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I don't want to ruffle too many feathers here but people often ask why someone would invest in alternative investments like a hedge fund or private equity fund

I don't want to ruffle too many feathers here but people often ask why someone would invest in alternative investments like a hedge fund or private equity fund rather than hold an ETF. This is one of the reasons, and there are many more. If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. The Nikkei has been even worse... http://www.bloomberg.com/quote/NKY:IND http://www.bloomberg.com/quote/NKY:IND That doesn't mean everyone should try to add alternative investments, I think most people should hold ETF's. But rather most people should not blindly follow the dogma of holding an ETF that represents the market regardless of market conditions. I can't believe I'm going to recommend a Tony Robbins book, but his latest book on investing is actually pretty good, actually you just need to read chapters 5 and 6 to save you some time. I'd recommend most people check out his "All Seasons" portfolio that he got from Ray Dalio. I mean if you can get Ray Dalio's expertise working for you, you've got a great chance of having things work out for you! https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmore/Advisor-Blog/Cameron-Passmore/November-2014/Stories-over-Science-Tony-Robbins-Financial-Adv https://www.pwlcapital.com/en/Advisor/Ottawa/Cameron-Passmor... EDIT Wow, based on the downvotes this struck a nerve. I don't think I said anything wrong here, do people just not want a balanced view?

akgoel 12y ago
Yes, the investor who somehow only invested all of their money one time at the peak of the dotcom bubble would only now get their nominal value back. However, some of those component company are presumably throwing off dividends, so it may not be that bad...
antr 12y ago
The short answer is that index investing is a different asset class to hedge funds and private equity, with a very different risk profile. And remember, there are plenty of different hedge funds with different strategies, industry focus, capital structure, etc. and the same goes for private equity. For example, private equity is very similar to a VC, they give LPs access to a type of company which is not public... and we all know how varied the VC industry is. Investors need to build a portfolio, and this requires a wide range of asset clases.
JoshTriplett 12y ago
Buying the NASDAQ doesn't seem as prudent as buying a more representative fund covering the whole market. Not everything has done as badly as the NASDAQ. And you could do a lot worse than a whole-market index fund. When it comes to investments, boring is a feature.
- blakesmith 12y ago
  100% agreed. I've sat down with a few family members and friends who want to understand "investments" and it takes many conversations just to drill into their head that for most average people, boring is good. There are certainly complex, fast moving financial instruments that are exciting, but these should be steered clear of. It takes quite awhile to wash away the preconceived notions about what "investing" is. Investing shouldn't be like playing poker - it might be fun to have "action" and "excitement", but save that for the trips to Vegas.
lmm 12y ago
Let's compare like with like. If you take the peak of a random hedge fund or PE fund just before a big crash, how does its performance compare? And what proportion of indices do as badly as the Nasdaq or Nikkei?
iolothebard 12y ago
This is picking a bad time horizon and acting like that's the only way to invest. If you'd been investing let's say starting 2000 in a 401k, you put in money at regular intervals. So you were buying the whole way down and up. You wouldn't simply have "held" a NASDAQ ETF.
- rsync 12y ago
  It is indeed the worst time horizon. However, when evaluating a course of action, I think looking at the upper and lower bounds of possible outcomes is a very wise thing to do, so in that sense it's relevant...
  - Retric 12y ago
    It's not the worst time horizion as you can oviously do worse than break even ex: 1999:2002. There are many stratagies where you would have gotten significant returns over that time period. EX: If you held say 50% nasdaq and 50% cash and then rebalanced your portfolio you would have been well ahead of the curve.
- ChuckMcM 12y ago
  The funny thing for me was that when I first heard about 401k programs the talks discounted the period of time during the depression as that was 'anomalous'. Having run the experiment you've proposed (although I started putting money into a 401k in '86) I think when we did the calculation my rate of return from that period to today for the 401k it was like 3.2%. (and there are things that drag it down like fund loading etc and my initial exuberance as a young investor for 'risk' as I figured I had plenty of time to make it back later if it went down. ) Not the sales pitch they investors want you to hear :-)
molf 12y ago
> If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. Not if you buy at regular intervals. If you had, say, $10K in a Nasdaq ETF in 2000, and invested the same amount at regular intervals between then and now, you'd have a 95% profit by now.
rsync 12y ago
Do not comment on your own downvotes. Do not interrupt the discussion to meta-discuss the scoring system.
deleted 12y ago
[deleted]

akgoel 12y ago

Yes, the investor who somehow only invested all of their money one time at the peak of the dotcom bubble would only now get their nominal value back. However, some of those component company are presumably throwing off dividends, so it may not be that bad...

antr 12y ago

The short answer is that index investing is a different asset class to hedge funds and private equity, with a very different risk profile. And remember, there are plenty of different hedge funds with different strategies, industry focus, capital structure, etc. and the same goes for private equity. For example, private equity is very similar to a VC, they give LPs access to a type of company which is not public... and we all know how varied the VC industry is. Investors need to build a portfolio, and this requires a wide range of asset clases.

JoshTriplett 12y ago

Buying the NASDAQ doesn't seem as prudent as buying a more representative fund covering the whole market. Not everything has done as badly as the NASDAQ. And you could do a lot worse than a whole-market index fund. When it comes to investments, boring is a feature.

blakesmith 12y ago
100% agreed. I've sat down with a few family members and friends who want to understand "investments" and it takes many conversations just to drill into their head that for most average people, boring is good. There are certainly complex, fast moving financial instruments that are exciting, but these should be steered clear of. It takes quite awhile to wash away the preconceived notions about what "investing" is. Investing shouldn't be like playing poker - it might be fun to have "action" and "excitement", but save that for the trips to Vegas.

lmm 12y ago

Let's compare like with like. If you take the peak of a random hedge fund or PE fund just before a big crash, how does its performance compare? And what proportion of indices do as badly as the Nasdaq or Nikkei?

iolothebard 12y ago

This is picking a bad time horizon and acting like that's the only way to invest. If you'd been investing let's say starting 2000 in a 401k, you put in money at regular intervals. So you were buying the whole way down and up. You wouldn't simply have "held" a NASDAQ ETF.

rsync 12y ago
It is indeed the worst time horizon. However, when evaluating a course of action, I think looking at the upper and lower bounds of possible outcomes is a very wise thing to do, so in that sense it's relevant...
- Retric 12y ago
  It's not the worst time horizion as you can oviously do worse than break even ex: 1999:2002. There are many stratagies where you would have gotten significant returns over that time period. EX: If you held say 50% nasdaq and 50% cash and then rebalanced your portfolio you would have been well ahead of the curve.
ChuckMcM 12y ago
The funny thing for me was that when I first heard about 401k programs the talks discounted the period of time during the depression as that was 'anomalous'. Having run the experiment you've proposed (although I started putting money into a 401k in '86) I think when we did the calculation my rate of return from that period to today for the 401k it was like 3.2%. (and there are things that drag it down like fund loading etc and my initial exuberance as a young investor for 'risk' as I figured I had plenty of time to make it back later if it went down. ) Not the sales pitch they investors want you to hear :-)

molf 12y ago

> If you held a Nasdaq ETF from 2000 until now, you would have had to wait to 15 years to make back most of your gains. Not if you buy at regular intervals. If you had, say, $10K in a Nasdaq ETF in 2000, and invested the same amount at regular intervals between then and now, you'd have a 95% profit by now.

rsync 12y ago

Do not comment on your own downvotes. Do not interrupt the discussion to meta-discuss the scoring system.

deleted 12y ago

[deleted]