(audience applauding) Now I get to introduce someone who needs no introduction, which is why I'll do it anyways. Rick Ferry is the founder of Ferry Investment Solutions LLC, an investment advisor firm that also charges by the hour, copying my model. He has been in the investment industry for more than 35 years.

Rick has coauthored six books on index fund investing, exchange traded funds, asset allocation, and other personal finance topics. He is the host of the Bogleheads on Investing podcast. Rick has his degree from, should I change the college? University of Rhode Island, that RI stands for Rhode Island. College of Business earned a master's degree from Walsh College in Michigan and is a CFA charter holder.

If that wasn't enough, prior to earning the biz, Rick flew fighter aircraft in the Marine Corps and is a retired Marine Corps officer. Yes, sir. (audience applauding) - Thank you, Mr. Roth. All right, thank you, Alan. We're gonna see Alan again in a couple of minutes. So this part of the discussion is called Building Your Portfolio.

Okay, I have a kind of a unique way of talking about this. And here is my Venn diagram of what is actually going on when you are going to put together an investment portfolio. Before, this puts it all in perspective of the three key things you need to do in order to be a successful investor.

And it really, quite frankly, doesn't matter if you're talking about real estate or index funds, or even active management, you need these three elements. So you need a philosophy of what you're going to do and how you're going to do it and why. Then you need a strategy, which is the nuts and bolts of your portfolio.

And then you need the discipline to put it together and maintain it. So the Bogleheads, the reason we're all here is because we all have the same philosophy. We all have the same philosophy. And here's some bullet points you can get right off of bogleheads.org, the Bogle Center, about what the Bogleheads investment philosophy is.

That is, as Alan already pointed out, invest with simplicity. This isn't hard. And don't make it hard. I mean, Wall Street does want to make it hard because complexity is job security in the investment world. The more complex they can make things, the more money they make. You shouldn't be thinking that way.

Investing is simple, so invest with simplicity. Minimize cost, including taxes. Keep your cost as low as possible 'cause everything that comes out of your pocket to pay for cost and for taxes is less money that you have. As Alan mentioned, use index funds when possible because in the long term, it's extremely difficult to outperform the markets if you're trying to beat the markets.

And if you're trying to do this in bonds and stocks, U.S. stocks and foreign stocks, each one of these categories, if all you did was use index funds in each one of these categories, probability is over 90 some odd percent that you're gonna outperform anything else that you do just by using all index funds in every asset class.

So you should use them whenever you can. Now, you might be in a 401(k) or 403(b) where they don't have index funds and that's unfortunate. You have to use what they have. And then finally, as Alan pointed out, once you're invested in these markets, you don't try to time the markets.

We don't know what's gonna happen next. Now, a lot of people out there make believe they do and they make a lot of money by making believe they know what's gonna happen next in the markets. Well, we don't at the Bogleheads. We just take an allocation to our stocks and bonds and cash, as you'll see in a minute, and then hold it like Jack Bogle said.

Don't do something, just stand there. By the way, that complete list of what is a Boglehead and our philosophy is on the wiki, Bogleheads wiki, which we have in the website, bogleheads.org. And you can also find it on boglecenter.net. Okay, now what's the difference between the philosophy and strategy?

And here's the way I describe this. If you believe that you're already a Boglehead or that you wanna be a Boglehead, or that if you are at a Bogleheads conference or would go to a Bogleheads conference, in other words, you wanna embrace this Bogleheads philosophy, if that's you, raise your hand.

That's about, hopefully, everybody in this room. Other than that, Goldman Sachs has a conference down the hall. Sell you whatever you want. Okay, so everybody has the same philosophy. I mean, we do believe in this. We do believe this is in our best interest. That's philosophy. Now, how many people in this room have the exact same portfolio, the exact same allocation to the exact same funds as someone else in this room?

Exactly, same amount in cash, maybe same amount in CDs, percentage. Raise your hand. Nobody, why? Because we're all different. We're all unique. We all have different situations. I'm older, you're younger. I'm still working. Alan doesn't need to work anymore. He hasn't needed to work for years. Anyway, you'll hear this rivalry, by the way, between Alan and I going back for the whole entire weekend, so just get used to it.

But anyway, the point is that we are all different. We have different circumstances, different family needs, different taxes, different incomes, different savings, different everything. Different investments available to us in our 401(k)s, 403(b). I mean, it's different. So what is strategy? Strategy is how you put your portfolio together based on what you have available and what your needs are and what your situation is.

So while the philosophy covers this entire conference, we're all on board with the Bogleheads philosophy. How you do it is going to be uniquely different in some way than how anybody else does it, and that's okay. I wanna state right from the beginning, there is no right way or wrong way.

You're going to have your own way, and that's perfectly fine, and that is strategy. So strategy is what is your asset allocation between cash, bonds, stocks, maybe real estate? And then asset location, which is, something having to do with taxes, where some things work better in a pre-tax retirement account, like a 401(k), and other things work better, say, in a tax-free account, like a Roth account.

I'm not talking about Alan, but a Roth account. By the way, did you know that person who created the Roth account? Was he a relative? Michael William Roth, okay. Did he go to the University of Colorado also? (laughs) All right, so, and then last is the investment selection. So you have your asset allocation between stocks, bonds, cash, real estate, and then you have where you're gonna put it, what type of accounts you're gonna put this in based on taxes, and then finally, what are the actual investments you're going to use?

And again, sometimes you're restricted, like you're in a 401(k), so these are the only funds you have available to you. Okay, so those, that's the investment selection portion. One, two, three. Last is discipline. So once you come up, you have the philosophy, you come up with your asset allocation strategy, your asset location strategy, you've got your investments, you're satisfied with everything.

Discipline is the last leg. You have to do it, you have to get it implemented fully. I mean, a lot of people come up with strategy, they just never get it done. They just never actually implement it. So you have to implement it fully, and then you have to regularly maintain it.

For instance, if you wanna have an allocation that's half in stocks and half in bonds, well, it's maybe once a year you have to look at it and decide, okay, I need to maybe sell a little bit of stock in my 401(k) and buy a little bit of more bonds to keep it at 50/50, because the stock market went up.

And then a periodic review of where are you going. In other words, you might be transitioning from working to retirement, so maybe you wanna make a change to your asset allocation, or maybe a change to your asset location, some change to strategy based on where you are in life.

So that's discipline. So philosophy, overriding everything, strategy based on what it is you're going to do to keep it as simple as possible, and then you have to implement it and maintain it. And so asset allocation is really simple, right? It's stocks, bonds, real estate, and cash. How much should you have in each one of these?

And the answer is, I don't know. And as strange as it seems, if you were talking with me and you said to me, "Rick, how much do you think I should have "in stocks and bonds and real estate and cash?" And I would say, "I don't know, Alan. "How much do you think you should have "in stocks, bonds, real estate, and cash?" Because you've already thought about it.

You've already thought about it. You say, "Well, I think that I'm pretty good "with maybe, oh, 50% in stocks "and maybe 30% in bonds, 10% say in cash, "and then I want to probably put 10% in real estate." I said, "Okay, is that something you're able to maintain "if you did it?" And Alan says, "Yes, that is." And I say, "Well, that sounds like it's a good strategy "to me." Honestly, in the end, you have to run your own portfolio.

That asset allocation is your asset allocation, and you have to stick with it with discipline. So I can't answer for you what your asset allocation should be. All I can do is help you confirm within your own mind, because in the end, it's you sticking with that asset allocation, which is going to drive 90% of your return in the very long term.

So whether you should be high in stocks or low in stocks really doesn't have a lot to do, believe it or not, with your age. I have people who I've talked with who are in their 80s. They have no bonds, 100% stock. And I have people who I talked with who may have sold a company in their early 30s.

They don't want stock. They just want bonds. Now, I try to talk them into a little bit of stock for inflation purposes, but my point is that there are these rules of thumb out there that you should probably ignore, like your age and bonds and this and that. Okay, if you have nothing else to go on, that's not a bad place to start.

But in reality, because we're Bogleheads, we can give it a little bit more thought than that and say, okay, well, what is it that I need for the long term? What's my horizon? Is the money gonna go to the kids when I die? Is that what I want? What's my goal?

A lot of the things Jesse was talking about. So you gotta come up with what's an appropriate asset allocation. But the most important thing, the most important thing on your asset allocation is staying the course, whatever it is. If you decide to be 80% in stocks, no matter what, you're gonna be 80% in stocks.

The market goes down, you make yourself 80% in stock again. If the market goes way up, you might take a little bit off the table. Keeping your asset allocation is the most important thing that you do as far as maintaining your portfolio. You have to be comfortable with your asset allocation enough to stick with it during all market conditions.

So what about your investments? Alan already talked about this, and I'm gonna hit it one more time. If you can, a simple portfolio is going to consist of probably some money market funds or some treasury bills for your cash reserve. Now a cash reserve, in my opinion, is probably more of a dollar amount than a percentage.

So you maybe need one year's worth of living expenses, or maybe you need $100,000. You have your cash reserve, and it's usually not so much a percentage as it is a dollar amount. The next thing is, how much do you want in bonds or fixed income? By the way, it doesn't have to be bonds.

If you wanna do a laddered portfolio or certificates of deposit, that's perfectly fine. That's a fixed income, that's a bond. If you wanna buy individual treasury bonds or treasury inflation protected securities, that's perfectly fine. If you wanna do a simple thing and buy a bond index fund, that's perfectly fine.

But the next level is, how much are you going to have in bonds? And as I said, some people don't have any bonds, and that's perfectly fine if that works for you. And the next thing we get into is stock, and here, as Alan pointed out, really, I believe a U.S.

stock market fund is perfect. Covers all the stocks in the United States. You don't need anything more. You're gonna do just fine. And the fees are very low, and they work great, by the way, in a taxable account because the dividends are low. International stocks, again, a total international fund.

Now, these are all the stocks that are outside the United States, and there's more of them than there are stocks in the United States. Little bit of a diversification benefit because they're not traded in the U.S. dollars. They're traded in foreign, whatever the native currencies are. Now, when you buy 'em in a fund, you don't have to worry about any of this, but you get some diversification away from the U.S.

dollar. And in addition to that, if you look at the underlying industry groups that make up the international market, they are different than the U.S. market. The U.S. market is very heavy tech. Outside the U.S., it's more materials, industrials, energy, things like that. So you can get some industry diversification by being an international.

But just buy an index fund. Total stock market index fund. Now, in your 401(k), you can even make it easier, or if you have an IRA, you could buy something called a balanced fund or a target retirement fund, which is a balanced fund. And all they are is simply, if you're using an index fund, like a balanced index fund or a target retirement index fund, the mix is already there for you.

You don't have to do anything. You just look under the hood and say, okay, what's the percentage in stocks and bonds in this balanced fund? And is that what you want? Well, then you buy that fund. They're very inexpensive. Say something like a Vanguard target retirement fund or an iShare target retirement fund.

Fidelity also has target retirement index funds is what you're looking for. Very low cost. So that makes it really, really simple in your retirement account. Now, it may not work so well in your taxable account because these things do have a tendency to spin off sometimes some taxes. So maybe you wanna do it a little different in your taxable account, which gets me to the last thing.

And we're gonna have a session on this at the end. Taxes. And this is where the asset location idea comes in. If you're working and your taxes are high, you're paying a lot of money to the government every year, you probably don't wanna be generating a lot of taxable income in your taxable account.

So what you might wanna do is put in your taxable account things like the US total stock market, whereas maybe your international fund, you would put into your Roth account, which has a much higher dividend than US stocks, or the bonds you're gonna put into your retirement account. So it's called asset location.

So in other words, you know what your asset allocation is between stocks, bonds, and cash. Question is, where are you gonna put the stocks? Where are you gonna put the US stocks? Where are you gonna put the international stocks? What if you bought some real estate, where would you put that?

And if you had bonds, where would you put that? And a lot of this is driven by taxes. So you've got these different buckets, these different types of accounts. Tax-deferred, like a 401(k), IRA, 403(b), 457. Tax-free is your Roth, HSA, and even 529 plans. And then you've got your taxable account.

So again, where you put these individual investments, a lot of times can be driven by taxes. And so it's called asset location. And you can save a lot of money if you do it well. So then finally, maintain your portfolio. Again, you're gonna have to implement it fully. Once you've got your plan, implement it fully.

Automate whenever you can. Like I told you earlier, automate, automate, automate, automate, automate. So you don't have to think about this, it's already done. Have the 401(k) money, go directly out of your paycheck, which it will, go right into the account that you wanted into the fund you wanted into, which it will, automate everything.

Rebalance occasionally, maybe once a year. There's no rocket science to when you should get it back to your mix between stocks and bonds. Once a year is probably fine. And tax-managed, because taxes are an expense. And finally, reaffirm periodically. What do I mean by reaffirm? Come to another Bogleheads meeting, once a year.

Reaffirm all of this. A lot of people have been coming for a long, to these meetings for a long, long, long time. And a lot of it is reaffirming what they already know, but they still come. How many people have been to more than one Boglehead meeting already? Yeah, I think if we go to the other room next door, there's gonna even be more.

So the bottom line is, it's just reaffirming, validating what you're doing. And that's good, that's just reaffirm periodically. And of course, stay the course. Once you've got your strategy, and once you've got the philosophy, you've got your strategy, you've got your discipline, stay the course. That was the name of Jack Bogle's last book.

Great book, by the way, if you get a chance. It's kind of his whole life all wrapped up into one book. Thank you, and now I'm gonna ask Alan to come back up. (audience applauding)