humananalytics
Contributor
It's not easy to get into this business without hard credentials. If you have very rich family and friends, it can work, but it'll basically be a handout. If you have genuinely good returns though, you can slowly grow your client base like Warren Buffet, but expect it to take 10-20 years before you become truly rich (take a look at Buffet's net worth). Currently, I work for a big Wall Street Bank, but not doing money management. Previously, I had some training in asset management though.
A few challenges below:
1) You'll probably need to manage at least 10M to make a decent living, with a 2% expense fee (2% is high unless your returns are good). The top hedge funds charge 2/20, or 2/30 (2%-3% expense fee + 20-30% of performance of the fund). However, you are not operating a hedge fund, so a 1-2% expense fee is more likely. But basically a 10M portfolio at 2% expenses = 200k/year, not including expenses. 10M is a lot to get under management for the average person, unless you are really well connected. It sounds like you are doing very basic stock investing, so 2% is probably too high.
2) Beating the market in terms of alpha, or an adjusted risk basis over a long time is very very difficult. The idea of spending just a few minutes to rebalance portfolios won't allow you to bring a better than average product to market. Many novice investors beat the market, but with a higher risk portfolio, which is actually lower returns on a risk adjusted basis. If you're beating the market now, especially in this bull economy, it doesn't really mean much. An ETF like ARKK might have had ridiculous returns, but at a ridiculous risk too.
3) Sadly the business of money management is largely prestige driven. Most investment managers get the same returns, and most of the money falls onto those who are well connected with pedigree (Harvard MBA types who worked on Wall Street). Because it is almost impossible to determine who is a good money manager, unless they have a long track record of returns like the exceptional few like Buffet, most people just want to put their money into the most pedigreed individual. It's not that you need to fall into this bucket, but if you look up most of the money managers, they all have copy and paste resumes with Ivy League MBAs. Even the "folksy" Buffet has a similar profile. This will be a hurdle you will need to overcome. Even in Silicon Valley, where they brand themselves to be more open minded, the majority of VCs are Stanford MBAs.
4) Most investors are flocking to generic index tracking ETFs and reducing the money they put into actively managed funds. There are still actively managed funds that are doing very well, but these are the exception and typically have a specialize investment thesis. Unless you have a specialized investment thesis, investors are better off putting their money into something like SPY or VTI
I don't want to be a downer here - if you have a genuinely good investment strategy, good alpha, and can prove returns over time, you will do great. However, the money management business is very saturated with players who are tackling all ends of the market from the low end (like Edward Jones) to the high end (Wall Street banks) to the highest end (billionaires who acquire full time employees to create a family office to manage money full time). The market is also trending more heavily towards ETF investing rather than paying money manager or having actively managed funds. All this being said, money and numbers talk - if your returns speak for themselves you'll succeed.
A few challenges below:
1) You'll probably need to manage at least 10M to make a decent living, with a 2% expense fee (2% is high unless your returns are good). The top hedge funds charge 2/20, or 2/30 (2%-3% expense fee + 20-30% of performance of the fund). However, you are not operating a hedge fund, so a 1-2% expense fee is more likely. But basically a 10M portfolio at 2% expenses = 200k/year, not including expenses. 10M is a lot to get under management for the average person, unless you are really well connected. It sounds like you are doing very basic stock investing, so 2% is probably too high.
2) Beating the market in terms of alpha, or an adjusted risk basis over a long time is very very difficult. The idea of spending just a few minutes to rebalance portfolios won't allow you to bring a better than average product to market. Many novice investors beat the market, but with a higher risk portfolio, which is actually lower returns on a risk adjusted basis. If you're beating the market now, especially in this bull economy, it doesn't really mean much. An ETF like ARKK might have had ridiculous returns, but at a ridiculous risk too.
3) Sadly the business of money management is largely prestige driven. Most investment managers get the same returns, and most of the money falls onto those who are well connected with pedigree (Harvard MBA types who worked on Wall Street). Because it is almost impossible to determine who is a good money manager, unless they have a long track record of returns like the exceptional few like Buffet, most people just want to put their money into the most pedigreed individual. It's not that you need to fall into this bucket, but if you look up most of the money managers, they all have copy and paste resumes with Ivy League MBAs. Even the "folksy" Buffet has a similar profile. This will be a hurdle you will need to overcome. Even in Silicon Valley, where they brand themselves to be more open minded, the majority of VCs are Stanford MBAs.
4) Most investors are flocking to generic index tracking ETFs and reducing the money they put into actively managed funds. There are still actively managed funds that are doing very well, but these are the exception and typically have a specialize investment thesis. Unless you have a specialized investment thesis, investors are better off putting their money into something like SPY or VTI
I don't want to be a downer here - if you have a genuinely good investment strategy, good alpha, and can prove returns over time, you will do great. However, the money management business is very saturated with players who are tackling all ends of the market from the low end (like Edward Jones) to the high end (Wall Street banks) to the highest end (billionaires who acquire full time employees to create a family office to manage money full time). The market is also trending more heavily towards ETF investing rather than paying money manager or having actively managed funds. All this being said, money and numbers talk - if your returns speak for themselves you'll succeed.
Dislike ads? Remove them and support the forum:
Subscribe to Fastlane Insiders.