Amanda had a discovery call today with a prospect looking for an “advanced investment strategy. You know, one with alternative investments and hedge funds.”
We’ve heard this before. And we respectfully decline.
It always reminds me of something Ric Edelman once said — one of my professional heroes and founder of one of the most successful independent RIAs ever built.
When Ric had his radio show, a caller asked whether those gold coins they hawk on late-night TV were a good investment.
“If those coins were such a great investment, wouldn’t the company be keeping them instead of selling them? They make more money off the commission than they ever would off the gold.”
The caller paused.
“Huh. So… no gold coins?”
“No. No gold coins.”
The same logic applies to most “advanced” alternatives and hedge funds.
Some hedge funds do outperform the market — candidly. But by the time they take their cut (historically ~2% annually plus 20% of profits), most of that outperformance is gone. According to S&P Global’s SPIVA research, most actively managed funds fail to beat the market consistently, net of fees.
Here’s the real tell: Renaissance Technologies’ Medallion Fund has returned roughly 66% annually before fees since 1988 — arguably the greatest investment vehicle ever created. According to Gregory Zuckerman’s The Man Who Solved the Market, it is completely closed to outside investors. Renaissance keeps it for themselves.
That’s what you do when you actually find something that works. You don’t sell it.
So if they’re selling it to you, it’s the commission talking.
Simple. Boring. Deliberate. (Sounds like Financial Zen, don’t it?)
Amanda pointed them toward firms that might be a better fit. We wish them well.
All investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. SPIVA U.S. Scorecard published by S&P Dow Jones Indices.