Trusting a friend to manage my investment as a % of theirs?

cormie

Hey folks, I've known about crypto for years but never had the inclination to dedicate myself to the time to learn about investing in it and the time required to constantly monitor investments etc... annnnnd still don't!

My friend however, has gotten into it and follows AI sites, youtubers and all that to make informed investments and has profited off doing so.

I was thinking, what if I just give some money to them and rather than them making decisions for me, they just add it to their own bank roll and I basically end up with a % of their roll, so it's no extra work for them to manage my investment, just whatever they profit or lose from, I do too, just on a % relative to what I've given them? I'd then be happy to give them a % of any earnings on withdrawal.

So for example, if they have 9K, I give 1K, then I have 10% of their roll, if that 10K becomes 20K, I've profited 1K. If I decide to withdraw 1K from that 20K, I give them the agreed % of the earnings and then I'm left with 5.26% of their roll. Similarly, if they were to withdraw say 15K from that 19K to leave only 4K left to play with, with 1K being mine, then 25% of all future earnings are mine until a time where either of us invest/withdraw more to change that % ratio.

We're both happy with an arrangement like this. But we'd both like it to that all activity of investment, withdrawals, deposits can be transparent for us both to see. Trust will still be a factor of course, but if there's any suggestions of something to help manage such an arrangement, I'd appreciate any feedback and suggestions :)

Pinoy adventure

Absolutely madness

Peregrinus

One drawback I see with this arrangement is that the amount your friend gets for managing your investments depends in part on decisions which you make over which he has no control. Taking the figures in your example, suppose when the portfolio gets to 20K you don't withdraw any money. The roundabouts follow the swings, and a while later the portfolio has gone back to 10k or even below. If you withdraw now, your friend gets nil for all his hard work, expertise and judgment; he might not see that as entirely fair. He earned lots of gains for you; it was your decision to take the risk that those gains might be lost. Why should he lose out because of your decision?

Plus, regardless of how investments perform, your friend doesn't get paid anything until you decide to withdraw, which may not be for many years. Again, he may not see this as fair. He doesn't get paid until it suits you to draw down some of your investments.

There's a reason why, in commercial investment management arrangements, the remuneration structure is never set up this way.

There are (at least) two other more rational ways to compensate your friend for his investment management services.

1. Lets say his agreed cut is to be 5% of the funds he manages for you. Instead of waiting until you withdraw, he takes his cut when you deposit. So, when you give your €1,000, he immediately takes €50. Your share of the portfolio is now €950, not €1,000. His share is €19,050, or he can take the €50 in cash and leave his share at €19,000 - it makes no difference to you which he does. (If he leaves it invested this will produce exactly the same result as if you had agreed that he would get 5% of the funds on withdrawal.)
2. He gets an agreed percentage every year, either of the funds under management, or of any growth in those funds during the year. Lets say again that you put in €1,000. At the end of year 1 there has been 20% growth, so that is now €1,200. He gets, lets say, 1% of the whole amount (€12) or 10% of the growth (€20) or whatever you have agreed. He debits that amount to your share of the portfolio and credits it to his. Once again, he may choose to leave it in his portfolio or cash out - it's all one to you. Rinse and repeat at the end of year 2, year 3, etc.

In a commercial investment management arrangement, the manager's remuneration will usually be a combination of these two methods - an upfront levy on the sum invested, plus an annual charge based on the value of the funds under management for the year. This means that the manager's remuneration isn't conditional on your decisions about whether or when to withdraw your investments.

cormie

https://www.boards.ie/discussion/comment/118425148#Comment_118425148

Why? Is trust your only concern?

jolivmmx

you need to look into gift tax. It will not be as simple as your friend transferring money into your bank account.

If you have a Revolut account, you can use it to buy crypto and it is very easy. Similarly, it is quick enough to set up an account on Binance.

YouTubers are a red flag to me. The whole market is speculative. Please don’t put into it what you cannot afford to lose. I am interested in the adoption of BTC by certain South American governments. Ditto the Goldman Sacks’ assessment. However, BTC has certain environmental issues and this may be its downfall. It depends solely on the market demand. At the moment, the market is down. If you are interested in investing (and willing to potentially lose your money), you should put the majority into BTC and ETH. Everybody wants to get rich with alt coins/meme stock. But realistically, it is hard to get it right. And there is a high chance you will lose everything with the meme stock. Your best bet is to buy a little crypto when the market is down and leave it in your account and do not look at it for the next year or two (hopefully, the year-on-year linear growth trend will persist)

The J Stands for Jay

https://www.boards.ie/discussion/comment/118425153#Comment_118425153

Tax is also a worry

Atlas_IRL

Please don't do this, there are so many red flags. Even in the stock market 3 hedge funds beat the S&P500 this year.

Tax as pointed above is also an issue, what if your friends gets caught not paying or sends you a lump sum and you get asked where its from.

If they lose your money or a chunk are you going to be angry with them?

I dont this with my parents money in May last year and bought at ATH and its down about 40%, its just not worth it.

Shapey Fiend

It sounds like a great idea but don't recommend it for all the reasons people have said.

If you want to be in the market but not spend all your time monitoring it just buy some Ethereum and let it sit staking on a central exchange. That'll help you feel good about it when the coin inevitably drops 40% but its still generating income the whole time.

Maybe get a Crypto.com debit card and put money away that way. It's just a really good savings account. Not everybody needs to be a day trader.

Time in the market seems to be the main defining factor on if people make it or not. Doing too much is a good way to get liquidated, especially with people who overestimate their ability and start playing with leverage.

cormie

Hey thanks a lot for the replies so far!

I probably wouldn't be looking to withdraw the money unless it's accumulated to a somewhat substantial amount.

@Peregrinus I appreciate your post, but I don't think it would be an issue for them, I'm taking a gamble with giving it to them of course, but it won't be any extra work on their part and we kinda spoke about a 10% fee on profit, so that's double the 5% which I'm not sure is industry standard for such arrangements, or you just gave it as a sample rate, either way, we both spoke about a 10% cut being fair. It would just have to be calculated so that imagine if they were to go from 10K (with 1K being mine) to 20K an then they took out 19K and left 1K, that they couln't just say that that 1K is mine and the 19K is theirs. So the earnings would have to be relative to whatever we each have and we just have a separate "bank" in the one account say?

@Atlas_IRL No of course I won't be angry with them if they lose the money, they will be losing their own money too, and that's the risk. In the example above, if they'll have lost 1K of mine, they'll have lost 9K themselves and I accept that is a possibility.

HGVRHKYY

Stupid idea. The tax implications alone probably make it not worth doing, but it's also a lot of pressure on your friend - if another large crypto crash happens, he'll probably be fine with coping with it but you'll probably be one of these people who freaks out over it as if you've lost millions, and that'll cause friction between the two of you. Stop being lazy and look after your own finances, or pay an actual professional service for it or deal with not being bothered to grow your own wealth

cormie

You're making a lot of assumptions there, wow.

I've already stated I'm not going to be angry if it doesn't work out. I'm not going to be giving them anything I couldn't afford to lose. It's a gamble, I'm aware.

Just on the tax thing, they live in Portugal and said that for them at least, they don't have to pay tax on earnings. It would probably different if I'm then given any earnings, unless I move to Portugal too maybe 😅

Grumpypants

You have turned a relatively easy thing of investing 1k in crypto and turned it into a nightmare.

Just buy it yourself. They only made money because the market went up. They have no great insight into investing gained from watching YouTube.

cormie

I don't see how it's a nightmare though? :) It's a relatively simple agreement between friends. I'm not saying they can predict the market or have any great insights, but at least if they are keeping an eye on things, it means I don't have to. If I was going to do it myself, I'd need to dedicate a lot of time to monitoring trends and fluctuations etc, so the idea is since they are doing that anyway and making decisions off that, I just incorporate some money into their bank roll and am therefore effectively doing all the same decisions with my money :)

banie01

https://www.boards.ie/discussion/comment/118431816#Comment_118431816

Then why are you asking for input? You think it's a great idea, you don't mind losing your investment and everything is rosy.

Then do it.

Ignore the folks here advising why you shouldn't and plough on 🤷

cormie

I appreciate the input but a lot of it seems to be in relation to trust and me not being able to take losing the investment. I was more just explaining the idea and then asking if anyone knew of any service or website etc that could be used to make things transparent in terms of the activity, earnings, losses :)

topmanamillion

The fact you`re projecting a 100% return is reason enough to not go ahead with this plan. Also your friend like most people that have profited in Crypto have just been blind lucky and are now full of confidence fancying themselves as a bit of a guru.

As has been said invest yourself in one of the many exchanges and weather the ups and downs yourself. 1k is pretty small money so if you wake up tomorrow and its worth E200 or E2000 it`s not really going to change your life. I don`t see any reason to involve your friend.

Seth Brundle

https://www.boards.ie/discussion/comment/118434774#Comment_118434774

The phrase Lend your money and lose your friend springs to mind here (and I know its not a loan). However, one of you could easily end up resenting the other. If you value the friendship, then it is not worth it.

cormie

Thanks again for the input. I'm fully aware that I can easily lose whatever I put into it, like super easily lose it and I'm not going to begrudge my friend one bit if this is the outcome. If I invest myself then I'm going to feel a constant need to monitor the markets and this is something I just don't have interest in or time for. This is basically the equivalent of asking my friend to pick up a lotto quick pick while they are down at the shop, but I feel there's better odds with this. I've never played lotto, not even for the super big jackpots, but I've more curiosity with this 😄

Potatoeman

Never mix money with friends. Its a recipe for disaster. You’ll lose the friend and the money. People change too and who can say what will happen in even a short space of time. Put more value on your friendship.

Are you sure your friend actually knows what there doing and not one of these lads who think there a professional gambler/Stock Investor/Poker player who have lost half their wages over the last five years but showing you a profitable month?

What you should be doing is setting up your own account and your friend just sending you a screenshot on WhatsApp of what to invest in.

dockysher

Stay away from crypto, buy land or a vintage car or car that will become vintage in few years. Only going increase in price and much safer investment. People now days are too caught up on easy quick money from crypto investments.

Kiith

Just buy Eth and leave it alone for a year. Far more likely of returning a profit then giving it to someone (especially someone using YouTube for crypto advice, 95% of which is utter shill shite).

cormie

Thanks again for all the comments. The amount I'd be giving them isn't large enough to have all the concerns of losing a friend etc. I've accepted that it can be easily lost. My post was to see if there's any solution to be able to share the trading and progress of what's being invested so everything is transparent :)

Kiith

Easiest way to do that is just setup your own account, and give him the details.

And when he loses it all, you can bug the **** out of him for years when you meet up for pints 😂

celtic_oz

seen friends buy houses together .. what a nightmare that was when prices went south

fritzelly

Really don't understand why you don't open an account at an exchange, do KYC (takes no time at all) and pop the money on a good coin - forget about it and come back in a year to see how it's doing

Far too much complication getting a friend involved to do it for you - his accounting for profits, tax etc etc