Dallas County Living Well Magazine May/June 2020 | Page 44

Rick Ferri, CFA
Ferri Investment Solutions
Hourly Investment Advice
T
he anticipation rises as people
gather around the table. You
hear rustling in the kitchen,
then footsteps approaching,
and “Happy birthday to you!
Happy birthday to you!” A cake is
carefully placed in front of you, can-
dles glowing brightly. It’s your day.
The cake is decorated with likenesses
of your favorite hobby or sport, your
name is written in frosting, and an
appropriate number of candles stand
burning on top. It makes you feel spe-
cial, and you are!
The song ends and it’s time to blow out
the candles. Puff. Got them all! There’s
laughter and applause. You get the
first piece of cake and take the first
bite. The flavor hits you and it tastes…
well, like any other cake. The decora-
tions are special and so is the person
who made the cake for you, but there’s
nothing unique about the cake’s taste.
It’s all Betty Crocker, and that’s why in-
vestment portfolios and birthday cakes
are similar.
Advisor Consulting Service Core-4 Portfolios
INVESTING
IS LIKE A
BIRTHDAY
CAKE The portfolios are generally grouped
by risk, so there is aggressive growth
with more stocks and less bonds, and
conservative growth with less stocks
and more bonds. This is like Betty
Crocker adding chocolate flavor for
people who like chocolate cake and
lemon flavor for people who like lem-
on cake. However, you mix a port-
folio, the performance will be about
the same as any portfolio with the
same mix.
Like birthday cakes, most portfolios are
unique on the outside and similar on
the inside. I have analyzed thousands
of portfolios over the years created
by brokers, advisers, mutual funds
companies, and online services. The
underlying investments always hold a
diversified blend of stocks and bonds,
which makes the returns track the stock
and bond markets. There’s not much
difference in returns over the long run,
before subtracting fees.
The people who charge fees to create
and manage portfolios will always
claim their customized designs are bet-
ter. It’s how one adviser differentiates
from another and justifies charging a
higher fee. I call this investment dec-
oration. Just as a heavily decorated
cake costs more than a plain one, a
heavily decorated portfolio has higher
fees than plain vanilla.
Let’s analyze a decorated portfolio to
see what’s going on, starting with the
candles. Here we find brightly glow-
ing expectations of great returns. It
Rick Ferri, CFA, is the CEO of Ferri Investment Solutions, an as-needed hourly fee investment adviser. He has 30 years of
experience in the investment industry as a financial consultant and portfolio manager. Visit www.RickFerri.com for information
or listen to his podcast at www.bogleheads.podbean.com.
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DALLAS COUNTY Living Well Magazine | MAY/JUNE 2020