How Investing In A Hedge Fund Saved My Retirement Portfolio

Retirement is lounging in an infinity pool by Jalon Burton

Reducing volatility from investing with hedge funds in order to relax

One of the benefits of working at an investment bank is gaining access to a variety of investment opportunities that retail investors normally wouldn’t have access to. For example, if Goldman Sachs decided to create a special opportunity fund for institutions because they saw opportunity in the Argentinian debt market, employees would have the opportunity to invest alongside some of the world’s largest money managers like Fidelity, Capital, and Franklin Templeton. Random investment opportunities came up all the time.

After two years as a financial analyst at GS in NYC, I knew my days were numbered as the NASDAQ dotcom bubble burst in March 2000. I remember optimistically telling my VP in May 2000 how I was still bullish on the markets and he sternly told me, “We’re in a bear market. Stop kidding yourself.” Three years later, more than half of my analyst class was let go.

By June 2000, it was clear the NASDAQ was not getting better. I can’t remember exactly how things played out, but I think management sent out an internal e-mail to all employees about how we should keep focusing on our clients – that now was the best time to give them a call or take them out because nobody else was. In the employee memo, management also indicated they had added some new options to our 401k retirement plan, namely several hedge funds that looked to profit from the downturn.

Given some of our smartest and most profitable clients were hedge funds, I decided to do some research and invest half of my 401k into a technology hedge fund, Andor Capital Management, founded by Daniel Benton. Andor was one of Goldman’s largest clients, and they formed some type of partnership where they would let employees invest without needing the $1 million+ minimums. The flagship Andor technology fund ended up returning 35 percent in 2000, net of fees, and my 401k actually inched up in 2000 and 2001 as a result of the hedge fund investment instead of getting slaughtered.

I kept my GS 401k until 2003, despite moving to a new firm in June 2001, due to the investment selection. But after it felt like the markets were out of the woods, and since I could no longer contribute to my GS 401k hedge fund as an ex-employee, I consolidated my 401k balance at my new firm to keep things streamlined. 

How Long Will The Average Person Take To Earn $1 Million Around The World?

The Economist put out an interesting chart highlighting how long it takes the median household income to earn $1 million dollars before tax. Have a look.

How long does it take to earn one million dollars around the world

Given the median US household income is roughly $52,000, it will take roughly 19.3 years for the typical household to earn $1 million gross. That’s pretty good if you think about it. Let’s say you graduate college at age 22. By the time you are 41, you could have earned over a million bucks gross!

But as we know in personal finance, it’s not what you make, it’s what you keep. If the typical household saves 10% of their gross earnings, then one can expect a $100,000 – $200,000 net worth by the time the head of household is 41 years old. Not bad, but certainly no million bucks!

How To Cheaply Build A Diversified Investment Portfolio If You Don’t Have Much Money

Diversity by Kongaline.com

Diversity by Kongaline.com

The rich get rich by buying appreciating assets like stocks, bonds, real estate, and fine art. The people who don’t get rich spend their money on depreciating assets like cars they can’t comfortably afford, and clothes that are never worn more than a few times a year. It takes discipline doing research on investable assets, which is probably one of the reasons why many people don’t even bother.

One of the biggest push backs I hear from readers who want to get rich, but don’t have enough disposable income to invest, is that investing costs too much and is too complicated. This post eliminates one more excuse people have for not building additional wealth.

It’s been a while since I’ve had to carefully watch my cash position, but since I spent a lot of money buying a fixer last year, cash flow is tight. I have a goal of rebuilding my liquid cash hoard to $100,000 in 2015, while also paying off roughly $85,000 in rental mortgage debt. It won’t be easy because I don’t want to cheat by selling assets to pay off debt.

Despite my debt elimination and savings goals, I want to continue investing in stocks and bonds when I see opportunity. With the recent volatility in the market, I see A TON of opportunity right now. Oil and energy stocks have gotten crushed, but aren’t going to zero. Market darlings such as Tesla, Pandora, GoPro, Yelp, and Lending Club have all taken a beating, and I love all their products and services. Interest rates have collapsed, providing a tailwind for a couple industries. I want to invest!

The only problem is, I’ve only got about $10,000 I can spare in this market volatility vs. a normal investment of $50,000 if I want to reach my savings and debt pay down goals.

The Top One Percent Income Levels By State

A top 0.01% income earner's yacht

A top 0.01% income earner’s yacht

The Economic Policy Institute came out with a interesting report that chronicles the top one percent income levels by State. To save you the hassle of reading the whole report, let me share with you some of their charts, and my own thoughts on the subject for your review.

The EPI is a liberal, non-profit think tank based in Washington DC, which has been around since 1986. The entire goal of their report is to highlight the rising income inequality between the rich and poor over the decades. I think they’ve succeeded in making a point that the government should do more to redistribute wealth to make society more equal. We all know the wealthy have gotten really wealthy during this bull market given they hold the majority of stocks and real estate in our country. The middle class and poor have fallen behind because income growth has gone nowhere over the past 45 years.

Let’s have a look at the top one percent income levels by state and discuss five key takeaways.

Managing A Complicated Net Worth: How Messy Is Your Money?

Antique Chinese Coin Collection Part Of Net Worth

Started collecting Chinese coins in 1997

A blogging buddy of mine named J from Budgets Are Sexy publishes his net worth figures every month. Although I generally advise against sharing all of one’s financial details, if the figures are reasonable, then that’s probably fine. Otherwise, the pitchforks will be focused on those who brazenly display obnoxious amounts of wealth with no regard for others. May Stealth Wealth live on in us all.

Remember, it’s more about what you have to show for your income, not so much about how much you make. Your net worth figure should be carefully protected as it grows.

J is in his early-to-mid 30s and has a family of four with a very respectable net worth of ~$470,000. Given he has around $37,000 in cash, the next time I see him at a conference boondoggle, of course I’m going to let him buy me a steak dinner! Instead of letting his cash earn nothing in a money market account, he might as well take care of his friends right?

What I noticed about his net worth picture is how pleasantly streamlined it is. He has no more than 10 financial accounts to track. Have a look.

Net Worth Chart

After seeing J’s net worth chart, I got to thinking about how complicated my own net worth picture is. I used to track my net worth with an Excel spreadsheet every single month since 2000. It was pretty fun for a personal finance enthusiast like me, but it started getting a little cumbersome after my account total grew. By the time I aggregated my accounts online in 2012, I had 25 accounts to track. I felt relieved when I no longer had to write everything down and update figures every month. Now everything just gets updated automatically thanks to technology.

But something funny happens when you just leverage technology to track your net worth. You stop being as analytical with your finances as you used to because you just rely on technology to do everything for you. In other words, you start getting a little lazy. Laziness is a net worth killer because it prevents you from taking action when opportunities arise, e.g. refinancing a mortgage.

My net worth has grown since 2012, like I’m sure most of your net worths have. What I’m curious to know is how many financial accounts I have now, because I haven’t checked in over a year! Perhaps you’ll share your count as well.

Do You Have A Hoarding Problem? Five Points To Identify That You Do

Hoarder

Are you a crazy hoarder?

A funny thing is going on in San Francisco right now. After Uber hired Goldman to raise $1 billion in a convertible debt sale, Uber launched a $5 UberPool campaign for a limited time on rides anywhere in San Francisco. UberPool is Uber’s carpooling service where they charge an even lower rate than their UberX offering. $5 to go anywhere in SF is truly a game-changing move that makes me not want to ever drive again in The City. The traffic has turned horrendous with unemployment below 4%.

It takes me about 30 minutes on average to drive downtown from Golden Gate Heights in rush hour traffic plus parking. There’s of course the cost of gas, potential tickets, and the risk of accidents I’ve got to deal with as well. I’d totally pay $10 roundtrip for the 3X a week I go downtown and leave Rhino, my sexy beast, at home.

But guess what? I haven’t called a single UberPool because I’ve currently got 10 free rides, each worth $20 – $30, sitting in my account! I’m not going to burn one ride that now only costs $5 with one of my $20-$30 credits, no sir! I’m going to hoard my free rides for when I go to the airport – a $30-$35 fee from my house. You see, if a ride only costs $15 and I use one of my $30 credits, I lose the other $15. And even if the app is smart enough to let me use the $5 promo on UberPool, instead of automatically applying one of my $20-$30 credits, I’m still not willing to risk it.

Like any good frugal person would do, I told my friends to book an UberPool instead, and take me along for a ride. Genius!

How did I get all my free ride credits? That’s easy. Each person who tries out Uber using my referral code gets a $20 free ride and so do I. All you gotta do to replicate my Uber credit galore is spend 25 hours a week writing for five years in a row and you’re good to go!

Too bad the promotional value is only $20 a ride now, down from $30 in 2014. But they’ve now smartly shifted the promotion strategy to subsidizing drivers with their $5 UberPool to get consumers to try their carpooling service. If you haven’t tried Uber, it absolutely makes transportation cheaper and easier.

The State Of The Union Address 2015 Cheat Sheet

State Of The Union President Obama 2015When President Obama gave the State Of The Union Address at 6pm PST, I had just left the office to go eat some yummy butter chicken and garlic naan at Amber Restaurant in downtown San Francisco. I assume many other hard-working West Coasters missed the SOTU address as well. Alas, living through an East Coast centric TV schedule is something we’ve grown used to.

But as any true patriot would do, I DVRed the SOTU address, watched the one hour long speech, took notes like a good student, and spent several hours putting together this 2,000 word article to help others think about our nation’s issues.

It’s important we all know and have an opinion about the main topics our nation faces. We don’t have to all agree, but having the knowledge helps us make choices about how we want to live, what occupations we should pursue, the type of investments we should make, and how others might view Americans on a global stage. Oh, and after reading this article, I promise you’ll be able to hold your own at any stuffy cocktail party on the planet.

Knowledge is what will set us all free!