How Big is the Hedge Fund Industry?

There is nothing that definitively marks hedge fund managers apart from other investment managers, however. Instead, all asset management firms sit on a spectrum, whether in terms of fees charged, strategies employed, or the types of vehicles offered to investors. The idea that hedge funds represent a clear, separate grouping has never been more dubious.

Depending on the definition of a hedge fund, the assets managed could range anywhere from $800bn to $3.6tn. Furthermore, we find that the $800bn figure accords more closely with the common perception of a hedge fund.

hedge fund

Finding a meaningful number is not only a definitional exercise but also a statistical one, subject to uncertainty. Flows into or out of what others define as the industry should therefore be viewed in the context of such error, which should be calculated and reported.


How many assets are under the management of the hedge fund industry? This is a straightforward-sounding question, and it is common to see a straightforward-looking answer: $3.6tn according to the Securities and Exchange Commission (SEC) [1], say, or $3.1tn according to Hedge Fund Research Inc. (HFR), a data provider [2].

This masks the fact, however, that there is no unambiguous boundary between what could be considered a “hedge fund” and an active fund manager. No distinct “hedge fund industry” exists.

This matters on at least two counts. First, pension schemes and other big institutional investors usually have a discrete asset allocation bucket for hedge funds. Given the definitional mess that surrounds the relevant firms, it seems probable that sub-optimal investment decisions may be being taken as a result.

A second issue concerns how asset management firm performance is assessed. There are many different hedge fund indices against which firms are benchmarked. Many of these indices, however, face similar definitional problems and can as a result be poor yardsticks for the firms that use them as a reference.

For any given definition of a hedge fund, it is not possible to determine the assets managed by that group of firms at a given moment with arbitrary precision. It is, therefore, appropriate to report the statistical errors on the estimate. Reports of the magnitude of flows of capital into and out of different types of asset management firms should be viewed in the context of these errors.

What defines a hedge fund?

Those attempting to define hedge funds usually do so by referring to a collection of characteristics. Comments submitted for an SEC “Roundtable on Hedge Funds” in May 2003 set out a range of definitions, highlighting the ambiguity around the term [3].

Generally, “hedge funds” are seen as:

1) Flexible in the strategies they use, with their managers employing leverage and short-selling in order to exploit situations in which they consider themselves to have an edge, while hedging exposure to other risks.

2) Subject to less regulation than, for example, mutual funds, in exchange for limiting the categories of investors they can serve.

3) Charging high fees; famously being described as “a compensation scheme masquerading as an asset class”  because of their traditional fee structure, canonically a management fee of 2% of assets under management (AUM) per year, plus a performance fee of 20% of profits (“2&20”).

These eye-catching fee terms are often referred to alongside estimates of the aggregate AUM of hedge funds, which may be somewhat misleading. According to Preqin, a data provider, “only 17% of active single-manager hedge funds actually charge a strict 2% management and 20% performance fee structure” [6]. HFR also pointed out in March that as of the end of last year, the average management fee was 1.48%, while the average performance fee was 17.4%.

Meanwhile, many funds possessing some of the characteristics listed above prefer not to describe themselves as hedge funds, and a given asset management firm may manage a combination of externally-defined hedge fund and non-hedge fund assets.

Perhaps another way of thinking about what is supposed to constitute a hedge fund is to consider those vehicles that charge both a management fee and a performance fee. We consider this in more detail in our results.

We approached the problem by examining some of the range of possible definitions. The aim was to show how each affects the size of the resulting collection of funds, while attempting to make our assumptions explicit at each stage. We also estimate the error arising from the fact that we do not have complete or simultaneous AUM figures for each fund.

Read rest of the interesting article here


Business Lessons from Alton Brown

I decided to write a blog post about Alton Brown (“AB”) not just because he is interesting, but because he is an entrepreneur who built a business without venture capital. AB has on several occasions talked about how he needed to get bank loans to grow his business. Since bank loans, together with personal savings, loans from friends/family and cash flow from operations are the way most entrepreneurs finance a business, his story is a great example for aspiring entrepreneurs to learn from. AB is also interesting in that he was forced to deal with gatekeepers (cable channels) to get distribution for the product his business creates since his career began before the rise of streaming. The YouTube option was not available to AB when he was trying to build his business.

AB is a story teller who taught himself to be an entrepreneur so he can tell his stories. AB’s back story can be told with a few quotes from him and two sentences from a Wikipedia entry:

alton brown

“I started off as a cameraman when I was still in college, and moved into shooting music videos in the ’80s, then became a full-time cinematographer and a director-cameraman for TV spots, which I did for about 10 years.”

“I shot commercials, many of which weren’t very good. I was unhappy and cooking made me feel better.”

“I remember I was watching food shows, and I was like, ‘God, these are boring. I’m not really learning anything.’ I got a recipe, OK, but I don’t know anything. I didn’t even learn a technique. To learn means to really understand. You never got those out of those shows. I remember writing down one day: ‘Julia Child / Mr. Wizard / Monty Python.’ That was the mission. I knew I had to quit my job and go to culinary school.”

“Two pilot episodes for Good Eats (“Steak Your Claim” and “This Spud’s For You”) aired on The Chicago PBS affiliate in 1998. The show was discovered by Food Network when an executive saw a clip of the show on the Kodak website.”

The usual quotes from the subject of this blog post (AB) are:

  1. “Because I was executive producer, writing the show, directing, all this stuff, I was so busy doing the work that I didn’t think about getting famous. There was no social media. So there was no feedback.” “When I did my first season of 13 episodes I didn’t know if people were even watching until we got renewed.” 

Feedback is fundamentally important in any healthy system, particularly if someone is trying to make it grow. What the internet and connected customers have done is enable businesses to create systems that harness feedback. These systems now overwhelmingly reside in the cloud and are more powerful interpreters of customer feedback than the world has ever seen before. The availability of cloud services enables businesses to create innovative products and services for a fraction of what it would have cost just ten years ago. By combining relatively inexpensive web services with modern data science it is now possible for businesses to run many thousands of experiments that utilize the scientific method. Most of these experiments will fail, but some will be spectacular successes. The people who can operate these cloud based systems (e.g., data scientists and artificial intelligence experts) have become the new high priests of the business world. The businesses that have the best systems which harness customer feedback and the most talented high priests are outperforming the business that don’t. It’s that simple. This phenomenon is just getting started and will become even more pronounced as the years pass.

When AB started making television, the primary feedback system was the Nielsen ratings. Businesses today like Netflix know vastly more about what their customer’s  consume than businesses that rely on Nielsen as their primary source of feedback. One implication of the increased value of data is that providers are increasingly going direct to customers and cutting out distributors. For example, you see businesses like Disney deciding that they must directly stream their own content in order to capture the customer data. As I said above, control of the customer usage data is increasingly what gives businesses a competitive advantage. If a distributor sits between the creator and the end customer that data often can’t be captured.

Social media is obviously a big source of customer feedback. AB has mastered the transition to the social media era as well as anyone. One of the more interesting questions about this new “connected customer” era is whether AB would have been able to sell his show to a network today. How effectively would AB have been able to compete in today’s business world if he was just now starting out? There are so many people trying to get traction on streaming network would he ever have been able to get traction? The number of cooking shows YouTube is astounding. That number isn’t 24.5 million, but it is a lot. Even my neighbor’s dog has a cooking show on YouTube.

Read the rest of the interesting article here


Two Most Important Investing Decisions

There are so many interesting things to debate in investing. The active vs. passive debate has been the subject of more articles than I can count. Although the conclusion that most people should invest passively is clear, there are many nuances to it that continue to be debated every day. And for those people that do decide to be active, there are a variety of decisions that come along with that. For example, whether to invest in value or growth, and which manager to pick within that style. For factor investors, which factor or factors to follow can be another significant decision.

The interest in these types of decisions is very high and so they are all widely covered in the financial press and on blogs like this. We write about many topics on our blog and have written over 3000 posts since 2009, but our article on whether the Price/Book factor is cheap two weeks ago was the most read post we have ever produced by a wide margin. It also generated more back and forth debate than any post we have ever done. Neither of these was due to my amazing writing (although I wish it was). It is more a sign of how much interest there is in these kind of topics.

investing decisions

But there is a problem with focusing on the more detailed decisions in investing: none of them are the decisions that will primarily determine your ultimate success.

Investing success comes down to two major decisions. If you get them right and have the correct expectations, you are likely to meet your goals. If you get them wrong, you are not.

The two decisions are very simple:

  • How will you allocate your money among asset classes?
  • Will you stay the course during tough times?

Let’s tackle them one at a time.

Decision #1 – What Assets Do You Invest In?

The most important choice you can make in investing is which asset classes you invest in and your allocation among them. This is true for a couple of major reasons. First, in aggregate, asset allocation determines essentially 100% of a portfolio’s return in the long-run, while selection of securities within each asset class has almost no impact. In individual cases, this can obviously not be true, but when all investors are summed up, it is.

To explain why, it is important to understand a basic investing theory. By definition, the total of all managers, both active and passive, will match the return of the asset class they invest in before accounting for fees. Active managers will underperform the passive managers on average by the difference in fees between the two. So on balance, investors will achieve the same return on their equity portfolios as the overall market and bond investors will do the same. As a result, the way to alter long-term returns is to change the allocation between the asset classes, not what you invest in within them.

Read the full article here


Investing your money in a tracker fund

The rising popularity of “passive” investing has seen savers put hundreds of billions of pounds into cheap tracker funds. These funds allow you to invest in the FTSE 100, for example, for less than 0.1pc a year. There is a general assumption that, relative to stock picking, tracking an index is a simple task that can be run entirely by computers. But what exactly happens to your money when you put it into a tracker fund? Telegraph Money spent a day at the London offices of Vanguard, the world’s second largest asset manager – and a major proponent of passive investing – to find out. It’s not all computers – but there aren’t many people

Vanguard’s trading floor is not a row of computers. The desks are occupied by people, albeit just a small number of them managing an astronomical amount of money. The space is compact – and quiet. Vanguard’s equity index group, the people involved in actually running its stock index tracking funds, consists of 60 people: 35 portfolio managers, plus traders, analysts and those in leadership positions. Between them they run £1.9 trillion, spread across a few hundred portfolios. That equates to £32bn per person. There is no one set manager per portfolio, and responsibilities regularly rotate.

tracker fund

On the bond side, more people are required. In the fixed-income group there are 160 people managing £900bn. There are still only 45 portfolio managers, but more than 100 traders and research analysts are needed. These teams are spread across the company’s US, European and Australia-Pacific regions, surrounded by the thousands of other staff who make up the Vanguard machine. The end investor is discussed frequently, but handling incomprehensibly large amounts of money is part of the day-to-day. One member of the foreign exchange team said she put through more than £100bn in currency orders last month.

What actually happens to my cash?

A surprising amount of spadework is involved in following an index. Say you give Vanguard £1,000 to put into a fund that tracks an index of 100 stocks or 100 bonds. It’s easy to imagine a computer algorithm splitting up that £1,000 neatly and buying £10 worth of each stock or bond. Then, as the index changes, the algorithm makes the necessary updates. For a host of reasons, including transaction costs, access to certain markets and liquidity, that isn’t possible or efficient.

Instead, your money is pooled with all of the other money the firm takes in. Portfolio managers then work out – with the help of many digital tools – the most efficient way to invest that cash to keep a tracker fund in line with the index in terms of performance and risk, while keeping trading costs to a minimum. While active managers compete on performance, passive managers compete on “tracking error” – the accuracy with which their fund tracks the relevant index – and at Vanguard their pay is based on it too. A tracker fund can deviate from an index for a number of reasons, including trading costs and accounting technicalities.

In some cases, a tracker’s holdings may not actually match the index exactly. Its job is to deliver the same performance as the index without taking extra risk, which can be possible without exactly replicating it. Melissa Tuttle, a senior equity portfolio manager, said her team tended to use incoming cash to top up holdings that had ended up “underweight” compared with the index. Their aim is always to fully invest new cash. Events such as the FTSE 100’s quarterly review, when companies enter and leave the index, also have to be anticipated, and predictions made. Combining trades together keeps transaction costs down. If 11 different Vanguard trackers need to buy HSBC shares, there is little point in them doing so separately.

Portfolio managers put in orders, which are then carried out in whichever region the stock in question is listed in. If a manager in London needs to buy Apple stock, the order is sent to the US team and bundled with any other Apple orders. That said, Vanguard is clearly pushing to automate as much as possible. “It’s fair to say we’re growing systems now, rather than people,” said Dr Alla Kolganova, head of equities for Europe. With shares, 95pc of trading is carried out electronically, with a high degree of automation. There is still 5pc where a portfolio manager may have to go hunting for a broker, however – particularly in the more difficult-to-access markets such as the Middle East. In some cases, this could still mean picking up the phone.

On the bond side, things are different.

Paul Malloy, Vanguard’s head of fixed income in Europe, said only 5pc of bond trading had been significantly automated – largely for small trades in highly liquid government bonds. The other 95pc is still done “over the counter” – meaning between two parties away from a stock exchange. “Bigger trades, or trades in less liquid areas such as corporate bonds or emerging markets, still require picking up the phone or some sort of electronic auction. There’s still someone on the other side,” Mr Malloy said.

He added that, thanks to the sheer number of bonds being issued and the number that have relatively little trading activity, buying every single bond issued by every single company in an index would incur huge costs. Instead, his team buy samples that represent the index, balancing tracking error, risk and cost. “You need to own about half the bonds in an index, representing about 95pc of the companies. We don’t need to own every JP Morgan bond to track the index – I can pick the one I like best. It’s a lot like active management, but you’re controlling risk and cost to avoid losing value, rather than trying to add value,” he said.


Sitting between the equity managers and the bond managers – both passive and active – is the risk team. Brian Wimmer, head of risk management for Europe, said there is a slim initial tolerance for a fund being out of line with its benchmark index. If that figure is breached “a conversation starts” – and there is then an absolute maximum tolerance allowed. This team is also in charge of ensuring that no financial regulations are breached. Colour-coded systems are used to keep track. Today, everything is running smoothly for the firm’s LifeStrategy range of ready-made portfolios.

When something is out of line, analysis tools enable a risk manager to look at where that error is coming from, and action can be taken to push things back into line. One option at Vanguard’s disposal is to suggest changes to an index itself, through its relationships with index providers, when it thinks improvements can be made.

– Telegraph


Top 5 Reasons Why Croatia Should Be Your Next Holiday Destination

Croatia is increasingly becoming one of the top travel destinations in Europe for many reasons. This charming country is situated on the Adriatic Sea in Eastern Europe and offers tremendous features and endless wonders that attract travelers from all walks of life. Statistics from Croatia’s tourist board indicate that visits from British travel enthusiasts rose in 2015 by more than a quarter.

Additionally, the same resource hints that Croatia records almost 26% increase in overnight stays annually. There are many reasons why Croatia has fast grown to become a travel hot spot, such as its unique location, legendary music scenes, beautiful architecture, unforgettable Game of Thrones scenery, incredible history, and the perfect climate just to mention a few.

These are the Top 5 Reasons Why Croatia Should Be Your Next Holiday Destination:

National Parks

Croatia is blessed with more than eight unique National Parks that offer several hours of walking and exploring. One of the renowned National Parks in this country is the Plitvice, which is mostly famous for its emerald lakes. It gets difficult to move around in summer as huge crowds jostle to snap the photos and videos of its beauty.

krka national park
Another popular option is the Krka National Park. This enticing destination is known for its winding boardwalks that criss-cross the river while flowing through the park in proximity to the spectacular waterfall. You can dip yourself in the crystal clear waters in summer to cool your body off after day-long exploration.

The Coastal Scenery

The Coastal part of Croatia offers another seamless reason to pay a visit to this country. The Adriatic coast waters are an appealing blue-green gem adjoining Europe’s best beaches. There are no crowds in spring, and the coastline seems quiet. However, you must bring a jacket with you to avoid feeling the breeze.

croatia coast

The Croatian pebbly shores create a fantastic picturesque location with the changing splutters of white pebbles. Dubrovnik is situated toward the southern section of the country, while the northern coastline is lined with Roman remains, villages, vineyards, and alluring beaches and coves.

Mljet Island

The Mljet Island is best known as a paradise on earth and suits anyone who yearns for a sense of heaven. This idyllic island goes utterly silent in spring. And that is the ideal time for relaxing on the island. There’s a ferry in Dubrovnik that will take you on a short journey as you leave the world of paradise behind and embark on your visit to the most southern island of Dalmatia.

The pine forest covers more than 70% of the island, which makes it verdantly amazing. The isolated salt-water lake is similarly an idyllic setting that is undisturbed. It absolutely creates a whole new experience for visitors.

Exquisite Cities

Although Croatia is a rather small country as regards to size, it is a home to major cities that provide unique urban landscapes for exploring. The capital city of this nation is called Zagreb. Its vibrant downtown region is a home to intriguing natural settings and Croatia property agencies covering Dalmatia and the islands.


These agencies specialize in the sales of International coastal property, traditional stone houses, and first line property. The city also accommodates dramatic landscapes that offer exceptional natural settings to explore.

Game of Thrones Appeal

A correlation exists between Croatia’s rising population and its starring role in the Game of Thrones series. Many attractions featured in the HBO series Game of Thrones, including Dubrovnik whose forts and city walls turned out to become the King’s Landing.

The magnificent Trsteno Arboretum located in the city suburbs became the Red Keep’s gardens. Additionally, the Fortress of Klis was used for the exterior shots of Mereen. St Dominic Monastery located in Trogir appeared in the series as Qarth. All these instances make Croatia special, unique and worth visiting.

  • Alex Dragas (Guest Writer)



Oracle Attempts At Another Reinvention

The technology industry is unkind to companies on the wrong side of middle age. But some veterans that once looked well past their primes have found fountains of youth. One of the best examples is Oracle Corp., the 40-year-old database software company founded by 73-year-old Larry Ellison. The company for decades was assured a big slice of corporations’ $2 trillion annual spending on technology. Many of the world’s biggest companies found Oracle’s products essential for tasks such as keeping tabs on inventory, balancing the books and analyzing retail sales trends. But when Ellison stepped down as chief executive three years ago, Oracle looked as if it was in crisis.

Crisis looks different at Oracle than it does, say, at MySpace. Companies that sell technology to businesses don’t tend to die quickly as internet companies do. Instead, they slowly wither and fade into irrelevancy. Business customers that rely on technology from Oracle, Microsoft or IBM can’t ditch it immediately. Instead, they might start dabbling with newer technologies for high-priority growth projects and resign the dinosaur technologies to less important parts of their budgets. Over years, those budgets might shrink or disappear. Oracle looked for a while as if it might be stuck in that camp.


And then a technology revival Ellison had been talking up for years seemed to take hold. He had been boasting about refashioning Oracle’s technology for the epoch of cloud computing, in which companies shift from pricey, hard-to-update software bought on long-term contracts to pay-on-demand technology that is refreshed frequently because information is stored and processed on remote computers, just like internet services such as Facebook.

Oracle’s cloud revolution seemed like Ellison bluster, but it turned out to be real. In Oracle’s quarter ended in August, revenue rose 6.9 percent from a year earlier, the company’s best growth rate since 2011, according to Bloomberg data. What Oracle defines as sales of cloud technology accounted for 16 percent of Oracle’s total revenue, up from 5.5 percent when Ellison gave up the CEO post but remained chief technology officer. The Oracle founder, who once mocked cloud computing as “complete gibberish,” now can’t stop talking about it. Oracle’s growing sales of cloud computing don’t guarantee the company relevance for the next 40 years. As it and other companies transition from selling upfront software contracts to pay-as-you-go cloud technology, revenue can nose-dive for a while, and the shift pinches profits. Some people in the technology industry are skeptical about whether what is sold as cloud software is truly being used by the customers.

Companies also have more technology options than ever, including free or low-cost alternatives, and it seems unlikely a handful of titanic empires such as Oracle can retain an iron grip on corporate technology spending. It will also be tough for Oracle to retain its market share in the $31 billion database market. When a company has a commanding position, there may not be anywhere to go but down. There’s also a poor track record of pioneers in one period of technology maintaining their dominance after seismic industry shifts. Just try to remember the last time you saw a Nokia mobile phone.

But it is possible for technology titans to find new life. Adobe took the remarkable step of changing its business model overnight from selling software such as Photoshop to essentially renting its most important products as Netflix-like subscriptions. It was painful, but Adobe and its stock price have thrived since the 2012 reboot. Like Oracle, Microsoft has found cloud-computing religion, although investors’ enthusiasm for that company’s cloud shift is ahead of reality.

The same is true at Oracle. Investors now believe the cloud transition has taken hold, but they could lose confidence if Oracle has a rocky quarter or two. Oracle did get a big vote on confidence in May when AT&T Inc. — one of the world’s biggest spenders on technology equipment and software — said it would move a significant portion of its databases to Oracle’s cloud. Oracle has said it thinks selling cloud software gives it a shot at landing many more customers, and at higher profit margins, than it ever could in the days when it sold only big-ticket software contracts to giant corporations. Oracle, Microsoft and Adobe are giving hope to all technology companies with more than a few wrinkles. Those software pioneers are showing that there’s a place in the tech industry for middle-aged reinvention.

  • Bloomberg


How To Live off 35% of Your Income & Retire by 40

In the age of Silicon Valley, a lot of us dream of launching the next Warby Parker, Instagram, or Airbnb—a wildly successful business that will leave us financially set for life. But the game is kind of rigged. Research says that, on the whole, entrepreneurs aren’t the fearless, high-achieving heroes we imagine them to be. They’re just rich kids—people with inherited wealth and safety nets who can afford to take risks that would bankrupt the rest of us. A 1998 paper published in the Journal of Labor Economics concluded, “individuals who have received inheritances or gifts are more likely to run their own businesses.” And economist Ross Levine told Quartz last year that the chances of becoming an entrepreneur “drop quite a bit” when your family isn’t loaded.

But those of us born without trust funds need not cry into our IPAs. What if, instead of going into business to get rich, you got rich so you could go into business? Take Peter Adeney, better known as the blogger Mr. Money Mustache. Adeney initially won Internet fame because he “retired” at age 30. Working as software engineers, he and his wife, Simi, saved and invested their income until they’d amassed a nest egg of about $700,000. At that size, their small fortune could generate returns substantial enough to live on. So Adeney quit his job and set about doing, well, whatever the hell he wants. He’s since become the face of the early retirement movement—sometimes referred to as FIRE, for Financially Independent Retired Early—and inspired thousands of people to follow in his footsteps.


I’m one of them. For the last five years, my husband and I have been using Adeney’s basic blueprint so that we can retire decades early, too. And we’re in good company. Mr. Money Mustache now racks up around 750,000 unique visitors and about seven million page views a month. Like Adeney, I don’t conceive of retirement as endless leisure. Forty years of golf and reruns would turn my brain into applesauce. To my mind, the most interesting thing about Adeney—and his relevance for would-be entrepreneurs—isn’t that he retired so young. It’s what he’s done with his retirement. Namely, as he explains on his blog, “the Mrs. and I started a cozy new two-person company that does whatever we want it to do.” So far, that’s included carpentry projects, building and selling a house or two, and the Mr. Money Mustache blog.

It’s almost as if Adeney built his own trust fund and turned himself into a rich-kid entrepreneur. Some of his achievements are directly attributable to the fact that he didn’t need that business to generate a profit in the short term, or even much of a profit in the long term. Adeney’s success as a blogger has been expressly built upon his financial independence. It gave him his subject, for starters, and allowed him to write in whatever tone he wanted, instead of catering to advertisers. Readers took to his irreverence—and no wonder, when most personal-finance writing is gratingly chipper and seems like filler in between credit-card ads.

Readers could also trust Adeney, knowing that his advice wasn’t contingent upon what would fatten his own bank account. While this kind of personal credibility probably should be de rigueur for a money guru, it’s still more the exception than the rule. It’s not a great big leap to say that Adeney ended up making around $400,000 a year from his blog in large part because he didn’t need to. The advantages don’t stop there. His self-built trust fund also insulated him from the brutal realities of the online media business, in which Google and Facebook scarf up around 90% of new ad dollars and many fledgling outfits crash and burn. He’s also been able to take breaks and work on the blog when he wants to, rather than adhering to the sort of ruthless schedule many entrepreneurs are stuck with.

I totally get that saving up your retirement nest egg decades early might seem like an even tougher dream to realize than just going ahead and starting your business. Judging by the “Mustachians” who post and comment on the site, the demographic appears to be reasonably high-earning folks with naturally frugal tendencies. Not everyone is in a position to save and invest, of course. A single person earning $70,000 in New York might not have much left over after taxes, rent, food, and the odd late-night Uber. A married couple in Cleveland earning $200,000 (nearly four times the median household income, let it be said) probably wouldn’t find this tactic very difficult at all. Such high-paying jobs are very much the exception, not the rule—and that’s to say nothing of those who can’t find jobs at all.

Personally, I’m not exactly frugal—I just prefer to live like a grad student because it keeps life simple. Right now, my husband and I live on about 35% of what we make, net. We earn more than we used to, but we’ve been able to avoid lifestyle creep because our tastes haven’t shifted much and certainly haven’t improved much. (We splurge on food and travel. But we still drink $6 wine, buy used books, and get t-shirts from Uniqlo, none of which I regard as any kind of sacrifice.) In business, you’d call this operating leverage. Market willing, we should be able to retire in five years, when we’re 39 years old. Then we’ll start a company that “does whatever we want it to do.”

So how much money are we talking? To size your nest egg, you calculate your yearly living expenses and multiply them by 25. Then you invest and use the magic of compound interest to help you reach that goal. (Adeney suggests index funds—simple, low-fee investment vehicles that typically track the returns of the stock market.) Once you’ve hit your number, you withdraw funds at a rate of 4% a year, known as the Safe Withdrawal Rate. A $1 million nest egg, for example, would yield $40,000 each year. A $2 million nest egg would yield $80,000. Simulations of model portfolios suggest this rate allows for lifelong withdrawals in nearly every market scenario. That means that you should still have money left at the time of your death, even 30 or 50 years hence.

I’m aware that the tone of this advice could seem money-obsessed or money-grubbing. But I don’t say it out of the conviction that the world’s already abundant supply of rich jerks needs adding to. (Parts of this article were written on January 20th, an auspicious day for rich jerks everywhere.) Rather, I think the dream of financial independence is worth chasing because I’m convinced that freedom is one of the worthiest goals around. If you’re a person with big-time creative dreams, it would be a tragedy straight out of Arthur Miller to spend your life working for someone else—or waiting around for the world to change. We seem to be decades away from instituting a universal basic income. So it might be time for you to try to DIY one.

Rich kids may dominate the entrepreneurial landscape. But over time, you could become one of them yourself—a person for whom many of the usual risks don’t apply.

  • QZ


A Complete Beginner’s Guide To Blockchain

You may have heard the term ‘blockchain’ and dismissed it as a fad, a buzzword, or even technical jargon. But I believe blockchain is a technological advance that will have wide-reaching implications that will not just transform the financial services but many other businesses and industries. A blockchain is a distributed database, meaning that the storage devices for the database are not all connected to a common processor. It maintains a growing list of ordered records, called blocks. Each block has a timestamp and a link to a previous block. Cryptography ensures that users can only edit the parts of the blockchain that they “own” by possessing the private keys necessary to write to the file. It also ensures that everyone’s copy of the distributed blockchain is kept in synch. Imagine a digital medical record: each entry is a block. It has a timestamp, the date and time when the record was created. And by design, that entry cannot be changed retroactively, because we want the record of diagnosis, treatment, etc. to be clear and unmodified. Only the doctor, who has one private key, and the patient, who has the other, can access the information, and then information is only shared when one of those users shares his or her private key with a third party — say, a hospital or specialist. This describes a blockchain for that medical database.


Blockchains are secure databases by design. The concept was introduced in 2008 by Satoshi Nakamoto, and then implemented for the first time in 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions. By using a blockchain system, bitcoin was the first digital currency to solve the double spending problem (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without the use of an authoritative body or central server. The security is built into a blockchain system through the distributed timestamping server and peer-to-peer network, and the result is a database that is managed autonomously in a decentralized way. This makes blockchains excellent for recording events — like medical records — transactions, identity management, and proving provenance. It is, essentially, offering the potential of mass disintermediation of trade and transaction processing.

How does blockchain really work?

Some people have called blockchain the “internet of value” which I think is a good metaphor. On the internet, anyone can publish information and then others can access it anywhere in the world. A blockchain allows anyone to send value anywhere in the world where the blockchain file can be accessed. But you must have a private, cryptographically created key to access only the blocks you “own.” By giving a private key which you own to someone else, you effectively transfer the value of whatever is stored in that section of the blockchain. So, to use the bitcoin example, keys are used to access addresses, which contain units of currency that have financial value. This fills the role of recording the transfer, which is traditionally carried out by banks.

It also fills a second role, establishing trust and identity, because no one can edit a blockchain without having the corresponding keys. Edits not verified by those keys are rejected. Of course, the keys — like a physical currency — could theoretically be stolen, but a few lines of computer code can generally be kept secure at very little expense. (Unlike, say, the expense of storing a cache of gold in a proverbial Fort Knox.) This means that the major functions carried out by banks — verifying identities to prevent fraud and then recording legitimate transactions — can be carried out by a blockchain more quickly and accurately.

Why is blockchain important?

We are all now used to sharing information through a decentralized online platform: the internet. But when it comes to transferring value – money – we are usually forced to fall back on old fashioned, centralized financial establishments like banks. Even online payment methods which have sprung into existence since the birth of the internet – PayPal being the most obvious example – generally require integration with a bank account or credit card to be useful. Blockchain technology offers the intriguing possibility of eliminating this “middle man”. It does this by filling three important roles – recording transactions, establishing identity and establishing contracts – traditionally carried out by the financial services sector. This has huge implications because, worldwide, the financial services market is the largest sector of industry by market capitalization. Replacing even a fraction of this with a blockchain system would result in a huge disruption of the financial services industry, but also a massive increase in efficiencies.

But it is the third role, establishing contracts, that extends its usefulness outside the financial services sector. Apart from a unit of value (like a bitcoin), blockchain can be used to store any kind of digital information, including computer code. That snippet of code could be programmed to execute whenever certain parties enter their keys, thereby agreeing to a contract. The same code could read from external data feeds — stock prices, weather reports, news headlines, or anything that can be parsed by a computer, really — to create contracts that are automatically filed when certain conditions are met. These are known as “smart contracts,” and the possibilities for their use are practically endless. For example, your smart thermostat might communicate energy usage to a smart grid; when a certain number of wattage hours has been reached, another blockchain automatically transfers value from your account to the electric company, effectively automating the meter reader and the billing process.

Or, let’s return to our medical records example; if a doctor or patient issues a private key to a medical device, say a blood glucose monitor, the device could automatically and securely record a patient’s blood glucose levels, and then, potentially, communicate with an insulin delivery device to maintain blood glucose at a healthy level. Or, it might be put to use in the regulation of intellectual property, controlling how many times a user can access, share, or copy something. It could be used to create fraud-proof voting systems, censorship-resistant information distribution, and much more. The point is that the potential uses for this technology are vast, and I predict that more and more industries will find ways to put it to good use in the very near future.

  • Forbes


6 Ways to Help Grown Ups get their Finances in Order

Parents have started handing over thousands of pounds to their offspring in order to help them fly from the family nest; a process which is neither easy nor affordable in an era of post-Brexit inflation, high cost of housing, and university tuition fees.

According to research conducted by experts, around 85% of parents have stumped up their money for everything right from broadband to bookshelves, with an excess of half of the cash coming in from their savings.


However, getting youngsters started at university is typically one of the biggest outlays. But mums and dads are also subsidising clothes, books, mobile phones, and “spending money”.

This initial hand holding could slowly turn into “failure to launch syndrome”, with kids beginning to rely on their parents financially, in their early 20s and 30s.

If you are a parent who wants to help their kids in getting their finances in order, then you have stumbled upon the right place. Here we have mentioned six ways through which you can help children survive financially in the big bad world.

  • Get to Grips with Property

You can offer a cash gift or an interest free loan to help your kids in order to get them on the property ladder. Ideally, this must be at least a quarter of the value of the property your kid is eyeing up, but even a 10% deposit could give them an access to a more competitive mortgage deal.

Always remember that inheritance tax may be applicable if you die within seven years of making the gift. In order to prevent this risk, you must consider a loan that comes with a monthly interest, under the market rate.

But do agree for a repayment scheme and formalise the contract by making use of a “promissory note”, which is drawn up by the property attorney. In this way, you ensure that the cash is registered as a loan and is paid back.

Alternatively, a guarantor mortgage can do the work. This includes you promising to meet the mortgage repayments on time, if your kids fail to do so. The contract remains in place until the borrower has decreased the mortgage to a certain level in comparison to the property’s worth.

Better-off, parents can also purchase a property outright, but they may incur capital gains tax, especially if it’s later sold, as it’ll technically be their second house. One way you could prevent this is by getting an attorney to place your property in a formal written trust. This way, you lend the trust a deposit and later take out mortgage that you require to guarantee.

The named beneficiaries of the trust, your kids, can then become “life tenants”, and live in that property rent-free. Yet, the named trustees would hold the title to the property.

If you’re turning the house into a student let, you’ll have to pay income tax on the rent, though the income can rather be paid directly to kids as they aren’t earning, then it could fall within the annual tax allowance.

Property experts say that, parents can invest for between 15 to 20 years, so as to assure a return on buy-to-let. You must see it as a long term investment in the first place, and support to the kid. You can even rent to students once your kids graduate, if the house is near the university.

If you’ve already taken out a loan (or thinking of taking one), then you must check for Payment Protection Insurance. If you find out that you’ve been mis-sold one, then you must soon make a claim, as the PPI Claims Deadline has been announced.

  • Drill them in Renting Rights

If any of your kid has to rent, then they’ll have to pay a deposit to the landlord. However, they’ll get it back by the end of their tenancy, provided the place is as clean as it was when they moved in, and there’s no damage, no unpaid rent, and no missing items.

The landlord should make use of an official tenancy deposit plan, unless they also stay in that house. If that is the case, your kid can reclaim the entire deposit along with three times its actual value. You must also check the Government’s “how to rent” guide.

  • Get Help if You Need It

Approximately, two fifths of parents depend upon unsecured debts in order to provide their kids a leg-up. Organisations and universities often offer student scholarships so as to assist students with their living costs.

Your kid might get qualified for this, provided that you’re earning less than £25,000 per year, working in a particular profession, or if your kid is studying a specific subject.

  • Drum in the Savings Habit

Nearly a quarter of parents bail out their adult children each month, but they must also encourage them to save money. The best way out is you training your kids in the virtue of saving, well before they leave the house, and maybe telling them to open a savings account.

If your child is 16 or above, then you ought to tell them to take out a Help to Buy Isa, that offers a 25% Government bonus to a maximum of £3,000, specifically when they’re about to purchase their first house.

Any kid who is 18 can take out a more generous Lifetime Isa, which has been launched recently. This account would pay them a bonus of 25% on contributions of around £4,000 per year. This means that they’ll receive a free maximum injection of £1,000 per year, from the Government.

  • School them to be Savvy

Spiralling education, fuel, and housing expenses mean that inflation is hitting youngsters harder, in comparison to any other age group. Several experts say that, the need for the Gen Y to cautiously handle their finances has become a huge deal than ever.

So, as a parent, discuss unrealistic ambitions and be careful that you aren’t handing down any expensive shopping preferences. You can even pay your kids for doing some of the household work, as this would teach them the value of working.

According to a financial advisor, when one has saved and worked for something, they tend to enjoy it ten times more. By the same token, one might discover whilst saving for it, that perhaps they don’t want it so much after all.

Bear in mind to include your kids in family budgeting, be it through the discussion over dinner, or through some app. All this would give your kids a financial autonomy whilst you supervise them remotely.

Help your child to become “micro-expense” aware. For example, you should tell them how the expense of their daily takeaway coffee can quickly add up. At the same time, you must also encourage them to shop around for affordable deals and to spend more time in reviewing their expenditure.

If you’re paying for any of their necessities, be it the electricity bill or food costs, simply show them how you sought out a much better deal.

  • Offer All-round Sensible Advice

Several studies reveal that on an average, people spend around £1,350 per year on takeaways. So, you should motivate your kids to properly plan their meals, do a weekly shop and learn all the basic recipes when they fly from their nest. In this manner, they could save around hundreds of pounds every year.

You must also help them to understand that when they’re taking out any insurance, it’s not any sort of alternative for locking doors and window, and taking proper care of property is also a very important aspect. 

Author Bio

Adam Martin is a working professional by day and a freelance writer by night. He specialises in writing about personal finance and insurance claims.

Microsoft and Google Trying to Catch Amazon in the Cloud

It’s hard to think of a business Inc. dominates as convincingly as the market for cloud computing services. Andy Jassy, chief executive officer of the company’s cloud division, Amazon Web Services Inc., likes to brag that his outfit has several times as much business as the next 14 providers combined. Amazon’s next-largest cloud competitor, Microsoft Corp., is less than one-fifth Amazon’s size in terms of sales of infrastructure services, which store and run data and applications in the cloud, according to research firm Gartner Inc. Google, the No. 3 U.S. cloud services provider and the second-largest company in the world by market value, makes one-fifteenth of Amazon’s cloud revenue.

“AWS effectively defined the notion of cloud computing,” says Gartner analyst Ed Anderson. “It’s perceived as the cloud leader and pacesetter.” AWS generated $4.6 billion in sales in the most recent quarter. Every year, it introduces dozens of features and products to retain its edge.


But Amazon isn’t invincible, and the qualities that made the division so successful—the platform’s self-service nature and its deployment of software and services that Amazon had used for its enormous retail operation—can also be seen as vulnerabilities, at least as far as Microsoft and Google are concerned. Microsoft’s cloud unit, Azure, has managed to win over customers, including Bank of America Corp. and Chevron Corp. in recent weeks, by focusing on the sorts of salesmanship and relationship-building skills not always prized at Amazon’s Seattle headquarters. “There’s not one default choice,” says Kurt DelBene, Microsoft’s executive vice president for corporate strategy and planning. “We’re not going to get to a place where any one vendor is that default choice.”

“Microsoft is at the leading edge of today’s game-changing cloud-based technologies,” CEO Satya Nadella wrote in his autobiography, published in late September. “But just a few years ago that outcome seemed very doubtful.” As part of Nadella’s catch-up strategy, Microsoft has transformed its sales force into a roving R&D lab and management consultancy. Startups get introductions to potential investors and prospective partners and customers. Big companies get access to a sales team that helps market the cloud apps they build on Azure to their own customers so they can make a buck on the software they use in-house.

The sales team includes 3,000 dedicated software engineers who can build applications for prospective clients during sales calls, demonstrating on the spot what they can do for them. “I can’t send people to a customer anymore to give a PowerPoint presentation,” says Judson Althoff, executive vice president for Microsoft’s worldwide commercial business. Once a customer signs on, Microsoft engineers can be deployed to the client the next day.

Bill Braun, Chevron’s chief information officer, says Microsoft impressed him by showing off machine learning software that will allow his company to analyze volumes of data from oil production equipment to detect tiny changes in temperature or vibration, early signs of faulty equipment, or other problems. “They understand the enterprise,” he says.

Microsoft’s sales team made the pitch with the help of HoloLens, the company’s new augmented-reality headset. When paired with Microsoft’s cloud software, the headset allows Chevron’s senior engineers to virtually oversee the work of software technicians around the globe as they install equipment.

For years, Microsoft representatives have sold the company’s signature Windows and Office software that clients install on their computer networks. More recently, they’ve moved some of those clients to Office apps in the cloud. Clients accustomed to those cloud applications may be more likely to go with Microsoft when they decide to replace their own data centers and servers with public cloud infrastructure, says Gartner’s Anderson.

An existing relationship was why candymaker Mars Inc. chose Microsoft instead of AWS last year. “Our philosophy is to drive deeper relationships with partners we already have,” says Paul L’Estrange, Mars’s chief technology officer. “We didn’t have that same sort of relationship with AWS.” Google is trying to set itself apart with TensorFlow, software that makes it easier to build artificial intelligence apps, and with Kubernetes, a software system which helps companies better manage their data in the cloud.

Even Google, a company that has been generally allergic to using people for anything a machine can do, has seen the value of having a human sales force. In late 2015 it hired corporate software veteran Diane Greene, a Google board member and co-founder of VMware Inc., Dell Computer’s cloud computing subsidiary, to run its cloud business. She’s been building a cloud sales force from scratch. Google recently announced a partnership with Inc. to take advantage of the latter’s list of preferred cloud providers.

Both Google and Microsoft have sought to exploit another of Amazon’s perceived weaknesses: that other parts of its empire compete bitterly with prospective cloud customers. Amazon’s retail rivals, including Wal-Mart Stores Inc. and Bangalore-based Flipkart Ltd., don’t want to see their Amazon cloud payments lining the coffers of the retailer that could ultimately put them out of business, says Gartner’s Anderson. Flipkart signed up with Microsoft in February. According to a June report in the Wall Street Journal, Wal-Mart has been telling its tech suppliers not to use AWS. Wal-Mart didn’t respond to a request for comment. CEO Jassy says AWS treats all its cloud customers, including many Amazon retail rivals, equally.

After several years on AWS, Lush Ltd., the U.K.-based toiletries company, jumped to Google Cloud in November 2016. Lush has sued Amazon, claiming the company is using Lush’s trademarks to sell rival bath goods.

“We’re not particularly keen on Amazon as a company, so we’d prefer not to work with them,” says Jack Constantine, Lush’s chief digital officer. Amazon declined to comment on the lawsuit.

“It’s not a surprise to us that every large tech company in the world is interested in building a replica of what AWS has done,” says Jassy. Whether or not it’s feeling the pressure, the company is spending more time cultivating relationships with top executives and CIOs. It’s hosting dinners with prospective clients to address their concerns in more intimate settings and bringing more of a human touch to these relationships. “They’re making themselves accessible,” saysAdam Johnson, CEO of IOpipe, which provides monitoring and troubleshooting services to businesses running on AWS.

Its reputation as the market leader means those executives and chief technologists tend to lean toward AWS when all else is equal. Its early lead—AWS beat Microsoft to the market by four years—gives the company an automatic edge. And Amazon’s cloud services are seen as the safe bet, no small thing in an age of hacks and denial-of-service attacks. Sometimes even when a company thinks it can claim a win over AWS, it can’t broadcast the victory. In March, Google published a blog post announcing that Airbnb Inc., a longtime AWS client, had agreed to use a Google cloud service for AI. The following day, Airbnb’s name was scrubbed from the post. Airbnb and Google declined to comment.

So for the near future, at least, AWS looks like it will continue to rule a market that Gartner expects to generate $89 billion in sales by 2021, up from $35 billion today. “There’s a humongous amount of growth in front of us,” Jassy says. “This is the biggest technology shift of our lifetimes.”

  • Bloomberg