What if you quit tomorrow — but your paychecks from work kept hitting your bank account, forever?
This isn’t a farfetched dream.
Two million people from California are living this life already.
Today, I’ll tell you how they’re doing it…
Then I’ll show you how to join them.
California Dreamin’
When you think of California, perhaps you think of its many virtues or attractions:
Beautiful weather, Hollywood, its ancient Redwood trees.
But it also has something of great beauty that’s less well-known: its pension fund!
The California Public Employee Retirement System (CalPERS) manages the pensions of about two million California public employees and retirees. And it manages those pensions very generously…
For example, a California employee with thirty-five years of service and an average salary of $80,000 would receive $60,000 per year.
And by the way, that $60,000 per year just keeps coming and coming. It’s payable for life.
Makes you wonder…
How can CalPERS afford to pay two million lifetime pensions?
Getting a Boost from Venture Capital
Just like individuals, pension plans allocate their funds into a diversified portfolio of investments.
Traditionally, they invested in stocks, bonds, and real estate.
But nowadays, in their search for higher returns and greater diversification, they also invest in alternative assets including hedge funds, commodities, and private equity/venture capital.
In fact, as the Financial Times reported in January, CalPERS recently decided to dramatically increase its allocation to venture capital — in other words, its investments in private startups — from about $800 million, to a whopping $5 billion.
But now it’s decided to allocate even more to private startups. As this Bloomberg headline from two weeks ago trumpeted:
Calpers Raises Bets on Private Equity… in $34 Billion Shift Away from Stocks
Why would Calpers make such a big move? Simple:
To make sure it has enough money to pay all those pensions, it needs to boost its returns!
Anton Orlich, CalPERS Managing Investment Director for Private Equity, calls the last ten years a “lost decade,” because his firm didn’t maximize its exposure to the “strong investment returns” of venture capital.
Now he’s aiming to make things right.
55% Average Annual Returns
Makes sense. Consider:
According to Cambridge Analytics, an advisor to institutions like The Rockefeller Foundation and Harvard University, investing in startups has returned an average of 55% per year over 25 years.
55% per year crushes the returns of stocks, bonds, real estate, and any other asset class, too.
Furthermore, you don’t need to allocate much of your portfolio to take advantage of its benefits. Even shifting just 6% of your portfolio to this asset class could give you the chance to earn nearly 100% more on your money.
Here’s How “The Math” Works
To keep the math simple, let’s say a traditional 60/40 stocks/bonds portfolio returns about 10% each year.
But now let’s add some private startups to your mix.
According to Christian Mueller-Glissmann, Head of Asset Allocation Research for Goldman Sachs, private investments are a “smart bet.” Mueller-Glissmann believes investors should consider “switching up their asset mix as the outlook for stocks and bonds has dimmed.”
According to a research report from SharesPost (an expert in private securities that was recently acquired by Forge), allocating just 6% of your assets to startups can boost your portfolio’s overall returns by 67%.
And with a 67% boost, instead of earning, say, 10% a year, you’d earn 16.7% a year.
Let’s see what that difference would add up to with a hypothetical portfolio of $100,000.
Double Your Wealth with Startups
At an average return of 10% a year, in ten years, a $100,000 portfolio of stocks and bonds would grow into about $259,000. Not bad.
But in that same timeframe, a portfolio that includes a 6% allocation to startups (just $6,000) would grow to $468,000.
So, as you can see, by allocating just a tiny amount to startups, you nearly doubled the size of your investment portfolio!
Bigger Returns — With Just a Tiny Tweak
As you just saw, even a tiny allocation to venture capital could have a meaningful impact on your overall portfolio performance.
That’s why CalPERS is increasing its exposure so dramatically!
And that’s why I encourage all readers to dive into our free educational resources.
Our free reports show you how to get started investing in the private markets. And they also provide you with tips, tricks, and strategies for finding the best — and potentially, the most profitable — startup investments out there.
You can review them and download them here, for free »
Best Regards,
Founder
Crowdability.com
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