A Hedge Fund Manager Comes Clean (Podcast)

by: Dan Bortolotti

My first podcast of 2017 features an interview with Lars Kroijer, author of Investing Demystified, which will soon be released in a second edition. Based in the UK, Lars is a former hedge fund manager, but today he advises investors to give up the dream of market-beating returns in favour of a simple indexing strategy. As he says in our chat: "It's my view that the overwhelming majority of investors have no chance whatsoever of beating the financial markets and they should act accordingly."

Lars outlines his arguments in a new series of YouTube videos. The clips are well-produced and provide a good introduction to the principles of index investing.

What's your expected return?

In the Bad Investment Advice segment, I scoff at an advisor who recently told one of my readers that he could expect 12% returns from traditional mutual funds. Then I encourage investors to challenge advisors and others who casually mention expected returns without explaining how they came up with their numbers.

For more guidance on expected returns, see the white paper I co-wrote with my colleague Raymond Kerzhéro.

Starting young

In the Ask the Spud segment that closes the show, my colleague Amanda Dalziel and I discuss whether it makes sense for young investors to have very aggressive portfolios. The conventional wisdom here is that young people should invest their entire portfolio in stocks, but I don't necessarily agree with that advice.

While it's true that people in their late teens or 20s have many decades before retirement, that doesn't necessarily mean they have the fortitude to deal with the volatility of a 100% equity portfolio. Many young investors today think they have a high risk tolerance, but if you started investing after 2008, you really haven't been battle tested. No one truly knows their risk tolerance until they have lost a big chunk of their savings.

My concern is that when we finally do have a nasty bear market, many new investors will be so shocked by the losses that they'll be scared out of the market for years. There's some anecdotal evidence this happened to millennials (and many older investors!) after the financial crisis of 2008-09.