## Any intelligent reason to deviate?

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dbr
Posts: 35878
Joined: Sun Mar 04, 2007 9:50 am

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 12:10 pm

Is 7% (let alone 10%) a rate of return that can be reasonably expected?
That's why you look at a program like FireCalc that shows you the range due to not being able to predict either average return or what the sequence of returns will be year on year, nor what inflation will be.

Whether or not the table of actual data since around 1871 is a reasonable representation of investment returns and inflation for making ex ante estimates today is a discussion. A challenge is finding a better basis for estimates. It is possible the variability is more reproducible than the means. Given how variable the results are, it is not clear better estimates of the means help very much.
firebirdparts
Posts: 2557
Joined: Thu Jun 13, 2019 4:21 pm

### Re: Any intelligent reason to deviate?

OP's portfolio sounds like the perfect portfolio to me. Close enough.
A fool and your money are soon partners
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
mikejuss
Posts: 829
Joined: Tue Jun 23, 2020 1:36 pm

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 12:50 pm
ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
Well the comforting thins is that with my portfolio I'll get my fair share of whatever those returns are, no more, no less, with minimal fees and minimal taxes. And if the average returns over the next 30 years are really that bad, we are all pretty screwed. Cheers.
mikejuss
Posts: 829
Joined: Tue Jun 23, 2020 1:36 pm

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 12:54 pm
mikejuss wrote: Thu Jun 10, 2021 12:50 pm
ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
Well the comforting thins is that with my portfolio I'll get my fair share of whatever those returns are, no more, no less, with minimal fees and minimal taxes. And if the average returns over the next 30 years are really that bad, we are all pretty screwed. Cheers.
On that we absolutely agree. Low fees are so important.
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

KlangFool wrote: Thu Jun 10, 2021 12:16 pm
mikejuss wrote: Thu Jun 10, 2021 12:10 pm
KlangFool wrote: Thu Jun 10, 2021 12:02 pm
ryanbohle wrote: Thu Jun 10, 2021 8:54 am
I put 20% into retirement, and live well whithin my means. The 10-15M is based on a 7-10% average annual returns on my portfolio.
ryanbohle,

Please verify your numbers. Assuming that you have 1 million now and you save 80K per year, the numbers that I get is 14M to 28M in 29 years. The 3% difference per year over 29 years should resulted in about 2X.

Starting Net Worth \$1,000,000
Annual Savings \$80,000
Years
Annual Return Rate 29
7.00% \$14,101,979
8.00% \$17,634,550
9.00% \$22,103,011
10.00% \$27,753,567

KlangFool
Is 7% (let alone 10%) a rate of return that can be reasonably expected?
Good Lord, you ever heard of estimating? All of these calculations are guesses with varying rates of sophistication, relax a little bit dude.

I don't know. In any case, OP's calculation looks to be wrong.

KlangFool
Good Lord, ever heard of estimating? All these calculations and predictions are guesses with varying degrees of sophistication. Relax a litte bit dude.
Broken Man 1999
Posts: 6255
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 12:54 pm
mikejuss wrote: Thu Jun 10, 2021 12:50 pm
ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
Well the comforting thins is that with my portfolio I'll get my fair share of whatever those returns are, no more, no less, with minimal fees and minimal taxes. And if the average returns over the next 30 years are really that bad, we are all MANY are pretty screwed. Cheers.
My BOLD!

Fixed that for you!

Good luck!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
patrick013
Posts: 3181
Joined: Mon Jul 13, 2015 7:49 pm

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 8:13 am If the correct answer is sit down shut up and stop reading the news, then I will accept that answer.

......................

I was wondering if there was any Boglehead-approved maneuvering to be done given the recent inflation data.
My first advised portfolio was 500 strips and some CD's
at the CBOT a few years before Bogle caught it and became
the father of it all. The father of the market portfolio.

Whether that is an aggressive or conservative AA is up to
the investor.

Inflation data could mean growth (prosperity) or survival if
prices don't increase.

I would watch 500 earnings and Fed FFR moves a bit but no
during normal business cycles or more bonds when a crash is

All the textbooks say buy and hold, my 500 strips and some CD's.
ruralavalon
Posts: 21369
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 8:13 am My retirement portfolio is largely consistent with Boglehead philosophy, I am about 60% invested in total stock market index funds, about 30% in total international index funds, and the remaining 10 % is a mix of bonds, publicly traded REITs, cash and crypto. If the correct answer is sit down shut up and stop reading the news, then I will accept that answer. BUT, I was wondering if there was any Boglehead-approved maneuvering to be done given the recent inflation data. Any smart, intelligent changes to be made.

Ryan
No, I Do not see a good reason to deviate from the "Bogleheads® investment philosophy", link. All 10 of those principles still apply.

You said " . . . the remaining 10 % is a mix of bonds, publicly traded REITs, cash and crypto." Don't count crypto or REITs as equivalent of bonds or as part of a fixed income allocation. They are both very volatile and risky, the opposite of what is needed in a bond allocation.

ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
For portfolio projections nobody really knows what long-term returns will be in the future. Here are some ideas. Morningstar (1/20/2021), "Experts Forecast Stock and Bond Returns: 2021 Edition", link.
Last edited by ruralavalon on Thu Jun 10, 2021 3:45 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
ososnilknarf
Posts: 146
Joined: Mon Feb 18, 2019 7:08 pm

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 12:50 pm
ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
If I'm not mistaken, aren't those super low 0%-3% estimates based on the more near term, like 10 years? The OP is talking about 30 years. What is the lowest stock market return ever for any 30 year period? Higher than that, I'd wager.

Edit: average real return for all rolling 30 year periods is 8% (couldn't find min/max real return)
Source: https://www.fool.com/investing/how-to-i ... et-return/
mikejuss
Posts: 829
Joined: Tue Jun 23, 2020 1:36 pm

### Re: Any intelligent reason to deviate?

ososnilknarf wrote: Thu Jun 10, 2021 3:43 pm
mikejuss wrote: Thu Jun 10, 2021 12:50 pm
ryanbohle wrote: Thu Jun 10, 2021 12:46 pm
mikejuss wrote: Thu Jun 10, 2021 12:17 pm
dbr wrote: Thu Jun 10, 2021 12:14 pm FireCalc reports that for those settings and 100% stocks shows a range of results in real dollars of \$1M to \$29M after 29 years. This assumes contributions are inflation indexed.

In nominal dollars the best year to have started investing would have been 1971 with a final nominal accumulation of \$105M and the worst year to have started investing would have been 1889 with a final accumulation after 29 years of about \$10M. The worst year since WWII would have been 1953 with a final 29 year accumulation of \$22M nominal. For some reason FireCalc does its basic ouputs in real dollars but the spreadsheet of portfolio results you can save is not indexed for inflation.
Wow--sounds like banking on 7% is not wise.
So what number would be “wise?”
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
If I'm not mistaken, aren't those super low 0%-3% estimates based on the more near term, like 10 years? The OP is talking about 30 years. What is the lowest stock market return ever for any 30 year period? Higher than that, I'd wager.

Edit: average real return for all rolling 30 year periods is 8% (couldn't find min/max real return)
Source: https://www.fool.com/investing/how-to-i ... et-return/
Not sure what that looks like when you shuffle in a moderate amount of bonds (as most people rightly do as they age). Maybe 5%-6%? In any event, I only meant to suggest to the OP that 7%-10% is really high.
Tattarrattat
Posts: 232
Joined: Wed Aug 19, 2020 6:05 pm

### Re: Any intelligent reason to deviate?

Agree that a great many physicians shoot themselves in the foot going for greater gains with riskier investments. Seen it happen many times. My vote is do the plain vanilla three asset Boglehead approach you talked about, with some sort of appropriate glide path over the next 30 years, then walk away. No play money, no crypto, no weirdo real estate funds. You don't need them, they won't make a difference in the end. Don't make investing a hobby, make it boring. Your income will be among the highest levels in the country. Your net worth will likewise end up at the highest level. No need to mess it up by being too clever.
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

Tattarrattat wrote: Thu Jun 10, 2021 3:56 pm Agree that a great many physicians shoot themselves in the foot going for greater gains with riskier investments. Seen it happen many times. My vote is do the plain vanilla three asset Boglehead approach you talked about, with some sort of appropriate glide path over the next 30 years, then walk away. No play money, no crypto, no weirdo real estate funds. You don't need them, they won't make a difference in the end. Don't make investing a hobby, make it boring. Your income will be among the highest levels in the country. Your net worth will likewise end up at the highest level. No need to mess it up by being too clever.
I know that you are right. Boring is hard.
In other new, I rode 0.5 Bitcoin from 5500 to over 60K, if it ever gets back over 50 Im selling immediately
ososnilknarf
Posts: 146
Joined: Mon Feb 18, 2019 7:08 pm

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 3:50 pm
ososnilknarf wrote: Thu Jun 10, 2021 3:43 pm
mikejuss wrote: Thu Jun 10, 2021 12:50 pm
Based on my reading of various threads on this forum, and based on a portfolio of index funds, somewhere between 0% and 3% after inflation. I'm sorry to report this news to you.
If I'm not mistaken, aren't those super low 0%-3% estimates based on the more near term, like 10 years? The OP is talking about 30 years. What is the lowest stock market return ever for any 30 year period? Higher than that, I'd wager.

Edit: average real return for all rolling 30 year periods is 8% (couldn't find min/max real return)
Source: https://www.fool.com/investing/how-to-i ... et-return/
Not sure what that looks like when you shuffle in a moderate amount of bonds (as most people rightly do as they age). Maybe 5%-6%? In any event, I only meant to suggest to the OP that 7%-10% is really high.
No argument there. Using 7%-10% is very optimistic for planning purposes.
afan
Posts: 5905
Joined: Sun Jul 25, 2010 4:01 pm

### Re: Any intelligent reason to deviate?

I know plenty of docs who work into old age, well past 65, long past the point that they could retire. That part of the plan seems perfectly reasonable.

No one knows what market returns will be over the next 30 years. Maybe they will look like the past. It is at least possible that we are about to see the worst 30 year period in US history.

It is always possible that the next 30 years will be the worst ever.

The current worst ever is, by definition, worse than anything that came before. People who assumed the worst that was possible was better than the new worst turned out to be were disappointed.

For a 60/40 portfolio I use 1% real return as my base case. Anything better would be a nice bonus but I am not counting on it. I use the same 1% real for projecting a 70/30, 80/20, etc. I don't know whether future returns will be better or worse if one increases stock allocations, so I don't have a basis for assuming higher or lower returns based on stock allocation. I HOPE the higher stock portfolios do better, but I don't count on it.

Far too many unknowns about this private investment for me to consider it. Maybe it is true but I don't see how this debt instrument can pay returns that are taxed as capital gains. Could be true but I would want to know how.

I would not consider more than 2% of networth in such an investment, if I put in anything at all.

As I understand it, some people want to borrow money to invest in real estate. Why go to a private fund? Because banks either will not lend to them at all or only will do some at higher rates. Those fixed rates are already quite high by today's standards. Which leads me to worry that these are borrowers of marginal credit worthiness. That is, this is a portfolio of junk bonds, or worse. Here "worse" would be that no one would buy the bonds on the open market, but being private they do not have to face the open market.

The loans, as best I can tell are NOT secured by equity in the real estate. For that matter, we don't know whether the borrowers own the real estate. Are they operating properties, drawing fees and will use that money to pay the loans? The only recourse appears to be personal guarantees from the borrowers, which could be extremely difficult to collect.

I see no reason to assume this is lower risk than the stock market. At least not without a great deal more information. The fact that this is offered in a form requiring accredited investors suggests high risk and limited transparency.

For these reasons, it is not clear that this is an investment in real estate at all. It is investing in some sort of business secured by personal guarantees of people who could not get a bank loan on better terms.
Last edited by afan on Thu Jun 10, 2021 4:35 pm, edited 1 time in total.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
Olemiss540
Posts: 1691
Joined: Fri Aug 18, 2017 8:46 pm

### Re: Any intelligent reason to deviate?

mikejuss wrote: Thu Jun 10, 2021 9:00 am
ryanbohle wrote: Thu Jun 10, 2021 8:54 amVery good questions, I make over 400K / year as a pulmonary and critical care physician. I will be financially independent long before I retire, I am hoping to contribute to the legacy of my family, and contribute to the wealth and provide for generations beyond me, plus I am one of the fortuante people who enjoys what they do. I put 20% into retirement, and live well whithin my means. The 10-15M is based on a 7-10% average annual returns on my portfolio. I am looking for an investment with less risk that the stock market, but more risk (and more expected return) than a Bond. I think I found it with this....

https://dlpcapitalpartners.com/dlp-positive-note-fund/

"DLP Positive Note Fund LLC is a (debt) investment opportunity which provides 5-10% FIXED returns. Returns to Note investors are paid prior to equity members and in effect provide a lower risk opportunity to investors."
A rate of return of 7%–10% over a 30-year period is going to be difficult to achieve. Take a look at the threads on this forum about returns, and note that many are expecting, after inflation, 1%-3% returns on all-index portfolios.

I'm going to go out on a limb here and say that the term "fixed" above does not mean what you think it means.
I don't believe the OP said "after inflation" but may be wrong based on skimming. Also, using the extremely conservative beliefs of us bogleheads with regards to projected rates of return for the markets over the next 30 years is probably just as likely to occur as the OP's. This is a conservative bunch but I lean HARD on the no one knows nuthin POV so may be a bit biased.

I'd say 7-10% is just as likely to occur as 1-3% returns over the next 30 years.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

afan wrote: Thu Jun 10, 2021 4:21 pm I know plenty of docs who work into old age, well past 65, long past the point that they could retire. That part of the plan seems perfectly reasonable.

No one knows what market returns will be over the next 30 years. Maybe they will look like the past. It is at least possible that we are about to see the worst 30 year period in US history.

For a 60/50 portfolio I use 1% real return as my base case. Anything better would be a nice bonus but I am not counting on it.

Far too many unknowns about this private investment for me to consider it. Maybe it is true but I don't see how this debt instrument can pay returns that are taxed as capital gains. Could be true but I would want to know how.

I would not consider more than 2% of networth in such an investment, if I put in anything at all.

So some people want to borrow money to invest in real estate. Why go to a private fund? Because banks either will not lend to them at all or only will do some at higher rates. Those fixed rates are already quite high by today's standards. Which leads me to worry that these are borrowers of marginal credit worthiness. That is, this is a portfolio of junk bonds, or worse.

The loans, as best I can tell are NOT secured by equity in the real estate. For that matter, we don't know whether the borrowers own the real estate. Are they operating properties, drawing fees and will use that money to pay the loans? The only recourse appears to be personal guarantees from the borrowers, which could be extremely difficult to collect.

I see no reason to assume this is lower risk than the stock market. At least not without a great deal more information. The fact that this is offered in a form requiring accredited investors suggests high risk and limited transparency.

For these reasons, it is not clear that this is an investment in real estate at all. It is investing in some sort of business secured by personal guarantees of people who could not get a bank loan on better terms.
You are making a lot on incorrect assumptions with little information.

To just answer one of the things you said, they have a BBB rating of A+, and my reasoning for investing in a private real estate fund vs a REIT, is I get paid first. I may lose money, they may not be able to continue these returns, of course not, but, if you read the details, they dont make any money off me until I get paid. Thats a pretty sweet deal if you ask me, you wont get that with a publicly traded REIT.

Now I am probably not going to do it because I might as well just shove all my money in VTI. But you are making this out to be something devious or dishonest.
afan
Posts: 5905
Joined: Sun Jul 25, 2010 4:01 pm

### Re: Any intelligent reason to deviate?

ryanbohle wrote: Thu Jun 10, 2021 4:33 pm

You are making a lot on incorrect assumptions with little information.

To just answer one of the things you said, they have a BBB rating of A+, and my reasoning for investing in a private real estate fund vs a REIT, is I get paid first. I may lose money, they may not be able to continue these returns, of course not, but, if you read the details, they dont make any money off me until I get paid. Thats a pretty sweet deal if you ask me, you wont get that with a publicly traded REIT.

Now I am probably not going to do it because I might as well just shove all my money in VTI. But you are making this out to be something devious or dishonest.
Well, I agree there is little information but please tell us what assumptions were incorrect.

Would the borrowers go with a private fund if they got better terms from a bank? Why would they do this?

A rating of A+ from the BBB has nothing at all to do with the credit worthiness of the business, let alone with the credit worthiness of the borrowers to whom the business is lending. Might as well tell us their average hat size.

What does "they don't make any money until I get paid" mean? Does that refer to their management fee only? Or does it include general and administrative expenses? Do they have any salaried employees? Are they only paying them if there is money left over after the monthly interest payments to investors? What about rent, utilities, taxes?

If it is management fees only, how much of their return comes in the form of management fees, vs compensation to the employees, including those who run the fund? In some deals, the management fees are a small fraction of the expenses.

Not something I would be interested in. If I want to invest in a lender, there are plenty of publicly-held banks. Or sector funds that invest in banks. Or index funds that include banks among the investments. All nice and public, with no accredited investor, high risk characteristics.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
Topic Author
ryanbohle
Posts: 58
Joined: Tue Oct 29, 2019 9:20 pm

### Re: Any intelligent reason to deviate?

afan wrote: Thu Jun 10, 2021 4:57 pm
ryanbohle wrote: Thu Jun 10, 2021 4:33 pm

You are making a lot on incorrect assumptions with little information.

To just answer one of the things you said, they have a BBB rating of A+, and my reasoning for investing in a private real estate fund vs a REIT, is I get paid first. I may lose money, they may not be able to continue these returns, of course not, but, if you read the details, they dont make any money off me until I get paid. Thats a pretty sweet deal if you ask me, you wont get that with a publicly traded REIT.

Now I am probably not going to do it because I might as well just shove all my money in VTI. But you are making this out to be something devious or dishonest.
Well, I agree there is little information but please tell us what assumptions were incorrect.

Would the borrowers go with a private fund if they got better terms from a bank? Why would they do this?

A rating of A+ from the BBB has nothing at all to do with the credit worthiness of the business, let alone with the credit worthiness of the borrowers to whom the business is lending. Might as well tell us their average hat size.

What does "they don't make any money until I get paid" mean? Does that refer to their management fee only? Or does it include general and administrative expenses? Do they have any salaried employees? Are they only paying them if there is money left over after the monthly interest payments to investors? What about rent, utilities, taxes?

If it is management fees only, how much of their return comes in the form of management fees, vs compensation to the employees, including those who run the fund? In some deals, the management fees are a small fraction of the expenses.

Not something I would be interested in. If I want to invest in a lender, there are plenty of publicly-held banks. Or sector funds that invest in banks. Or index funds that include banks among the investments. All nice and public, with no accredited investor, high risk characteristics.

https://c8.alamy.com/comp/PT83FB/two-ki ... PT83FB.jpg