This Simple Analogy Protects You From Catastrophic Loses

“Invest like the 1%.”

This is the sales pitch for many alternative assets, like crowdsourced real estate and fractional ownership in investment-grade art. If you’ve been on YouTube recently, you’ve probably heard ad reads for both, with the selling point that these are “Elite, 1% investment opportunities.”

In today’s article, I want to explain why “rich people own it” isn’t a compelling investment thesis.

And, I want to highlight a hidden danger when it comes to investing in funds that are managed by someone else — even if the people managing your money are qualified experts.

A Simple Analogy About Actively-Managed Private Investment Funds

Many up-and-coming poker players have financial bakers who stake them.

These backers pay tournament entry fees, or pool money for large cash games. And if the player wins, the backers get a percent of the profit.

But if the player loses, the backers are out their investment.

Alternative asset funds are incredibly popular on YouTube and social media. “For just $100, you can own a fractional share of a Picasso painting!” “If we can raise $___.___, we’ll renovate this old apartment building and all of our backers will double their money!”

There are even some weird schemes like “Earn 8% ROI per month by investing in rare wine vintages.”

Some of these investment opportunities are legitimate. Some are scams.

But like staking a poker player, the main issue with these ventures is that you’re giving your money to someone else to use as they see fit. They might make winning bets. They might be incompetent.

Or, they might end-up the victim of bad luck.

“Wealthy people own real estate, and now you can invest like the 1% through our crowdsourced real estate platform,” does not guarantee a winning investment. You are giving your money to someone else, hoping they make the right decisions with it.

It’s no different than a group of doctors pooling their money to stake a player at the World Series of Poker.