Wall Street's Big, Bad Idea for Your 401(k) - Jason Zweig

[question everything]

Wall Street is promoting a colossal lie.

Money managers are in a desperate race to stuff illiquid, so-called private-market assets into funds anyone can buy, including your 401(k). They say we all can earn high return and low risk with nontraded “alternatives” like private equity, venture capital and private real estate. A close look at pending moves at two funds reveals how bogus this argument is—and why investors should just say no to this juggernaut of alternative assets.

Bluerock Total Income+ Real Estate Fund is a portfolio with $3.7 billion in net assets that doesn’t trade publicly. In early September, its shareholders will vote on the fund’s proposal to list its shares on the New York Stock Exchange. Another non-listed portfolio, Priority Income Fund, with total assets of roughly $980 million, is also seeking to go public in the coming months.

Bluerock Total Income+ Real Estate is an “interval fund.” This is a structure that generally allows investors to buy as many shares as they wish at any time—but only to sell limited amounts at predetermined intervals, typically 5% of shares per quarter. Priority Income is a “tender-offer fund,” which may—but doesn’t have to—redeem up to 2.5% per quarter.

The idea—in some ways a laudable one—is to encourage investors to stay put for long periods, rather than fleeing at the worst possible time. In principle, the managers of interval funds can buy illiquid assets without being forced to sell into a downturn when investors want their money back. Because private assets don’t trade, it’s the fund managers—not the market—that determine what they’re worth. That enables the managers to report much fewer and lower fluctuations than public funds do. Then they get to declare that private funds are low risk.

(snip)

In short, an alternative fund can claim to be low risk and to be at least partly liquid—but, sooner or later, it won’t be able to sustain both claims at once. That’s true here, and for all the other funds hoping to rope in a much wider base of everyday investors.

Remember that as politicians ease the way for alternative funds to land in your retirement plan.

https://www.wsj.com/finance/investing/wall-streets-big-bad-idea-for-your-401-k-f1003137?st=ZGY7ok&reflink=desktopwebshare_permalink

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[in2herbs]

1. The one truth that the financial industry isn't telling is that the contract you sign for services with your financial

transfers ownership of your money to your financial advisor and your financial advisor does not require your knowledge or consent to spend/invest your money. The authority in the contract is called discretionary investment authority.

These privately-held investments can be withheld from your beneficiaries by the financial industry until and unless they decide to sell the asset. Will your trustee be able or willing to fight to get the money that you spent your entire working life to accumulate.

[bucolic_frolic]

2. Index funds without an index

It's hard to find managed funds with a distinct objective or strategy. The descriptions are so broad as to be worthless. "The fund seeks to invest in undervalued companies with upside potential." Read further and learn the fund is managed by 4 financial advisors. They're tight-lipped too. Plus most funds own some degree of the 30 largest stocks in the world or a large percentage of the fund is in the biggest US tech stocks.

This is not investing. It's warehousing. I would argue it's not a lot different from an interval fund.

90% of stocks ain't going very far.