The Most Profitable Fund of All Time?

By Wayne Mulligan, on Thursday, April 7, 2016

For decades now, investors have poured money into all types of funds:

Mutual Funds...

Index Funds...


All with the goal of capturing financial upside and lowering risk.

Unfortunately, most of these funds stink. In fact, a 2014 study performed by Dow Jones concluded that 98% of mutual funds failed to beat the market.

So today, we’re going to introduce you to something better…

It’s a fund that offers diversification and tremendous upside potential.

Traditional Funds

Mutual Funds got started in 1924—and investors have been stuck with them ever since.

ETFs were meant to be an improvement. But with 80% of actively managed ETFs failing to beat the market, they’ve been a major disappointment, too.

Then there are Index Funds…

At least these funds match the market and offer low fees—but how are you supposed to make any financial progress when all you’re doing is matching the market’s measly 5% or 6% returns every year?

That’s NOT What Wealthy Investors Do

Meanwhile, wealthy investors take a different approach:

Instead of wasting their time with mutual funds or ETFs, they put their capital into privately managed funds—hedge funds, for example, or real estate projects.

But the uber wealthy take money management to an even higher level:

They invest in a type of fund that, historically, has returned 25%+ annually.

This type of fund is known as a Venture Capital fund. These funds invest in dozens of early-stage, private companies just when they’re getting off the ground. So not only do these funds offer the massive financial upside of early-stage investing, but they provide the diversification that can reduce risk.

When Facebook was just getting started, for example, its founder Mark Zuckerberg was introduced to the venture capitalist, Peter Thiel.

Thiel, the founder of Paypal, was now managing a venture fund for himself and his wealthy clients.

After meeting Zuckerberg, he decided to invest $500,000 into Facebook.

Five years later, when the company went public, Peter cashed out for $1 billion.

He and his clients realized a 200,000% return on that one investment—that’s enough to turn $500 into $1 million.

And again, historically, these funds have generated about 25% or more in annualized returns—even when you take their “losing” investments into account.

That’s about 4x higher than the stock market average...

And it’s even higher than Warren Buffett’s average annual returns.

You Were Left Out in the Cold

Unfortunately, individual investors like you have been legally prohibited from investing in venture capital funds.

In order to invest in such funds, the SEC required that you have at least a $1 million net worth, or hundreds of thousands in income.

To make matter worse, the minimum investment was generally in the range of $1 million to $10 million—so these funds were out of reach for all but the wealthiest investors in the country.

Until now...

Time to Ditch Your Mutual Funds for Venture Funds?

As we’ve been explaining for the past few months, a new set of laws is about to be enacted. Specifically, on May 16th, all U.S. citizens, regardless of their net worth or income, will be able to invest in private companies and venture capital funds.

And we’re already seeing encouraging signs—signs that once these laws “go live,” you’ll have access to some of the top venture funds in the country.

For example, AngelList (a special website where you can find private deals) has already started giving wealthy investors access to its new breed of venture funds. You can learn more here »

And on sites like WeFunder, you can invest directly into established funds—like this fund from YCombinator that was featured several months ago »

If you’re not familiar with YCombinator, it’s a start-up “accelerator” that backs breakthrough companies when they’re just getting off the ground. For example it backed Airbnb, which today is valued at over $10 billion.

If you’d had some money in the YCombinator fund when it first got started, you’d be sitting on a gain of roughly 5,000x your money right now.

Unfortunately, at the moment, the funds I just mentioned are only for wealthy investors…

But again, that will all change in May—and we’ll keep you up to speed as these new laws start taking effect.

Maybe this is the year you’ll finally ditch your mutual funds…

Maybe this is the year you’ll invest in venture funds instead.

Happy investing.

Best Regards,
Wayne Mulligan
Wayne Mulligan


If you enjoyed this article, subscribe to updates:

Sign-up today and you'll receive our daily insights on early-stage investing, as well as our FREE "Equity Crowdfunding Action Kit" – where you'll learn:

  • The Ins & Outs of Equity Crowdfunding
  • A step-by-step path to get started
  • Tips from dozens of Venture Capitalists
subscribe to updates

Thank you for subscribing!

Tags: Venture Capital

Share This:
comments powered by Disqus