I have a question for those of you who include family monies in your accounts. I have family members that wish to add to my accounts and I have no problems for them to do so (I am not greedy). I am not sure how I should structure this. I know that some of you do this, like p2, and would like to hear how you all handle this. I will either give them all of the profits for their respective percentages, or (as they want me to do) take a small percentage of their monies profits. Thank You
I have an "audit document" which I use to track percentage of each shareholder, if deposit/withdraw occurs, recalculate percentage, and pay out profit after tax. simple.
The typical hedge fund charges a 1% yearly account fee and takes 20% of the profits. The account fee is sometimes waived if the fund is negative for the year.
My question is what happens when you lose? What about drawdowns? It seems to me that friends, family and money can make for a very volatile situation. Just something to think about.
I would recommend you hold off on accepting other people's money until you have had a good history and are truly confident you can trade successfully. Otherwise, the money might be a heavy emotional burden if you constantly worry about the losses. In the book "Market Wizards" one of the traders described how he personally guaranteed any losses for new clients in their first year. An arrangement like this would alleviate concerns of your investors and also allow you to trade without worrying about them.
I've done this before and formed it like an invesment club. Here in Canada that's done by forming a partnership where you list all the members and their % stake. The partnership files it's own tax return and capital gains/losses are passed on to the members who claim them on their individual returns. I did this many years ago before I really knew what I was doing and lost money. The emotional stress is an extra burden. Thankfully in my case it wasn't family. I've had family members ask me to trade for them and I've turned them down. The hard feelings, pressure and tension isn't worth it.
This is not a concern. I have a very good track record, and I would not be affected by having their money in my control [it is not like they need it to eat ]. Thanks for the replies so far, a few more would be nice. With detail too please.
Does your accountant have any problems with this arrangement? I ask, because all of my accounts are "trading" accounts and recognized as such by the IRS in my name only. I ask, because I could add their names to my account if possible...? Thanks
I've invested with a group of friends where we formed a Limited Liability Company (LLC) which allows us to pass the gain/losses out on individual K-1's with their tax ID's on it. This will cost you $750-$1,000 for an attorney to prepare plus annual filing costs of the 1065 by a tax preparer. It may be simpler to just split it on a spreadsheet and give each person their share of the profit/loss if you don't think you need a legal agreement. You might want to get some tax advice on that route first though so you don't have problems allocating your capital gains to multiple people when they're all listed under your social security number. I've gone as far as publishing my results everyday on a website that they all have access to so there are no surprises with participants. I figure some day if I want to manage bigger money, I'll have a public track record. It forces me to keep up on the record keeping every day which is good for a procrastinator like me.