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My biggest criticism of this analysis is his wild overstatement of the benchmark return. Where in the world do you get 8% safely in equities and/or real estate?

• jasode 10y ago
  >criticism of this analysis is his wild overstatement of the benchmark return. Where in the world do you get 8% safely in equities and/or real estate? I agree. It's true that most VC funds have poor returns but so do most hedge funds and most mutual funds. I don't know the success statistics offhand for private equity (Carlisle Group, Blackstone, etc) How do VC funds compare to all other types of actively managed funds? Even Warren Buffet's Berkshire Hathaway "only" had returns of ~9.6% (not 12%) annualized return from 2005 to 2015[1] which stated that $1000 invested 10 years ago grew to $2496 (~2.5x). [1]http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2015-3 http://www.businessinsider.com/warren-buffett-berkshire-hath...
• icedchai 10y ago
  Over the long term, it's not hard to find. You can get 8% annually by buying a broad based index fund and holding. Vanguard Total Stock Market would've worked over the past 10 years. Beating the market is tough.
  • MagnumOpus 10y ago
    Vanguard Total Stock Market: - 76.7% over the last 10 years (5.87% annualised) - 90.0% since inception 15 years ago (4.3% annualised) That is very far from 8% - at that rate with compound interest you'd have gotten 217% of returns from VTI over 15 years.
    • tim333 10y ago
      Also future returns from here going forward a few years are looking worse than that. Stocks are expensive by historical standards at the moment.
      • icedchai 10y ago
        Look back 50 years and you'd have been saying "stocks are expensive" every few years, missing out on massive returns. Invest for the long term and don't worry about it. Today's expensive is tomorrow's cheap.
    • icedchai 10y ago
      Are you including dividends? These aren't the stats on Morningstar.
• matco11 10y ago
  Generally, you would look at the relative risk of different asset classes to define the relative return goal. The relative risk would be a function of factors like the volatility of the asset class (the higher the volatility, the higher the return required), or the liquidity (the longer the money is locked-in, the higher the return required), etc. Up until 10-15 years ago, it was common to refer to return targets for a certain asset class as a multiple of risk-free rate (what government bonds yield), eventually, when the risk-free rate started converging to zero, it became more common to refer to return targets as risk free rate + X. So, for example, a simplified ranking from the lowest to the highest return could look like this: - government bonds - AAA-rate corporate bonds - US equities - international equities - risk-neutral hedge funds - macro hedge funds - private equity funds - real estate funds Whereby you would have the first half of the list generating single digit yearly returns (say, 8% for US equities), and the bottom of the list generating double-digit returns (say, 15% for risk-neutral hedge funds and 20% for private equity). This is just an example - with realistic numbers. One of the implications of the above is NOT that private equity investments are better than US equities, or real estate investments are better than hedge funds: they have different risks, so they have to deliver different returns in order to be EQUALLY attractive. Also, consider that there are many types of hedge investing and private equity strategies, each with different risk factors and target returns. Correlations are another important factor: they measure how the return of a certain asset class moves relative to the others (what happens to your returns when US equities returns are negative?) In order to increase their assets, VCs have to justify to their investors the returns they target vs. the risks they ask their investors to undertake. That's not easy for all VCs.