The Problems with Illiquid Funds
The second problem is they have a long life — typically seven to ten years. That means the fund passes through one or two boom-and-bust economic cycles. and typically the “bust” part of that cycle wipes out all the gains of the boom cycle, and a little more. The third problem is you have no control. The managers don’t listen. They treat you like an annoyance — a circulating fly that needs to be swatted. The fourth problem is that the managers of the fund and their investors have different goals. The investors want the fund to prosper. The managers want their fees to prosper. Their “fees” can prosper in many ways — like fees on in addition to the simple fees on managing. There are the fees on advising companies bought, assets acquired, etc. There is serious power in controlling large swaths of money. A manager wants the fund to keep going. An investor like you and me wants our rewards out asap.
The number one problem with illiquid funds — like those called “alternative investments” — is you can’t sell them when they drop 15%.
Millionaire Now: PREPARE FOR THE WORST AND EXPECT THE BEST: This blog is based on the principles found in my book, “Millionaire Now! – A Financial Toolbox with Seven Steps to Wealth”. The mission of the blog is to add “financial tools” to your Toolbox in order to help you become a better saver and investor.
