Ferri: Set It And Forget It Really Works

June 15, 2015


‘Aha’ Moment

In 1996, I had an “Aha” moment, and changed the investment portfolio from actively managed funds to low-cost equity index funds. This helped the account grow even faster. The savings from low-cost index investing added to our portfolio rather than to the coffers of Wall Street.


By 1999, we had all the money we needed to send our three teenage children to good four-year colleges, with a little extra money to spare. My philosophy on money is, when you have it and you need it, don’t lose it. So to ensure the available assets would see all of our kids through their college days, I reallocated the entire portfolio to short-term corporate bonds in late 1999.


If you remember your market history, that’s about when the tech stock bubble burst and the stock market collapsed over the next two years. It was a marketing-timing miracle I never saw coming, but the results meant that we still had all the money we’d set aside for our critical family goal.


Paraphrasing Baseball Hall of Fame pitcher Vernon “Lefty” Gomez, it’s better to be lucky than good. While in this instance, luck happened to play our way, the real lessons from this experience made me a die-hard believer in the importance of having an automated savings plan, a disciplined low-cost portfolio strategy, and a commitment to avoiding market risk once you have accumulated the money you’ll need for an important forthcoming event.


Investment Success

The moral of this story is that automation leads to disciplined savings and to a much better shot at achieving investment success. Get it out of your hands. Let someone else do it, even if it costs you a little money.


Young investors today have many opportunities to automate their investments through employee retirement savings plans. Many employers will match contributions up to a certain amount. That’s like getting free money. Put this money into low-cost index funds and don’t mess with them.


529 plans are great for college savings. These can be automated also. Start small and add more as you earn more.

There’s also professional help. A little advice can go a long way, especially when it comes from someone who is committed to a transparent, fee-only service model.


Yet some people shun the idea of hiring an adviser. I’m often asked, “Why would anyone pay an advisor just to buy index funds?” My answer is this: “It won’t happen otherwise.” Creating a saving and investment plan is easy; execution is hard. If you need help, resolve to get it. Then set it and forget it.

For a full list of relevant disclosures, click here. Rick Ferri, founder of Michigan-based Portfolio Solutions, is a widely recognized index investor and the author of several books on index investing.




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