Many of you have expressed concerns about being behind in your retirement goals. The best strategy to rebuilding your nest egg includes finding work that best leverages your aptitudes (called “comparative advantage” in economics), living frugally and investing the remainder in an intelligently diversified portfolio. However, some of you are looking for a quicker route to retirement readiness. And while I don’t particularly approve ethically, I would be remiss to overlook this viable path paved by brilliant minds in the mutual fund and hedge fund complex.
$ ?s answered by Matthew Illian, CFP®
Start off by taking some marketing classes at your local business school. A safely guarded secret in the fund management business is that success depends more on shiny marketing than investment skill. Read on and you will understand why.
You may say, “But investors are going to demand returns—you can’t fool them forever.” Sure, you will need to deliver the goods, but many do not understand that a shining historical performance report can be had for a price.
Don’t be greedy. Fund expenses are the most consistent determinant of success, so you will need to start lean. Start with your fees set below 1.0%.
Rather than starting with one fund that has a small chance of generating big returns, start with five funds. Each fund should have a distinct but aggressive strategy. One fund could focus on small companies with about 20 of the 30 stocks focused on health care. Another might focus on technology. Another might focus on natural gas mining companies, and . . . well, you get the point. Your odds of having one of these funds outperform is huge.
After three years, simply close the lower performing funds. Trust me; this works every time. Investors rarely check the graveyard of funds that were silently put to sleep by management. Your remaining fund will now receive a five-star Morningstar rating, which is gold in this industry.
Now that lady luck has gifted your remaining fund with a great track record, diversify. You cannot expect any one sector to drive returns forever, and markets have a strong tendency to mean revert. You now want to look as much like an index fund without being labeled an index fund. Your early gains will keep you ahead of the pack for years to come.
Advertise, advertise. Take out full-page articles in the financial press. This will be costly, but the payoffs are huge. Investors love new funds with a strong track record. Make sure you highlight the investment discipline that is the foundation of your success.
Don’t be stingy. Your track record will now be catching the attention of 401(k) platforms and insurance companies. They would like to add your fund to their lineup, but they’ll want a kickback. This pay-to-play agreement is all part of the game. Just pay the fee. You can come up with the money by increasing your own fees or creating a new “class” of your fund that has this fee imbedded.
You have now created an efficient money-generating machine, and you should start enjoying your success. Consider buying a fancy car and hiring a wardrobe consultant to step you up a tad. We all know that money attracts money, and you’ll enjoy life more by illustrating your success than by talking about it.
If you want an advisor who understands that these are deceptive tactics, consider working with a fee-only fiduciary advisor.
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