May 13, 2025

Episode 178: Hedging Your Bets in Retirement: What You Should Know

56 minutes

In this episode, Wade and Alex explore the world of hedge funds—what they are, how they’re structured, and how they’ve evolved from simple hedging tools into complex investment vehicles. They break down common fee models, challenges in measuring performance, and the impact of data biases. The conversation also covers key hedge fund strategies—including long-short, market neutral, arbitrage, and quantitative approaches—highlighting their mechanics, risk profiles, and what they mean for investors, particularly those nearing retirement. Listen now to learn more!

Takeaways

Hedge funds are actively managed investment vehicles with fewer regulatory constraints.

They aim for absolute returns, regardless of market direction.

The traditional fee model is “2 and 20”—2% management fee and 20% of profits.

Fees are declining due to growing competition and investor scrutiny.

Performance is difficult to assess due to survivorship bias and data limitations.

Investors should be cautious of marketing claims and understand the fund’s true strategy.

Long-short strategies bet on both rising and falling stocks.

Market neutral strategies attempt to remove market exposure to focus on relative performance.

Arbitrage seeks to profit from temporary price inefficiencies.

Quantitative strategies rely on data-driven models to guide trades.

Risk premium harvesting involves tilting toward factors like value or momentum.

Short selling helps with price discovery but carries risk due to unlimited loss potential.

Understanding alpha (excess return) and beta (market exposure) is key to evaluating hedge fund performance.

Technology is central to many modern trading strategies.

Informed investors are better positioned to navigate complex alternatives like hedge funds.

Chapters

00:00 Introduction to Hedge Funds

02:12 Understanding Hedge Funds

05:30 Fee Structures and Costs

10:00 Performance and Survivorship Bias

16:08 Hedge Fund Strategies Overview

22:43 Long-Short and Market Neutral Strategies

23:40 Understanding Long-Short Strategies

30:10 Exploring Market Neutral Strategies

38:11 Diving into Arbitrage and Quantitative Strategies

Links

Join Us Live on YouTube – June 2nd at 2PM ET!

Want to go beyond the podcast and be part of the conversation in real time? Wade and Alex will be hosting a special Retire With Style YouTube Live session, where you can ask your retirement questions and get answers on the spot.

Head over to our YouTube channel now, hit Subscribe, and click the bell to get notified when we go live. We’ll see you there! https://www.youtube.com/@retirewithstylepodcast

The Retirement Planning Guidebook: 2nd Edition has just been updated for 2025! Visit your preferred book retailer or simply click here to order your copy today: https://www.wadepfau.com/books/

This episode is sponsored by McLean Asset Management. Visit https://www.mcleanam.com/retirement-income-planning-llm/ to download McLean’s free eBook, “Retirement Income Planning”

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By Wade Pfau & Alex Murguia

3.9

161161 ratings