Keeping costs low is a top priority of this financial adviser. If you don’t need a lot of advice, he says, why pay for it?
Low costs and a blend of stock- and bond-index funds are the hallmarks of the investment philosophy of Richard Ferri, chief executive of investment-advisory firm Portfolio Solutions LLC in Troy, Mich.
The index-based funds provide exposure to designated broad markets and so don’t entail stock pickers or making bets on individual securities. Favoring funds with low fees helps him hold down overall costs for clients: He typically charges 0.25% as advisory fees, less than half the industry standard……
……Here the advisers share a model portfolio used by a large number of their clients. The portfolio falls into four major categories: U.S. stocks, at 30%; foreign stocks, at 15%; bonds, at 50%; and real-estate investments at 5%. The weighted-average expense ratio is 0.16%.
U.S. STOCKS: Of the total portfolio, 21% is invested in the broad stock market through Vanguard Total Stock Market Index ETF. While this ETF has an allocation to stocks of all market capitalizations, the team at Portfolio Solutions uses an additional fund for both small and micro-cap stocks, because they believe these stocks can boost the portfolio’s long-term returns.
They invest 6% of the portfolio in iShares S&P SmallCap 600 Value Index ETF, which tracks an index of small “value” stocks, those considered cheap based on factors like their earnings potential.
For the 3% micro-cap allocation, the advisers for about four years have used Bridgeway Ultra-Small Company Market, a fund that uses quantitative models to invest in the smallest companies in the country, within certain guidelines.
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