A question I hear quite often is: Do the losses in the market mean my money disappeared?
As Einstein said, “Energy cannot be created or destroyed, it can only be changed from one form to another.” The same is true of your money. It’s not gone—it’s simply in someone else’s hands now. If you want to know what happened, you have to understand how wealth is transferred.
There’s more to the story than you might realize and in this article, I’ll look at the various parts and pieces that are involved: hedge funds, mutual funds, average returns versus actual returns and the mountains of misinformation that are piled up around the stock market. All of these factors put your money at risk, impact your lifestyle and cause you unnecessary stress.
It’s time to take back control of your money and begin to question the advice you’ve likely been given. Is it really a good idea to “weather the storm” or be invested “for the long haul?” Let’s break it down by looking at the three key pieces of how money is transferred.
#1: Mutual funds have limitations that hedge funds don’t
In turbulent times like these, mutual funds face major risk that will create losses for the average investor. Due to their fund objectives, growth funds have to stay in growth mode even if it doesn’t make sense, which limits their ability to manage risk
The other issue with mutual funds are fees, which you pay whether you make money or not. Between the difficulty of managing risk and the fees, mutual funds have serious limitations.
Unlike mutual funds, hedge funds aren’t dependent on the stock market going up in order to make money. It’s true that hedge funds aren’t as liquid as mutual funds (so you can’t sell it anytime) and are far more expensive. It’s also true that many hedge funds can underperform. However, the few that hit home runs through leverage, end up with a lot of the retirement plan money that is “lost” during times like these. That’s why the term “loss” is misleading. It’s more like a transfer.
The other issue with mutual funds are fees, which you pay whether you make money or not. Between the difficulty of managing risk and the fees, mutual funds have serious limitations.
Unlike mutual funds, hedge funds aren’t dependent on the stock market going up in order to make money. It’s true that hedge funds aren’t as liquid as mutual funds (so you can’t sell it anytime) and are far more expensive. It’s also true that many hedge funds can underperform. However, the few that hit home runs through leverage, end up with a lot of the retirement plan money that is “lost” during times like these. That’s why the term “loss” is misleading. It’s more like a transfer.
SOURCE: V
