6packSteamJedi

hahah yea great pilots helping pilots with money

Profane Kahuna

Great perspective.

What is your advisor's minimum for the PE deals? Half a mil? 1 mil?

.

Turbosina

PE and PC (private credit) have two types of commitments: an upfront commitment (funds they need right now to get you started), plus a total commitment that will be 'called' within the first 1-3 years of investmnent. It usually takes a couple years for the full commitment to be fully realized (especially in PE) because the PE firms first raise their capital, and then begin their search for companies to acquire. Thus, they don't need the full value of your total investment to be sent to them immediately; they will take an upfront investment and then issue 'capital calls' periodically, as they begin to acquire target companies.

In other words, you're saying, "OK, I am going to commit to $750K total" (or whatever total you're OK with). They then will ask for, say, $200K upfront and then over the next 12-24 months there will be capital calls in tranches which you must fund. In other words you don't need all $750K now...you fund the commitment with $200K, and then every so often, you're asked for more funds until the full commitment is met.

IIRC this takes much longer with PE than with PC.

The big drawback with PE is the long return horizon. Years 1-2 are spent identifying target companies for acquisition or investment, and executing those transactions. Years 3-7 are spent transforming those companies to generate more value. Then the 'harvesting' in years 8-10 are when you see returns. For the first few years, the value of your investment is reported as flat. Then -- hopefully -- you see some significantly high returns. PC sees returns mucn more quickly because your money is invested and then almost immediately lent out in the private credit markets.

I've also experienced how PE works on the other side — i.e. how PE companies go about investing, acquiring, transforming, and then divesting companies that they target as opportunities.

We invested in a series of different PE funds that, in earlier 'vintages' run by the same firms, ended up with IRRs in the 20-25% range. We are only 3 years in to this round so I haven't a clue how things will turn out.

I believe the minimum investment IIRC was $500K.

Again, PE and PC are absolutely not for everyone. I would say that only a small percentage of investors with unique needs should consider them. For example, you need to be able to not touch PE money for almost a decade. And the risks are higher than traditional equities or bond investments. For these reasons, you don't see the Fidelities or Schwabs of this world offering these investment options. Will it prove to be a wise decision for me and my family? Time will tell...

Swagabond

Every investor/family is different. Risk/investment horizon/etc. Low cost index fund works for most families up to middle class. Above that, you might be able to afford more risk due to increased assets. Accredited investors are able to tap into unique markets as well. Along with unique risks. Extremely high wealth individuals can dabble in commercial paper (short term notes to companies to deal with short term debt/liabilities).

Any company/advisor you go with do your research. Everyone has to register these days. There are also advisors/CFPs that will do a 30-45 minute initial consult for like $200-$250 without a long-term committment.

Investor background check: https://brokercheck.finra.org
Certified financial planner: https://www.letsmakeaplan.org

A good financial advisor is like home renovations. Yes, you could do it all yourself and do a decent job but an expert just makes things so much easier.

e6bpilot

The target date funds have been terrible since the bond market took a complete dump post Great Recession and never really recovered. They have been a sucker bet and continue to be so. Comparing your funds' return to the target date funds is a bad comparison. You can realize much greater returns with a similar risk level by doing a little research and then safely investing your money in low cost index funds that match your tolerance for market swings. Hell, I have a good portion of my 401k in a money market right now and it is outperforming a lot of the bond funds.

Profane Kahuna

Yep.... ran my bond allocation to 0% awhile ago

.

Turbosina

Yeah, the bond market in 2022 had its worst perfomance in 50 years. 2023 was a lot better though.


Well, it's not like that was the only comparison we made. We also do compare our funds' returns to typical index funds. I find the target-date fund comparison useful because it answers the question, "If we had decided to take a completely hands-off approach to investing, we likely would have just put our money in a target-date fund. Had we done so, what would our returns have been?"

The next level up from that, in terms of investor involvement, would indeed be what you suggest: picking a mix of low-cost index funds and adjusting their allocations quarterly or annually so as to rebalance one's allocations against different investment types. We could have done that hypothetical exercise and compared the returns to our actual managed funds' returns. I just didn't really have the time to do that, but we do see our performance vs. typical indices, so the data is there.

All the data I've seen, though, tells me that for the average investor, engaging an investment advisor to actively manage their investments, generally doesn't mean they will outperform indices in the long run. Where I do think advisors can be useful is in talking you off the ledge when you're tempted to make an emotional decision based on perceived risk. For example, around this time last year, the Federal gov't was very close to defaulting on the national debt, which would have likely sent markets into complete chaos. I asked our advisors to draw up a hedging plan against this possibility, which seemed quite strong at the time. They drew up the plan, but strongly advised me to do nothing. As it turned out, they were right. Had I taken the hedge, or worse yet, had I significantly moved into cash, I would have missed most of the 2023 gains the market eventually made. So I do think advisors can have a very positive impact on some investors' outcomes. Again though, I agree that the average investor will do just fine by simply investing in a balanced mix of low-cost index funds. No argument there...

e6bpilot

True to what you said above about making dumb decisions. I know I could have used some good advice early on when picking stocks in my PCRA. Over time, I realized I was getting killed by the market, so why bother? For every ace that I made, I was taking it in the shorts on another pick. Finally, I have just about wrapped it up with the exception of a few very long term individual stocks. For the most part, I am all in on market based low cost funds with my "safe money" in interest bearing money market accounts and am satisfied with that result. I change the mix around a few times a year, but nothing drastic. Glad I bailed from the target date funds early on, though. They are ok, but since every single metric is outperforming them right now, they just haven't been a good performer for those that hold them over the last decade or so.

TransWorld

Yeah, the bond market in 2022 had its worst perfomance in 50 years. 2023 was a lot better though.

Yes, interest rates went up in 2022. Bond prices went down. 2023 they stablized. When interest rates go down, in the future, bond prices will go up. Funny how that works.

Roger Hawters

Long time lurker, don’t post really at all. Nonetheless, IRT your question give them a call. They set up an hour or so chat to discuss what you want via zoom. You can outline your goals, they have a brief survey, and zero pressure to commit to anything. I still haven’t pulled the trigger, but read all their disclosures and did my research. They also have a tax pro on hand to assist, as well as contacts for estate planning. Lastly, they’re fiduciary so their interest is you vice commission. They charge a scalable rate based on amount they manage. I’m stubborn and want to maintain ‘control’ in the financial direction I want to peruse long-term, but, I also value the professional perspective and back up.