Can you tell everyone what that is and what the difference is between a regular financial advisor and a fiduciary?

Rick Ferri (00:04:16):

So there’s a word called fiduciary that means that we as advisors are supposed to be doing what’s in the best interest of our clients, uh, rather than in our own best interest. Now, the world of advisors is split up between brokers who are salespeople — you know, Merrill Lynch and UBS and Wells Fargo Investment advisors. Even though they’re advisors, they’re, they’re actually get paid based on the products that they’re selling, whether that’s money management services or, uh, fu— fees or funds or, or whatever. I mean, they’re generally not fiduciaries because they’re, they’re selling products. Then there’s the registered investment advisor side of it — RIA side — and those people, by law, get paid a fee directly from the clients, as opposed to the products that they’re selling. And they are supposed to be, uh, fiduciaries. Well, I’ll tell you, a lot of them are not — they don’t act like fiduciaries, because there’s a lot of things that advisors will tell clients to do that are really not very fiduciary-like, because it brings the advisor more assets to manage so they could charge higher fees.

Rick Ferri (00:05:27):

So even though the word fiduciary exists, um, it’s, it’s really difficult to differentiate or parse out those of us in the industry that actually act like fiduciaries. They’re probably a very small number, and I’ve been on all sides of it. I’ve been a broker and I’ve been a, you know, a money manager. And, uh, so, you know, I, it’s difficult to, you know, nail down, you know what fiduciaries — I know what they’re supposed to do. We all know what they’re supposed to do, but you know, whether they actually do it or not is a different story. Sorry for the wishy washy answer.

Maria Monroy (00:06:03):

No, no, no. I mean, it makes perfect sense. But a fiduciary is supposed to disclose when there’s a conflict of interest, right, or if there’s —

Rick Ferri (00:06:11):

Yeah, they are supposed to disclose when there’s a conflict of interest. And if you read their fine print, called the ADV Part Two B, which is a legal disclosure brochure that they’re required to have, it’ll say things like, “Look, we get paid based on assets under management, and the advice we give is going to be based on us collecting more assets under management.” I mean, the, you know, there, there is this — in not so many words, that’s what it’s going to say. So if you come to me and I get paid based on the amount of assets I manage, my goal, my incentive is to get you to give me your money to manage, even though it may not be in your best interest. And this is where the problem of the fee-only fiduciary comes in. It’s like, “Well, how do you get paid this fee? If it’s based on the amount of money you’re managing, then whatever advice you give me is going to end with, ‘…and we want to manage your money.’” So, you know, even though it may not be in the best interest, you know, these are advisors out there charging a lot of money, 1 percent, 1.5 percent, who are calling themselves fiduciaries. I wouldn’t call any of those people fiduciaries.

Maria Monroy (00:07:13):

Interesting. Okay. Well, now, now I’m a — It’s not what I wanted to hear, but I, I’m glad that I’m — I’m glad that you’re telling me this, because we thought, “Okay, as long as we go with someone that is a fiduciary, we’re in good hands.” But it sounds like even that’s a little bit complicated.

Rick Ferri (00:07:34):

It is.

Maria Monroy (00:07:35):

Right. Now you’re a self-proclaimed Boglehead, correct? Can you tell us what —

Rick Ferri (00:07:36):

Bogel. Boglehead.

Maria Monroy (00:07:37):

Bogle —

Rick Ferri (00:07:38):

John Boglehead.

Maria Monroy (00:07:39):

Yes. , what is, can you explain to us what that means?

Rick Ferri (00:07:41):

So, back in, uh, 1976, a fellow by the name of John Bogel — Jack Bogel — um, used to be the CEO of, uh, Wellington Mutual Funds and got himself fired from that position. And it’s a long story, but he started the company called Vanguard. At Vanguard, he started the first, world’s first index mutual fund, which is, uh, a fund that just gets you the return of the market, the stock market, uh, the bond market. In this case, it started out with the S&P 500, the basically the large cap US market. And it was a very, uh, low fee. And then from there it parlayed into bond market index funds and international index funds and so forth. And it created this whole industry of very low fee index fund investing. And, um, there was a group of people out there in the 1990s when it started to catch on a little bit, who adhered to this.

Rick Ferri (00:08:34):

And I was one of them. And I wrote my first book about it back in the 1990s and kind of had my enlightenment, my conversion over to that methodology of investing, ‘cause it made so much sense and saved so much money, and it was so low-cost and, and, uh, low-tax. Uh, these people grew. And we ended up with an online presence, first at Morningstar. Uh, and then we have our own website called, where there’s literally over a million Bogleheads out there. And we talk about how to invest this way. And now there’s a nonprofit organization that I was the president of called the John C. Bogel Center for Financial Literacy. And we have videos, and we have conferences, and the website is still available. There’s a fantastic Wiki page. There’s a whole lot of information out there of people helping people invest properly and, in many ways, cutting out the advisor, cutting out that 1 percent manager, cutting out the brokers. Um, so even though you talk to a lot of brokers and a lot of advisors, they will tell you that they personally are Bogleheads. They, they may not say it publicly because it’s not in their best interest to do so, but that’s, uh, uh, that’s what the Bogleheads are. Yeah, is the forum and, uh, is where you’re going to find all the videos and all the other, uh, learning content that we’ve put out there over, over 25 years now.

Maria Monroy (00:10:16):

Yeah. We love Vanguard. Now your book is all about asset allocation and I, I, I think it can be tough, because with lawyers, I really think that they’re going to fall under these two different groups. Either the younger lawyers that are starting to make money or the lawyers — it’s very common in our space that they don’t make a lot of money until later.

Rick Ferri (00:10:23):


Maria Monroy (00:10:24):

Right? And I know that when it comes to investing, it really depends on, has a lot to do with age.

Rick Ferri (00:10:26):


Maria Monroy (00:10:27):

And obviously risk and all of that. Like, I’m very, very risk-averse. So for me, even having money in the stock market right now — which we do have a significant amount, I believe the majority is through Vanguard — makes me super nervous, even though I’m only 37. And you would probably say “It’s fine. You have 30 years. Just put it there and don’t touch it.” Right? But I stress. Like I am looking at it every day. My husband’s like, “You need to stop.” Uh, so could we talk a little bit about asset allocation and really the, the, the short-term versus the long-term planning?

Rick Ferri (00:11:04):

Yeah. So one of my books is called All About Asset Allocation. I’ve actually written six books and [inaudible], a seventh book. Um, but the one of the books is called All About Asset Allocation, and —

Maria Monroy (00:11:14):

That’s the one my husband read.

Rick Ferri (00:11:16):

Okay, great. Thanks. It’s my most popular book. And, uh, so asset allocation is simply the public markets. You know, you’re going to put your money in the public markets, not, not your own business, not, you’re not going to go out and buy a single family home. You’re going to buy in the public markets and you’re going to buy it through a mutual fund or an exchange traded fund. They’re very, very similar, but it’s just a composite of, of stocks or bonds or sometimes a combination of both of them. And you have to make a decision, “How much of my investment portfolio is going to go into the stock mutual funds, and how much of my investment portfolio is going to go into the bond mutual funds, and how much of my investment portfolio is going to sit in a money market fund?” which is very low-risk, but doesn’t give you much return.

Rick Ferri (00:12:09):

So in the very long term, if you are investing in equity, as you said, this is the economy. his is the growth of GDP. This is productivity. Uh, this is entrepreneurialship. Uh, you’re investing in capitalism, where you’re hoping that you participate as an owner in the capitalist system, where you will get a portion of those earnings and a portion of the growth of those, uh, companies. And this is stock investing. The problem with stock investing is, as you alluded to, it’s very volatile. The prices move up and down, because they’re very highly leveraged. If you think about it, you’re looking way out there and saying, “Well, what do we think the earnings of these companies are going to be next year, five years, ten years down the road?” And any little move in interest rates or inflation today is going to have a big effect, a big effect on, on what the valuation of those stocks are any given day.

Rick Ferri (00:13:13):

So you can have stocks that move up a lot like they did in 2021, because the interest rates drop to almost zero. And then when interest rates move back up in 2022, the value of those stocks — Again, we’re looking at a lever to come down by about 30 percent. And that’s where we are today. So this happens all the time, but in the very long run, you’re participating in the global growth of the global economy. You’re getting a better than the inflation rate, you’re getting dividends, you’re getting growth, and you’re going to get a higher rate of return as long as global capitalism persists. The other side of that is letting people borrow your money. So you’ve got money, but you want more certainty. So you’re going to let people borrow your money. You go to the bank and you get a CD, the bank promises to pay you back some interest rate.

Rick Ferri (00:14:02):

Uh, you go to the corporate bond market, you let the same corporations that have stock borrow your money and you’re going to get a little bit higher rate of return from that. The problem with bond investing is interest rates today are below the rate of inflation, let alone getting a rate of return at above inflation. And you have to pay taxes. So you’re getting a return on the bonds, but you have to pay taxes. And, and even before you pay taxes, the rate of return is below the inflation rate, and then you have to pay taxes. And now it’s even more below the inflation rate. So in the long term, leaving your money in these and bonds, at least right now, is difficult because it’s — you’re losing purchasing power. Your money is worth less and less and less and less money later on down the road if you don’t have equity in your portfolio or real estate in your portfolio, which again is — it’s a going concern.

Rick Ferri (00:14:54):

It’s like equity. You’re buying something that you could rent, you’re buying something that, uh, goes up in value. Uh, that, uh, it, it’s really difficult to have your money, make money after taxes and inflation. So you have to come up with an asset allocation between stocks, bonds, and cash, which is a reserve fund that you’re comfortable with, where you’re at least getting the inflation rate after taxes. And that’s going to require you to have money in equity. So even if you’re uncomfortable with it, it is in your best interest to do it, as long as you don’t panic sell. And this is the problem. If your emotions get in the way and you become a behavioral investor, where you start panicking because the market’s going down, this is bad. This is bad. We can get into that a little bit more if you like, but that’s, that’s what asset allocation is: making that decision.

Maria Monroy (00:15:47):

Because — so yes, I am, like, already having anxiety just thinking about it. My whole logic was, “Let’s just do a bunch of CDs,” and, like, that just feels so safe to me, right? And I think right now, in the CDs that we do have, I think we get like 5 percent return.

Rick Ferri (00:16:04):

Mm-hmm. . Yep.

Maria Monroy (00:16:05):

Um, but I understand what you’re saying that it is A) you don’t have the tax benefits, and then B) that I believe you have with some of the stocks or mutual funds or whatever. But I understand the whole inflation thing, but to me, I don’t like to gamble. Like I’m not a gambler and —

Rick Ferri (00:16:22):


Maria Monroy (00:16:23):

The stock market feels like I’m gambling.

Rick Ferri (00:16:25):


Maria Monroy (00:16:26):

So what would you say to someone like me that is so risk-averse?

Rick Ferri (00:16:31):

Well, you have to make a decision in life whether or not, for our children and our grandchildren and great-grandchildren, whether the world is going to continue with capitalism or whether it’s going to turn to communism, basically. So we’re — I mean, if we’re going to believe in capitalism and we’re going to believe, uh, that and productivity growth and the human spirit for, you know, building things and growing things and make life better for everybody worldwide, which has been the way it’s been for a long time now. Um, if, if you believe in that and you believe that that’s going to continue, then that’s what the stock market is. Okay? That’s, that’s what it is. And I personally have to believe that, uh, if it — if that is not the case, if that doesn’t actually work, then your CDs aren’t going to be worth anything. And neither is treasury bills, or neither is anything else.

Rick Ferri (00:17:26):

The government gets their money from the taxation of this growth. That’s where the government gets their money. So if there isn’t any growth, if there isn’t any earnings, if people are not making any money, then the government bonds and anything the — any bond like a Scott Bank CD that’s backed by the government isn’t going to be worth anything. So you really have to put your trust in the capitalist system. And if you do put your trust in the capitalist system, which I do, then it will work. Now, it’s not going to be even. It’s not going to be fun at some times. I think you need to be globally diversified, because we’ve had it very good in this country for a very long time, but it may not be as good going forward. So we need to be globally diversified with our equity portfolio. So you have a US equity index fund and an international equity index fund. You literally hold the entire world, thousands and thousands of stocks, and you’ll participate in it. Uh, that’s, that’s, that’s what —

Maria Monroy (00:18:22):

What percentage would you say should be invested, uh, globally? Because we actually consulted with, uh, a financial advisor at Vanguard, and they said that if we didn’t put X amount — I want to say it was like 15 percent — in the global economy, or it was global stocks, that they would not work with us. They would not take — they would not invest it for us. Which I thought was really interesting and almost made me feel better about investing in the, uh, in the global economy. So what — how would you balance that, especially right now?

Rick Ferri (00:18:57):

So okay. So a couple of things the United States has. When you look at GDP, which is the growth of the global economy, uh, we’re only about 15 percent. Okay? But if you look at the stock, the global equity market, the US is about 60 percent. ‘Cause a lot of these countries, they don’t have stock markets. And, you know, they, they may be communist countries or something, but they, you know, they’re, they’re still part of the global GDP growth. So even though we’re 15 percent of global GDP, we are 60 percent of the stock market and 40 percent of the stock market is, is stocks outside the US. So the, uh, UK, Australia, Japan, um, China, so forth, 40 percent from a US investor’s standpoint. So why would you want to invest internationally? Well, there’s two reasons. The US stock market has become very heavily dominated by technology companies. And a lot of companies that are industrial companies and materials companies, energy companies, have sort of been pushed out of the US stock market.

Rick Ferri (00:20:01):

So we have really become very heavily weighted to a few industry groups here in the US. The, the stock market of today is not the stock market from 30 years ago. 30 years ago, the top stock in the country was General Electric, where they’re not even in the S&P 500 anymore. So industrial companies, uh, you know, and uh, uh, energy companies, a lot of financial companies have been sort of pushed out by this very heavy dominance here in the US of technology. In order to get more industry diversification into your portfolio, you do need to step outside the United States. That’s where you’re going to find the, uh, copper providers, you know, materials providers, the industrial companies, you know, offshore. And, and more financial companies, much lower allocations internationally to technology and to, say, healthcare. So adding international stocks gives you industry diversification that you don’t have anymore in the United States. And secondly, you get currency diversification. Everything in the US is traded in US dollars. And the dollar has been very strong, don’t get me wrong. But there’s a potential change in the world order, and maybe the dollar may not be as strong, uh, 20, 30 years down the road. So you want to have currency exposure outside of the dollar, and you get that with international equity as well. So it’s all a diversification strategy, massive, massive diversification in your equity portfolio. That’s what’s going to help you.

Maria Monroy (00:21:34):

And that’s what you, your book, uh — what my husband took away from it was that, like, really diversifying and truly diversifying to protect yourself, which makes me feel better, I, I will say . Now, do you think that the US market is overvalued right now?

Rick Ferri (00:21:50):

No, I don’t think it’s overvalued. Again, remember, the US market is heavily weighted towards technology stocks and healthcare stocks which have higher growth per, uh, expectations than things like, uh, industrial stocks and material stocks, mining stocks, which again, are in the international market. So you have to look at what makes up the market and what industry groups make up the market. Now, you know, interest rates drive valuations in many ways. There’s a discounting mechanism of all those future earnings. So when, when interest rates move up like they did last year, the, there’s a, those future earnings get discounted, and therefore the value of the growth stocks fall. Uh, the other stocks, the material stocks, energy stocks, they didn’t get as big of a discount because they don’t have that large earnings growth stream out there. And so they didn’t get discounted as much. But everything is based on valuations of real estate. Valuations of stock are all based — start out with what’s, what’s the interest rate, what’s the discounting mechanism, what’s the number that you use to discount these future cash flow streams out into the future?

Rick Ferri (00:23:11):

And when interest rates go up, they get discounted. So the value of the stock market comes down. When interest rates go down, the value of the stock market goes up. And so that’s all we’ve seen over the last few years is we’ve seen interest rates come way down to, like, less than a half a percent for 10-year treasury bonds, no more than 18 months ago. That caused the valuation of US stocks to become very, very high. And then then interest rates went up to 4.5 percent, uh, for 10 year treasuries. Now they’re down to 3.5 percent, uh, causing the valuations of, uh, those stocks to come down by roughly 25, 30 cents. Ex— 30 percent is exactly what you would expect. Same thing’s occurring in the real estate market. Same thing. Uh, you know, you can go out and buy a house, uh, a year and a half ago at 2 percent interest rate, but the price of houses were sky high.

Rick Ferri (00:24:01):

Now mortgage rates are 7 percent, 6.5 percent. Now, in order to be able to afford that same payment on that house, that house has to be discounted in priced by 25 percent or so. And we’re seeing that the value of real estate comes down. So it’s all relative, it’s all the same. So I don’t think that the US stock market is high. I don’t think it’s low. Uh, I don’t think it’s high. I think it’s, you know, it’s reasonable if you’re, as you said, a, a long-term, 30-year investor or more, or more.

Maria Monroy (00:24:31):

What if, what if I was only going to invest for say, seven years? Would this be a good time to enter the market, or would you say maybe not?

Rick Ferri (00:24:39):

Well, if you’re going to invest for seven years, you probably shouldn’t even be in equities. You probably should just buy a bond fund, uh, that, that has, uh, maturity or bonds that have a maturity of about seven years. You could pick up about 4 percent, 4.5 percent, compound that up to seven years and, and you’ll get your money back. And then you could go buy your house or your, or vacation property or whatever it is you’re, you’re going to use that money for. So you have to match the duration of the asset that you’re buying to the duration of your liability. So if you have a liability out there that’s seven years that you know it’s coming due, then you buy an asset that’s going to match that liability at seven years. So it’s a liability-matching strategy. And so if you have a retirement that’s 35 years out or more, now you’re going to, now you’re looking at equities.

Maria Monroy (00:25:30):

That makes sense. Now, I think I know what you’re going to say, but, and you’ve probably already alluded to this, but what is the most important thing when investing? Like the single most important thing, or a couple of things, I guess?

Rick Ferri (00:25:45):

Well, I think you hit it first. The asset allocation is important, because you have to stay the course. You, you have to create the strategy, and you have to stick with it for decades. There are too many people don’t have a strategy, and they, they don’t have a strategy because they don’t have a philosophy. So the philosophy is, do you believe that you can outperform the market that based on very little information or sketchy information that your broker tells you? You’re going to go out and you’re going to pick funds or you’re going to pick stocks that are going to outperform or — That’s, that’s not a good philosophy. The philosophy is, “I want to be a very long-term investor. I want to buy the growth of the global economy. I’m not going to try to outperform. I know I’ll do well if I keep my fees down and my taxes down.” So you have to pick the right philosophy. And then with that, you go and you create a portfolio strategy. How much in US stocks, how much in international stocks, how much in fixed income, where you should invest. You have 401ks, you have Roth accounts, uh, you know, IRA accounts. I mean there’s different types of accounts. How, how do you do this? That’s, that’s the strategy side. And thirdly, you need to stay the course. So it’s your having the right philosophy, putting together a long-term strategy, and then having the discipline to stay the course.

Maria Monroy (00:26:57):

What would you consider long-term strategy? What’s the minimum amount of time?

Rick Ferri (00:27:03):

Well, how long are you going to live?

Maria Monroy (00:27:06):

Like when do you need to start pulling from it, basically? But let’s say that you have someone that is 55, and let’s say they have $10 million that they just got. Let’s just say they settled. Some cases have $10 million. They’re going to retire at 65. They’ve already allocated separate money to run the business. This is just money that now they have net of taxes.

Rick Ferri (00:27:29):


Maria Monroy (00:27:30):

They have 10 years until they want to retire. Worth investing or no?

Rick Ferri (00:27:33):

Oh sure. Because you know, generally if somebody’s going to win a case like that, they’ve already put away some other money. It, you have to start asking them, “Well, you know, you have $10 million here. Is, are you even going to use this money? Is this money going to be passed on to your children? Uh, and if so, how do you allocate the money based on your children ra— you know, children’s ages, or even grandchildren’s ages, based on — rather than your age. Are you going to use the money? How much of it are you going to use? How much of it will be used?” Uh, starting in year 10, 11, 12, and so forth, all the way out, again, these, these are the cash flows. Is it only 2 or 3 percent? Well, you could have a high-equity allocation, and the reason you would do that is for the benefit of your, your heirs and uh, uh, your children and grandchildren. So it, there’s a lot of — there’s a lot that goes into this discussion. It’s not, “Oh, if you’re 55 and you win a $10 million case, how do you invest your money?” The answer is, “I don’t know.” I mean, I need to know an awful lot about you and your family and your taxes and your goals before I can actually advise you on how you would invest that $10 million.

Maria Monroy (00:28:38):

Um, I have a few questions regarding children. Is it better to set up the 529 plans for them or is it better to just set up, um, ’cause I know there’s X amount you can gift them. I think it’s $19,000 per parent per year. Is it better to allocate it towards 529 or just create a, a just basically what you’re saying, but for them it would be pretty aggressive, I would assume.

Rick Ferri (00:29:06):

Well, so there’s a lot to that question also, though, uh, a lot of states will give you a tax deduction for putting money in a 529. And if you have children that you know are going to go to college and the state is going to give you a tax deduction for putting money in a 529, you might want to do that just for the tax deduction. The question is how much do you put in a 529? Well, you don’t want to overfund it. If you have too much money in a 529, it could be a problem later on if they don’t use the money for college. There are certain ways to get some of the money out. Now you can actually put thing — put some of that money in a Roth account for that child. So a lot of questions need to be answered. Uh, if you’re just starting out and you know, you just have your first baby, yeah, you could start putting away, uh, a few thousand dollars.

Rick Ferri (00:29:53):

Again, you look at the state and see, “Well, what, what’s the state going to give me as a tax deduction?” But a 529 is, is a good way to save for your children’s education. It’s tax free if it’s taken out for education. If it’s taken out —

Maria Monroy (00:30:02):


Rick Ferri (00:30:03):

For other things, it’s — like for you in retirement — then it’s not tax free. And —

Maria Monroy (00:30:05):


Rick Ferri (00:30:06):

Actually a penalty. I think I’d like to be able to say, “Do this, don’t do that.” But it’s difficult unless I know the situation. I mean, there are some children who are not going to school, and, uh, you don’t want to put a lot of money in a 529 for children who you know are not going to school. So —

Maria Monroy (00:30:33):

But can’t you, if you have multiple kids, can’t you pull from one, uh, for the other?

Rick Ferri (00:30:37):

Yes, that’s right. I mean, you could change the beneficiary once a year. You could change the beneficiary of your 529 from this child to that child. So you have your one child that goes through college and they don’t use it all. And you have another one who’s in college or just starting college. You could change the beneficiary back to that other person. Uh, so this — again, how many children do you have? Do you have one? Well then now you gotta be careful of — Alright, you have three. So you have to —

Maria Monroy (00:31:07):

I have three.

Rick Ferri (00:31:08):

Be careful of, uh, how, you know, how much to put in a 529 for one. If you have three, you could put more in for the first couple. Knowing that if they don’t use it, it could roll to the, to the third one.

Maria Monroy (00:31:12):

What would you recommend? Like, I know it’s an, it depends, but just to give me an idea.

Rick Ferri (00:31:17):

What state do you live in right now?

Maria Monroy (00:31:19):

I’m in Nevada, but just, like, as a — I mean we have listeners everywhere. Most are in California, and I don’t think you get anything.

Rick Ferri (00:31:26):

Well, California, you don’t get a tax deduction on it, and Nevada doesn’t have any state income tax, so it doesn’t really make any difference. But what you’re going to do is you’re going to put it in the 529 for the benefit of the tax-free growth and the tax-free, uh, withdrawal. So you could put uh, you know, the 417,000, which is the amount — that’s the maximum per person. But now you have both, uh — if they’re, the child has two parents, they could each put in $17,000. But again, you don’t want to overfund these things.

Maria Monroy (00:31:55):

But what would be considered over overfunded? What would you say, “Oh, this is pushing it, and you’re better off —“ Yeah —

Rick Ferri (00:32:01):

So I’m telling people, if your child is born right now, um, you know they’re not going to go to school for 18 years. Uh, let’s use a 2.5 percent inflation rate based on where college costs are now. Say they’re going to go to a state university. You probably don’t want to have more than $250,000 or so in their 529 by the time they go to college. So what does that mean? That means going, you know, working backwards, assuming a 5 percent rate of return on the money between now and the time they go to college. So how much can you — you know, should you put in? It’s probably something like, uh, $800 to $1,000 a month. So call it, you know, $10,000 a year at a 5 percent compounded return, maybe adding a little bit more later on when you’re sure they’re going to go to college. This will get you to that $250,000 roughly at the most. Yeah.

Maria Monroy (00:32:51):

Got it. How do you feel about dollar cost average? Yes or no?

Rick Ferri (00:32:55):

Life is a dollar cost average. I mean, we can’t help it unless we’re born with, you know, a very large trust fund. Uh, life is a dollar cost average. We start out with school loans. So we’re — we have negative net worth, and as we work, make money, uh, we invest and we work more, we invest more. Uh, so you can’t help but do dollar cost averaging, um, uh, through your career. So, you know, life is a dollar cost average, so I’m all for it, because you should be investing every single year a certain percentage of your income. And so that is a dollar cost average.

Maria Monroy (00:33:33):

What about individual stocks? I have a friend that has like half a million dollars in Tesla’s stock, which I think is crazy.

Rick Ferri (00:33:41):

Well, did he start with the a million dollars or did he start with, uh, five? What —

Maria Monroy (00:33:46):

I, I don’t know. I have not — I know that he has been buying more and more throughout the year, so I’m sure, I, I, I don’t know. But how do you feel about individual stocks?

Rick Ferri (00:33:58):

Well, I look, I, I’m not Warren Buffet. Um, and even Warren Buffet will tell you that, you know, it’s very hard to pick stocks. I mean, some people do get lucky. I mean, you know, the people will talk about the Teslas. They won’t talk about, uh, the Silicon Valley bank stock that they bought because Jim Kramer recommended it. Uh, you know, so what you mean is that people love to talk about their winners, but they won’t talk about their losers. So it’s hard to say whether your friend who, you know, bought Tesla and has a half a million of Tesla, whether the — whether they actually are any, are any good at this, and they’re probably not. Now, you could get very lucky and you could pick the right company, right?

Maria Monroy (00:34:35):

That’s not very — that’s not what I’m looking for though, personally. I don’t — again, I don’t gamble. So that to me feels like gambling.

Rick Ferri (00:34:45):

It’s speculating. It’s speculation. Sure. I mean, you don’t know anything more than the next person about Tesla. I mean, it’s not like Tesla — it’s some secret that you know about Tesla that other people don’t know. There’s, you know, hundreds of thousands of very smart people all around the world that are looking at the same stocks and the same information every day trying to make a determination. Now what’s the fairest, fair value for Tesla, if somebody bought it, like your friend and, and it went up in value, uh, they got lucky. Um, at the same time, there are other electronic, uh, electric company stocks that have plummeted. Marijuana stocks that have plummeted. I mean, there’s solar stocks that have plummeted. All these things sounded like great ideas. Two out of a hundred turn into a Tesla. So if you happen to have that one stock, that’s all you’re going to talk about.

Rick Ferri (00:35:38):

But, in fact, is it true? I mean, did you actually make money picking stocks? And nine times out of ten, the answer is no, because all those other stocks people picked lost money. And then you have to say, “Well even if you did make money, did you just hit the lottery? Did you get lucky?” Well, most of the time that is the truth that that’s what happened. You got lucky. There’s — ’cause there’s no reason to think that your friend or, you know, anybody I know is going to have inside information about Tesla where they could have bought it at the right time and possibly sold it at the right time. And we, we don’t know. So, uh, you know, you ought to take all this with a grain of salt and say, “What should you do for your retirement?” Well the answer is to be massively diversified, massively diversified so that you get the performance of the global economy and the growth of the global economy and you get your fair share of that in a very low cost, tax-efficient way that is going to give you the return that you need to beat inflation and beat taxes.

Maria Monroy (00:36:41):

Can we talk about that tax? What do you mean when you say tax-efficient way?

Rick Ferri (00:36:47):

Well, you know, you have to pay taxes every year and if you’re buying and selling stocks, you’re generating capital gains, and you have to pay taxes on that. So on an after-tax basis, are you really coming out ahead? Uh, and the answer is — a lot of times, the answer is no. If you buy bonds, that’s ordinary income, and depending on what your income is, uh, you have to pay federal income tax, uh, on that ordinary income. And then if you make over $250,000, if you’re married filing jointly, you have to pay what’s called the net investment income tax, which is another 3.8 percent tax. Then if you live in a state that charges tax like California or Oregon, Oregon has a 9 percent income tax. California has up to a 13 percent income tax. You start adding all these taxes.

Maria Monroy (00:37:33):

That’s why, that’s why we left.

Rick Ferri (00:37:34):

That that was a wise move, good tax move. Uh, but uh, the bottom line is that, uh, after taxes, what really matters to investors is your after tax, after inflation return — Inflation is also a tax. It’s a backdoor tax. Government doesn’t like to talk about it, but when you’ve got money being created and issued and you’re devaluing the uh, the value of the dollar, uh, the Federal Reserve has said straight out, “We want to have 2 percent inflation.” What that means, all of us are being hit with a 2 percent tax on our money because our money is going to buy 2 percent less next year than what it buys this year. So we have to get at least 2 percent. Today, that number’s 5 percent and that’s before income tax. So we need to be getting — right now, if you’re in California and you are paying ordinary income tax, you need to be getting about a 10 percent return on your CD. Pay the federal income tax at the highest rate, pay your California state income tax pay, your net investment income tax.

Rick Ferri (00:38:39):

That’s a 50 percent tax rate that brings your 10 percent return down to 5 percent, and then inflation eats away the rest of it. So your real return is zero. Zero.

Maria Monroy (00:38:39):


Rick Ferri (00:38:40):

This is a problem. And uh, you know, we have been very fortunate. I’m 65, and uh, my generation has been very fortunate. Back when I started, after I uh, graduated from college, uh, it was the uh, 1980. The interest rates were, like, 18 percent. Interest rates have come from 18 percent, basically down to almost zero over the last 18 years. That has caused the valuations of everything to go up. Bonds, stocks, real estate, you name it. We lived in a wonderful period, uh, the Baby Boomer generation. We really benefited from this fall and interest rates, ’cause everything went up. We’ve been able to accumulate money in our retirement accounts,. We’ve been able to buy homes. The value of our homes have gone up.

Rick Ferri (00:39:35):

I mean, we’re sitting in good shape. You, unfortunately, in your late thirties, are not going to have it so good. My kids — I have three kids who are your age — they’re not going to have it so good. My grandkids are not going to have it so good. Uh, it’s not like interest rates are going to fall and the value of stocks are going to go up by 12 percent a year like they have over the last 40 years. It’s not like the price of real estate’s going to go up like it did. It’s not going forward. It’s going to be a grind. And because of that, you need to save every dollar you can in fees, every dollar you can in taxes.

Maria Monroy (00:40:09):

Yes. Tell, tell us all about fees and how that can impact the portfolio.

Rick Ferri (00:40:15):

Well, it’s quite clear. Let’s, let’s start out with the premise that most people who try to outperform the market do not outperform. It’s simple math. The fees, the expenses of their portfolio drag down the performance of the portfolio relative to the market. So pretty much everybody starts with a market return. That’s what you can get guaranteed with an index fund, a very, uh, an index fund that charges some of them 0.01 percent, I mean very, very low fees. You can get the return of the stock market, of the bond market — exactly what the return of the markets are. Or you could try to beat the market, try to outperform. And the first thing is with that is you are going to have to try to do more trading. You’re going to do more trading, or maybe you’re going to hire a manager who’s going to charge you to manage the account, and they’re going to take a fee off of that.

Rick Ferri (00:41:23):

And then the person who is going to pick the managers who are going to beat the market, or they think are going to beat the market, they’re going to charge you a fee. And that’s the advisor. So you have the mutual funds that are charging maybe 1 percent fee, and then you have the advisor who’s going to charge a 1 percent fee. And no matter what happens to you and what happens to your portfolio, doesn’t make any difference. They are always going to get paid their fee, always. But what will happen is, if you think about it, the market has only got a finite amount of money, uh, that can be returned in the market. There’s a finite amount to the penny, and you can get your fair share of that, or you could pay 1 to 2 percent to an advisor and mutual fund managers and try to beat that. But the first thing you have to get over, the first hurdle you have to get over, is the fees that you’re paying to these other people. And then you have to believe —

Maria Monroy (00:42:17):

Even, even if they don’t beat the market, even if you lose money, they still get their fee, correct?

Rick Ferri (00:42:22):

Always, always get their fees.

Maria Monroy (00:42:25):

That’s mind-blowing.

Rick Ferri (00:42:26):

That’s why the advisor is — the big thing is assets under management. The more money they manage, the more fee they make, regardless of whether or not you make a dime. It’s a game of asset collection. Asset gathering. Yeah.

Maria Monroy (00:42:38):

I hear they had a monkey throw at a dart and, to see — Do you know what I’m talking about?

Rick Ferri (00:42:43):

Yeah. The dart board analogy. The Wall Street Journal started, back in the 1980s where dar— they put pages of the Wall Street Journal up on the, uh, board, and they threw darts at it to see whether or not, uh, you know, the monkey — Well these were the monkeys. The monkeys were the people who worked at the Wall Street Journal. But this gets back to something that Burton Malkiel said in his book, A Random Walk Down Wall Street, that a monkey throwing darts at a dartboard would do just as well as these active managers. And they proved to be correct. That, that’s actually correct. That, that, that’s what happened. So —

Maria Monroy (00:43:12):

I think that needs to be the takeaway from — If, if, if no one is like going to take any of your advice, I think that no one’s paying attention. This is, like, the one thing that people need to pay attention to. Because it sounds so sexy to beat the market, but in reality, it’s actually very difficult. And that brings me to my next question, which — Could you give us an example of a — well, and I know it depends, and you’re giving us, like, the lawyer answer: “It depends,” that lawyers are so comfortable with — but just an example of a well-diversified portfolio.

Rick Ferri (00:43:47):

Sure. So I’ll use Vanguard, uh, exchange traded funds to, uh, identify that. So, uh, you have to decide whether you want, uh, stocks or uh, bonds. And let’s say you have 60 percent of your money in stocks and 40 percent of your money in bonds. The stock side, you could take that 60percent and you could put 40 percent in the Vanguard US Total Stock Market Index fund. The symbol is VTI, Victor, Tango, India. You could take the other 20 percent, you could put it into the international fund, which is the Vanguard Total International Fund. Uh, the simple there is Victor, X-ray, Uniform, Sierra, VXUS. And then you might take your 40 percent in bonds and if it’s a retirement account, you might put it in the total bond market index fund. And the symbol on that is BND, which is Bravo, November Delta, BND. So, um, that’s a really simple, what they call three-fund portfolio. That’s simple portfolio has outperformed 90 percent of all other portfolios out there since it’s been in existence.

Maria Monroy (00:44:55):

That’s crazy.

Rick Ferri (00:44:56):

No, it’s true.

Maria Monroy (00:44:58):

It’s not.

Rick Ferri (00:44:59):

It’s true. But, but why, why would Wall Street tell you this? Nobody’s going to tell you.

Maria Monroy (00:45:02):

Well, it doesn’t —

Rick Ferri (00:45:03):

Your UVS advisor is not going to tell you this. Your Wells Fargo advisor is not going to tell you this because it’s money out of their pocket. They’re not going to tell you this.

Maria Monroy (00:45:10):

That’s crazy. Now, what about real estate? Do you recommend investing in real estate?

Rick Ferri (00:45:17):

Yeah, I mean, there are three different ways of investing in real estate. Certainly, you can go out and buy individual properties/ You buy individual homes or, um, buildings, office buildings, whatever. And, and this is generally if you want to do the work. I mean, you’re going to put in the sweat equity to do it. Often the best way to invest in real estate as far as getting the highest rate of return, uh, plus you get depreciation benefits. Uh, and so you get some tax benefits as well. So if you’re going to put in that kind of sweat equity, then by all means do it. On the other side of the spectrum is “I don’t want to do anything. I just want to buy some real estate in my mutual fund portfolio and be done with it.” Well, there you can buy a real estate investment trust index funds. This is an index fund of just commercial real estate that’s a composite of an index fund. It will have literally thousands of different, uh, properties in there, if not tens of thousands of properties.

Rick Ferri (00:46:11):

And you’re going to get the return of the real estate market with this index fund, which is very low-cost. And then there’s one in the middle called syndicate, where you’re going to go out and you’re going to buy syndications, or partnerships. But here it takes some expertise, plus you have to have a lot of diversification. Plus you have to have the time where they — you are buying these limited partnerships, but they’re not going to pay out for several years. So you have to build a portfolio of these syndicated real estate, these partnerships, and hold onto them for a long time. And hopefully, you know, you pick more good ones than bad ones and, and things turn out well for you. So that’s the real estate market. Um, and it’s, you know, it’s fine. I mean it people do very, very well, uh, in real estate. Uh, the syndicated market has done fine, but the REIT market has actually done a little better.

Maria Monroy (00:47:08):

Got it. So you recommend REIT funds?

Rick Ferri (00:47:11):

Well, for simpl— simplicity, yeah. If you’re going to put them into your Roth account or your retirement account just buy a, a REIT index fund, that would be the simplest thing.

Maria Monroy (00:47:20):

Perfect. Now, I watched, uh, I guess a documentary on PBS called The Age of Easy Money. Have you seen it?

Rick Ferri (00:47:22):


Maria Monroy (00:47:23):

It scared the crap outta me.

Rick Ferri (00:47:25):


Maria Monroy (00:47:26):

So basically it just talks about that we’re heading into, you know, a recession, basically. I guess if I were to summarize it, because of the involvement of the feds with, uh, you know, backing Wall Street and the banks and, and all of that. Do you think that we’re about to go into, like, a great depression, or are you not worried about it? Like what, what are, what are your thoughts on it?

Rick Ferri (00:48:04):

So the stock market has predicted, uh, ten out of the last two recessions, right? And the bottom line is there’s always worry out there. Uh, if you want to be bearish, you’re going to hear people who are bearish. If you want to be bullish, you’re going to only hear people who are bullish. I mean, you have said that you’re very conservative. You’re scared. You’re going to listen to that. If you were very bullish, there’s a whole ‘nother side of the media, you know? Maybe not as loud, but you’re going to find people who are, uh, bullish out there, bullish on America, including Warren Buffet, uh, in his latest, um, annual report to shareholders. He was a very bullish on America. So you’re going to tend to gravitate towards whatever you feel. And I don’t put any credence in any of these predictions. Um, again, I believe in the global economy. I believe in capitalism. I just want to be super diversified, super low cost, and super tax-efficient. And how I do it—

Maria Monroy (00:49:03):

I love that.

Rick Ferri (00:49:04):

Oh good.

Maria Monroy (00:49:05):

I’m going to, I’m going to have to like change my mindset o— on, on this, on how I feel about this .

Rick Ferri (00:49:08):


Maria Monroy (00:49:09):

So I, that, that’s, that’s what I’m going to work on. Um, because definitely I, I agree with you, and I think that’s just a— anything in life, right? If, like, you’re geared towards something, it’s going to speak to you, right?

Rick Ferri (00:49:26):

Mm-hmm. .

Maria Monroy (00:49:27):

So for me, I watched it and I was like, “I’m so glad I’m doing this podcast.”

Rick Ferri (00:49:29):

Look, look, look at where you are. Look at your age. You’re 37 years old, okay? Your parents lived through the financial crisis. You watched that — you were probably in high school, uh, at the time —

Maria Monroy (00:49:39):

We didn’t grow up with money, and my parents did lose their home during the, you know, 2008 debacle and all of that. So I feel like I just — no one has taught me — like, I didn’t grow up rich. No one’s taught me anything about managing money. No one’s ever taught me anything about investing money. My parents, actually the first home they bought in the US — so we’re immigrants. I’m from Mexico. They, when the market went, went up, they sold it and bought a bigger, more expensive home.

Rick Ferri (00:49:59):

Mm-hmm. ,

Maria Monroy (00:50:00):

I think back to that. And I’m like, “Idiots!” They should have rented it, because that home — They probably paid like $200,000. Even right now that home is worth like $700,000 in California. So I’m like — I just never had any of this education, and neither did my husband. So, you know, we — thank, thank God, we do very well, but we’re, we’re self-made, right? But we’re trying to learn, like, how do we manage money and how do we teach this to our children?

Rick Ferri (00:50:34):


Maria Monroy (00:50:35):

So that they don’t end up in the same situation that we are in, right? Like, we just don’t know anything about — Like, to me, the idea of investing sounds — Again, it’s scary, but it’s only because I feel like I don’t know enough about it.

Rick Ferri (00:50:52):

Oh, I, I can understand that. And you’re not going to get it from listening to the media. That’s, that’s like watching the circus. Uh, it’s, it’s all it is, uh, there — Everybody’s trying to sell you something. Um, but that’s not the long term. I mean, if you want to listen to people listen to, like, Warren Buffett. He’s very good about this. And he, he, by the way, he recommends people use index funds and invest for the long term. He’ll tell you to be 90 percent equity and 10 percent of treasury bonds and just stay that way for the rest of your life and you’ll be just fine. So, I mean, there are wise people out there that you should be listening to instead of the circus act. I mean, look what we just went through with, uh, Bitcoin and cyber currencies and NFTs, non fungible tokens, and all of this nonsense that, uh, just went into the, as — I mean, a little picture of a kitty going across a screen with $250,000.

Rick Ferri (00:51:42):

I mean, come on, seriously, but you know what? The money was so cheap. There was so much money out there. There was so much cash out there. People were getting, uh, checks from, uh, the government, uh, because of the pandemic. And they were sitting at home and they were, you know, trading stocks on Robinhood on their computer. And they, they could buy stocks on 0 percent margin. I mean, it was just nuts. They didn’t know what they were doing. They had no clue what they were doing. Not at all. But they were making money. So they thought they were actually smart, but they weren’t. I mean, you know, they were just lucky. And, uh, now they’re learning that maybe, maybe they really didn’t know anything. Maybe they were just lucky, uh, to have made money back then. And, uh, and they were right. I mean, you gotta, you — as you get older, you learn the right way of doing things. And you know, again, I, I believe massive diversification, low fees, low taxes, have the right asset allocation for the long term. These are really good principles. Don’t try to time the market and invest, uh, you know, invest often, uh, through dollar cost averaging. I mean, these are the things you need to do. It’s boring. Oh gosh. It’s terribly boring.

Maria Monroy (00:52:49):

Yeah, it’s not sexy.

Rick Ferri (00:52:51):

But it’s how you make money. It’s how you end up, when you’re 65 years old having enough, not only for you, but having enough for your children and maybe some of your grandchildren as well. ‘Cause they might need it at that point. We don’t know what’s going to be going on in the world at that time. So that’s what you should be doing instead of trying to, you know, hit a home run. Just get to first base every, — Just get to first base. If you get to first base enough, you win. You win the game. That’s what the indexing is all about.

Maria Monroy (00:53:17):

Yeah, no, I, I agree. We, we talk about that a lot. Like could we make enough money to then invest and live off of the, the percentage, right? From the, the investments so that when we die, we leave that to our children.

Rick Ferri (00:53:32):

3 percent. So it’s a 3 percent number. That’s what I use with clients all the time. If you can get to a point where you can live off 3 percent of your portfolio, then, and you’ll get Social Security as well, right? Then adjust it for the rate of inflation, the value of your portfolio will grow. With the rate of inflation. You are going to live off 3 percent. The children will inherit what you retired with, adjusted for the rate of inflation. So 3 percent is a good number. That’s what I use.

Maria Monroy (00:53:57):

Wow, that’s amazing. Yeah.

Rick Ferri (00:53:58):

But remember, by this time, your kids are done with college. Your house is paid off. You are getting social security. Your spouse is getting social security. A— and as you get older, you might spend a lot of money in your sixties and maybe in your seventies, but as you hit your eighties, your, your spending, your discretionary spending declines. So you’ve got to factor that all in as well. You know, how much do you actually need? What’s the real number? And, uh, it might be less than what you think, right?

Maria Monroy (00:54:24):

No, it’s, it’s so funny. My husband and I talk about that constantly, because we had never invested up until a few months ago. And it really did start by him reading one of your books, All About Asset Allocation. So —

Rick Ferri (00:54:28):

Great. Thank you for that.

Maria Monroy (00:54:30):

No, but we talk about that a lot. Like, right now, our lifestyle is very expensive. Cause we have three kids, they’re in private school, we travel a ton, we own a business. So a lot of our expenses go back into the business, and that’s one of the ways we invest. But, you know, when we’re 70, what are we going to spend money on? If our house is paid off? Like, we’re not traveling to the extent we’re traveling now. We don’t have three kids to support. Hopefully they’re, you know, all, all making their own money, right? So by then, we need way less.

Rick Ferri (00:55:08):

Oh, $80,000. $80,000 is the number. That’s what you’ll be spending just for basic expenses. And then if you’re going to do discretionary spending on top of that, so between $80,000 and $100,000, depending how many properties you own. If you just own one property and it’s you and your husband and it’s, you know, a 2,000 square foot house in a decent neighborhood, you’re spending about $80,000 a year to keep that up and to, you know, pay your bills and pay your utility bills and, you know, just basic, you know, living well. But then if you want to do, you know, more travel, you might be spending $120,000. I mean, you could possibly be spending $150,000 if you’re doing a, a lot of travel. But then once you get into your late seventies — I wouldn’t say 70. It’s beyond that. Probably 75 to 80. Now you’re spending less because you’re traveling less, you’re going out less, you’re going out to dinner less.

Rick Ferri (00:55:51):

And so, uh, that, that’s what you, that’s where you’re at. Yeah. At least in today’s dollars, I do this all the time. This is what I do all day long. Been doing it for years and years and years. I talk with many people. Uh, it’s, everybody’s fairly the same. I mean, even though we’re all different, we are all very the same. I mean, unless you have a $25 million home, and I have spoken with people who have $25 million homes, and they have servants and whatever. Yeah. That might be a little, that might be more expensive. Uh, but I mean, if you’re just in your own 2,000 square foot house with your husband in a nice area, uh, you’re, you’re looking today at about $80,000, maybe a $100,000 at the, at the tops is what you’re spending for basic, basic spending.

Maria Monroy (00:56:36):

Yeah. I don’t think we would ever, even if, if, if and when we have the money, I don’t think we’d, we’d ever go that crazy, like, change our lifestyle much more than, than we already have. Now for someone that’s listening, how, uh, what should they do to get started? Obviously read your book All About Asset Allocation by Richard Ferri. Um, what else, what else should they be doing?

Rick Ferri (00:56:58):

Well, even before then, you have to, uh, pay yourself first, right? So you’re making money, you have to put away a certain amount of money, uh, every paycheck. Do it in a 401k. Maximize that, especially if you get a match. Uh, other than that, you want to, you want to have a savings plan. So before you even invest a dime, you have to have a very disciplined savings plan. You can’t make money until you have money, you know, to invest. So you’ve got to say, “We are going to save X dollars every paycheck or X percentage of our income, we are going to save it.” So that’s step number one. And then step number two is taking advantage of all of these tax-efficient accounts. 401ks, Roth accounts, 529s we talked about. So you want to use the structure, uh, that Congress has set up for us to take advantage of lowering our taxes and, at the same time, saving in a tax-efficient way. So that’s sort of the piping and the structure. And once you get that down and then you get into the, the asset allocation and the individual investments themselves. So that’s really, like, the last part of it.

Maria Monroy (00:58:07):

Got it. Now in terms of, uh, 401k, is there, do, would you recommend Vanguard’s 401k, or does it not matter? What are your thoughts on that?

Rick Ferri (00:58:17):

It’s not going to be up to you. Generally, it’s going to be up to your employer. Your employer is going to —

Maria Monroy (00:58:21):

I am my employer.

Rick Ferri (00:58:22):

Oh, you are the employer. Okay. Well —

Maria Monroy (00:58:24):

And most people listening are their own employers. So for example, like, we offer a 4 percent match. It’s crazy when somebody doesn’t take advantage of it, in my opinion. And then we also profit share at the end of the year.

Rick Ferri (00:58:43):

Mm-hmm. .

Maria Monroy (00:58:44):

So we’re putting a lot towards not only our 401k, but our employees’ 401ks. We use ADP, but we’re thinking of switching —

Rick Ferri (00:58:47):


Maria Monroy (00:58:48):

To Vanguard. I don’t know if there’s —

Rick Ferri (00:58:50):

Well, okay, so generally, so a— ADP is your payroll company, correct?

Maria Monroy (00:58:52):

It is.

Rick Ferri (00:58:53):

Okay. So it’s very easy to use ADP or check, uh, paycheck or somebody like this to, to do the administration on the 401k. Doesn’t cost very much. And so it’s a good, good option. Going to Vanguard with a 401k plan that has several employees, uh, may not be the cheapest way. I mean, you’d have to talk to them about the administration and how much they would charge you to do that. But ADP is a fine option. And you could have Vanguard mutual funds in the ADP plan, or if you’re using check, paycheck, you could have Vanguard mutual funds in the — So you’re talking about the plan and the administrative side of the plan, and then the investments in the plan. Now, what you don’t want to do — you don’t want to go to your local broker.

Rick Ferri (00:59:36):

You do not want to go to your local insurance person, because what you’re going to get is you’re going to get a very expensive plan with a lot of very expensive funds, and the advisor who’s overseeing it, this broker or insurance person is going to get, is going to get greased pretty well. That’s not what you should do. And you have a fiduciary responsibility to your employees to not do that. To not do that. Okay. Because it’s their money, not your money. So, um, yeah, ADP, uh, paycheck, they use your payroll company to do this. If that’s one option. Uh, if you get large enough, you could go to Vanguard or if you’re just a one-person shop, it’s just you. You could go to Vanguard, and Vanguard would open up a, uh, solo 401k or they call it an individual 401k. And uh, that’s what I have at Vanguard. So it’s just me, and I have my own 401k, and it has a Roth option on it. And, uh, so that, do it, do it as cheap as you can and, and have very good funds in there, uh, index funds in there, uh, to keep that cost down as well and to be super diversified.

Maria Monroy (01:00:44):

Got it. Okay. One last question, I promise. I’m just curious as to what your opinion is on overfunded whole life insurance policies.

Rick Ferri (01:00:54):

Uh —

Maria Monroy (01:00:57):

You can be honest.

Rick Ferri (01:00:58):

So I’m not an insurance salesperson. I used to do that when I was a broker and I worked on commission. So all of that is — First of all, it’s all commission business. I mean, the answer to everything, if you talk with an insurance broker, is whole life insurance. You can get on TikTok nowadays, and all they have is young person after young person after young person selling, uh, universal life insurance or whole life insurance. And they don’t know anything. They, they’re, they, they know nothing except how to sell this product. That’s all they know. And that this product is the answer to all of your dreams. And it’s not. It’s expensive. It’s not tax-efficient in the long term. Avoid it at all cost.

Maria Monroy (01:01:45):

Thank you.

Rick Ferri (01:01:46):

If it’s overfunded, believe me, at your age, I’d be getting out of it anyway. I mean, just go to —

Maria Monroy (01:01:49):

No, no, no, I don’t have one. And, and we decided against it. But we’ve had so many people, not only just, like, friends recommend it, who really do want, like, our best interest. But also when we were working with a financial advisor, they were pressuring us so much to do it that it actually turned us off.

Rick Ferri (01:02:09):

It’s money. Uh, incentives drive advice in the financial services industry. Incentives drive advice. The financial advisor wants to get paid. They want money. They’re going to recommend products that pay them. They have families to feed, too. And this is how they get paid. You buy a universal life policy, a whole life policy, they make 6, 7 percent commission. They’re good. They go on to the next thing or assets under, under management. AUM, assets under management. Now, if I manage your money, I’m not only going to get 1 percent this year or 1.5 percent this year, I’m going to get 1.5 percent every single year going forward. So the answer to your fears and the answer to your dreams is to give me all your money to manage. That’s the answer. It’s not the answer. It is not the answer. Okay? The answer is to take control. Do it yourself, keep your costs really low, be super tax-efficient about doing it, and have the right asset allocation for your needs in the long term. That’s the answer.

Maria Monroy (01:03:05):

I love it. Thank you so much. I actually feel better about investing. Um, I believe your website is

Rick Ferri (01:03:12):

Just like my name. That’s my website. Correct. Thank you.

Maria Monroy (01:03:15):

Awesome. We will put everything in the show notes. We’ll put your book, your website, and you know, anything we talked about today will be in the show notes. Okay. I really, really appreciate it. Thank you so much for taking the time.

Rick Ferri (01:03:30):

Well again, thank you again for inviting me. And, uh, check out, uh, and uh, It’s a nonprofit organization that helps people learn how to invest properly. It’s all free and, uh, it’s all good information. And so, uh, you can do this. You know, you don’t need the help of some very expensive advisor who’s looking for out for the themselves here. You can do this on your own. So that’s all my, uh, messages today.

Maria Monroy (01:03:57):

Thank you so much. I appreciate it.

Rick Ferri (01:03:59):

Thank you. Bye now.

Maria Monroy (01:04:00):

Thank you so much to Rick Ferri for everything he shared today. If you found the story valuable, please share it with someone you want to see succeed, and subscribe so you never miss an episode. And leave a five-star review. It goes a long way to help others discover the show. Catch us next week on Tip The Scales with me, Maria Monroy, president of LawRank. Hear how the best in the business broke out of limiting beliefs, overcame adversity, and built a thriving, purpose-driven business in the process.

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