{"id":6408,"date":"2013-05-24T11:53:19","date_gmt":"2013-05-24T18:53:19","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=6408"},"modified":"2016-12-21T07:30:37","modified_gmt":"2016-12-21T15:30:37","slug":"hedge-funds-in-retirement-plans-dont-bother","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/hedge-funds-in-retirement-plans-dont-bother\/","title":{"rendered":"Hedge Funds in Retirement Plans? Don’t Bother"},"content":{"rendered":"

The headlines have a strangely unreal ring about them these days.<\/p>\n

The Federal Reserve’s easy money policy is\u00a0either about to end or last for years<\/a>\u00a0more, housing is\u00a0in recovery or it’s an illusion<\/a>, and people aren’t buying cars because they\u00a0apparently don’t want to drive<\/a>\u00a0anyway.<\/p>\n

Add to all that this strange twist: Goldman Sachs thinks individual investors need access to\u00a0hedge funds<\/a>.<\/p>\n

\"hedge<\/a><\/p>\n

If you’re not familiar with the concept, hedge funds are run by active managers who attempt to avoid losses, which is a form of\u00a0market timing<\/a>. They often use leverage to amplify gains and invest derivatives and similarly exotic instruments. In short, they’re traders, big time.<\/p>\n

It’s a strategy that has had\u00a0some success in the past<\/a>, as well as\u00a0some catastrophic failures<\/a>. But why hedge funds? Why now?<\/p>\n

The Goldman argument is that\u00a0ordinary investors need help<\/a>. Specifically, that they need protection from the downside of the market, which seems to show up every few years like clockwork.<\/p>\n

Hedge managers love crazy markets. Their aim in life is to ride those rogue waves to ever-higher peaks while avoiding the crashes in between. Goldman’s spin is to take the concept to the retail market.<\/p>\n

They don’t expect anyone to put a lot of money into hedge funds. It’s being sold as an alternative strategy to complement core holdings, presumably the\u00a0ordinary stocks and bonds that make up most retirement plans<\/a>.<\/p>\n

It’s easy to see the attraction of the whole idea: You get access to the minds of Goldman Sachs at a very low minimum, just $1,000. A kid mowing lawns for the summer could afford it.<\/p>\n

Yet the fees are incredibly stiff,\u00a0as high as 3.30%<\/a>, unless Goldman decides to raise them later, which it could, to as high as 4.03%. (Call it an early investor discount, if you like.)\u00a0Morgan Stanley\u00a0and Blackstone are\u00a0launching similar funds<\/a>.<\/p>\n

That’s expensive for a mutual fund in a retirement account. It’s cheaper, though, than what the big clients pay. Typical hedge funds cost 2% of assets managed and then 20% of any profits. You have to wonder whether\u00a0Wall Street\u00a0will end up cannibalizing its own business here.<\/p>\n

A way around hedge funds<\/h2>\n

For retirement investors, though, the question remains open. How does one avoid the risk of falling into a market trap?<\/p>\n

The fact is, you can get access to non-traditional investments easily and cheaply with\u00a0a well-designed portfolio that uses very inexpensive exchange-traded funds<\/a>.<\/p>\n

An effective retirement portfolio does not rely solely on U.S. stocks and bonds to be “balanced.” In fact, it holds several asset classes, including foreign stocks, emerging market bonds, commodities and real estate.<\/p>\n

Rather than paying a firm to trade those holdings actively \u2014 generating trading commissions along the way, plus substantial risk \u2014 the better strategy is to\u00a0own them passively and to rebalance as market forces<\/a>\u00a0create temporary winners and losers.<\/p>\n

It’s not rocket science, and it’s certainly not worth losing sleep over \u2014 or paying unusually hefty fees for yet another manager.<\/p>\n","protected":false},"excerpt":{"rendered":"

The headlines have a strangely unreal ring about them these days. The Federal Reserve’s easy money policy is\u00a0either about to end or last for years\u00a0more, housing is\u00a0in recovery or it’s … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":6424,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[3],"tags":[],"yoast_head":"\nHedge Funds in Retirement Plans? Don't Bother | MarketRiders.com<\/title>\n<meta name=\"description\" content=\"Goldman Sachs thinks individual investors need access to hedge funds. But why hedge funds? 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