Wealthy investors are different from you and me. They have a secret they don't want anyone to know.
They are bigger suckers.
How can this this be?
They qualify as "accredited investors" who can invest in deals exempted from SEC registration. Without SEC registration, the sponsors of these deals can avoid troublesome filing requirements that require detailed disclosures about transparency, limitations on fees and liquidity.
This means they can be enticed to buy "alternative investments" like hedge funds and private equity deals.
How is that working for them?
Not well.
According to a web site that tracks hedge fund performance, since late 2006, 117 hedge funds at 71 fund families have "imploded." The fund mangers don't include just miscreants like Bernie Madoff. Carlyle Capital, Bear Stearns, Dillon Read (run by UBS) and JPM Partners all made the list.
The news was not bad for everyone. The sponsors of these funds did just fine. For example, the UBS-run Dillon Read Capital Management hedge fund closed after losing $124 million in the first quarter of 2007. When UBS closed its hedge fund group, it incurred costs of $300 million.
Where did that money go?
According to the New York Times, "...$200 million went to severance payments and other costs for the hedge fund manager and his team."
Now I understand.
The investors get clobbered. The fund manager and his "team" get rewarded.
Here's the ultimate irony.
When wealthy investors seek legal redress against the firms that put them into these deals, they are confronted with the defense that they are "sophisticated investors" who should have known better. It usually works.
The rest of us can learn a valuable lesson from the foibles of the rich.
They are no match for the securities industry.
We aren't either.
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Dan Dorfman: More Insider Trading Scandals Brewing
The SEC wants to know who traded in Perot in the two months prior to the public disclosure of its acquisition. I've also obtained copies of SEC documents showing it has commenced a number of investigations.
like everybody else. The video with Peter Schiff and the other financial experts forecasting in 06 / 07
is, if unknown, a must - see, it explains a whole lot in ten minutes:
http://www.youtube.com/watch?v=2I0QN-FYkpw
Shhhh!
"You give me your money, I make money off of it, and I give you a tiny percentage to keep your interest!"
Yeah, big secret.
Here is my question. What about ETF's as opposed to Index Mutual Funds? Is there a significant difference other than the commission paid to purchase shares of the ETF? Isn't even the most conservative Index Mutual Fund going to charge high enough fees to east up the commission cost of the ETF?
iShares MSCI ACWI Index (ACWI);
iShares Barclays Aggregate Bond (AGG).
Generally, my problem with ETFs is that they encourage trading or picking asset classes that investors believe will outperform.
However, in my 401k plan the options for investing do not have places to invest that I believe are sound and almost all of them have an average of 15% used in derivatives trading which I am totally against. So, the past few years I've put much less in my 401k and the funds within the plan I've put in are ultra conservative and have privately invested in sectors that I believe are downwardly manipulated and severely undervalued. The result has been no losses in my 401k while everyone has lost up to 40% or more which have recovered somewhat in this bear market rally (in my opinion and others) and my private after tax investments are all up and it is looking better all the time (all with bull signals in this bear market)..
It is my opinion that it precisely the lack of granularity in 401k plan funds that makes investment in those plans precarious at best and subject to the whims of an investment market that is totally distorted and leaves the vast majority of investors in 401k plans as cannon fodder.
They didn't want anyone to know that their their wealth, accreditation or special exemptions (from ethics) does not shield them...far enough. Guess they now know that plutonomy is Risky?
My belief is that this is far from over, that many shoes are left to drop, inflation waits in the wings, and currency devaluation (or even recall) a distinct possibility. What program can working and middle class people put together Right Now, that will help to protect their income, assets, and investments for retirement--401-k, IRA etc--so that they can weather the coming storm.
Even though you've pointed out how easily fleeced the uber-wealthy Can be, the fact remains that they almost always come out of these crises in better shape than when they went in, especially relative to the rest of us. I know alot of that is insider info and connections in govt. that most of us will never have. But what about real world strategies that will allow us to do more than just survive, perhaps even have a positive effect on the policies that run the country through our collective actions.
No one wants to touch this. Any help?
Save 15% of your annual income while you are working (including the employer match of your 401(k) plan) and spend only 4%- 5% per year of your savings in your retirement.
Buy a risk appropriate, globally diversified, small and value tilted portfolio of index funds anytime you have money to invest. Hold. Rebalance. Loss Harvest.
Only sell your investments when you need the money.
Do not do business with any broker or advisor who tells you they can "beat the markets."
Do not buy individual stocks or actively managed mutual funds.
90% of what I am saving goes into relatively well balanced & diverse stock & bond funds - most via my 401k and employer match.
The other 10% is going into buying some select decent growth stocks. Of those individual stocks, I haven't sold anything since Spring & don't intend to start now. Several of those stocks I got at the 'bottom' in March & April and I have set for Dividend Reinvestment. Unless something really tanks or rockets off - I will only sell to rebalance.
1. How do investors know which ones will outperform in the future?
2. How do investors measure the risk of the fund they select?
3. What value should investors put on the lack of financial transparency and illiquidity?
4. Should investors believe that hedge fund managers have found the holy grail of investing: more reward with no additional risk? If so, where is the data supporting that assumption?
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