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The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)
book

The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)

by Ken Fisher, Lara W. Hoffmans
November 2009
Beginner to intermediate content levelBeginner to intermediate
256 pages
10h 55m
English
Wiley
Content preview from The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!)
OPM
-N
ot Opium: Where Most of the Richest Are 127
HEDGE
YOUR
BETS
Do you like huge risks and returns? Are you a maverick? Fond of
big fees? Start a hedge fund. H edge funds are known as the 2
and
20
model because they charge 2 percent of managed assets annually
(i.e., give them $1 million, they take $20,000 yearly)- but also get
20 perce
nt
of
annual gains! If you' re good, lucky, or both, that adds
up quick.
Say you make one be
t-
some stock category will beat the mar-
ket in the next five yea
rs-
maybe big stocks, energy, or dru gs. You
bet big on that. You manage $100 million with a 2 and 20 contract.
Assume your bet averages 20 perc
ent
per year for five years.
End of year one, your $100 million becomes $120 million. You
take 2 perc
ent
($2.4 million) plus 20 perc
ent
of the $20 million
gain ($4 million
)-
$6.4 millionp
rofi
t.
Year two starts and, minus your fee, assets are now $113.6 mil-
lion. Tack on anoth er 20 perc
ent
, take your 2 and 20 fee- $7.27
mil/ion profit.
In
year
five,
your profit is over$10.6 mil/ion!
Over five years, you get nearly $42 million in total fees! T hat's
just on the assets you starte d with. Gene rate high returns and you'll
get more clients with more assets.
No
w, suppose yo
u'r
e a regular fee-based manager making the
same b
et-th
e assets still grow 20 perc
ent
a year for five years,
but
you charge only 1.25 percent a year.
III
First year, your $100 million becomes $120 million. You get
1.25 per
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Publisher Resources

ISBN: 9780470481554Purchase book