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You Invest, They Win: Ray Dalio Lives his “Best Life” on Your Fees

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By metamorworks @ Shutterstock.com

The founder of the largest hedge fund in the universe, Ray Dalio, tweeted this from Burning Man:

Just back from Burning Man. Reminds me of Woodstock with better art (installations) and less good music. What a great vibe and what amazing creativity!

Photo is with my pal and coworker Jeff Taylor at his great music camp Root Society. If you go next year, 1-5am is best.

Are these the guys you want running your money? You invest, they win. But hey, it’s not about the money. It’s about saving the planet man.

Because if it’s about the money (Dalio has a personal net worth of $19 billion) then this hedge fund lost to a boring Vanguard fund that uses a conventional mix of 60% stocks and 40% bonds.

The article doesn’t come out and name the fund, but perhaps you, as a long-time reader of our websites, know the name: Vanguard Wellington.

You might also know what Vanguard founder, the late, great, Jack Bogle, meant when he said: “The grim irony of investing is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for.”

The captains of the investing universe are living their “best life” at whose expense?

When hedge funds charge clients as much as 2% per year of assets under management and take 20% of clients’ profits, who wins? The WSJ reports:

The flagship hedge fund, Pure Alpha, barely made any money last year despite a banner year for assets of all stripes, according to data reviewed by The Wall Street Journal. It bets on and against markets world-wide in an effort to stay ahead of macroeconomic trends.

What’s the way forward for you? Well, unfortunately, the mutual fund game is perhaps over as many have become too big for their own good.

Wellington No Longer a Favored Fund with New Money

While the Vanguard Wellington fund continues to pursue a strategy similar to the one that it did when Morgan founded the fund over 90 years ago, it has lost some appeal.

The Wellington Fund is now a massive $110 billion portfolio. It is not as nimble as it should be, and the universe of companies large enough to accommodate a 2% position ($2.2 billion) from the fund has dwindled.

If Wellington wants to maintain a passive stake in the stocks it purchases of no more than 3% of a company’s shares, it must purchase firms with a market value of at least $73 billion. There are only about 80 U.S. companies with a market value of $73 billion or more today.

There is a Better Way than the Vanguard Wellington Fund

At both Young Research and our investment counsel firm, we long ago started to move away from mutual funds suffering from asset bloat.

Today, we favor an individual securities approach for most investors. A balanced portfolio of individual bonds and dividend-paying stocks is where our focus lies, and we would submit most other investors’ attention should lie as well.

That’s not to say Wellington is the worst an investor can do, only that most can do better.

What you’re seeing across the money management industry is hubris from its leadership as I wrote to you here and here. You didn’t save your money to fight their battles, did you? Of course, you didn’t. You deserve to invest with those who have your best interests at heart and not say things like this to subordinates:

Employees expressed concerns about engaging with the autocratic leader, and Mr. Dalio told one that “if you’re so smart, why aren’t you rich?” according to people who heard the comment.

Click to read more about how You May Not Be Able to Trust the World’s Largest Asset Manager, and how Alaskan Native Sees Right Through Goldman Sachs’ Righteous PR Stunt.

 

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com