First of all, I am stupid. The little knowledge I have of markets/finances have come from a few books, either Bogle books or Bogle-adjacent. I invest in Vanguard index funds strictly and have for years.
A friend of mine runs his own private investment fund. He formerly worked for a very big investment bank, but quit and started running his own fund 6 or so years ago. He previously only took 6-figure investments but recently started taking smaller investments (5 figures). He reached out to me to see if I'd be interested.
My first thought is no because I am a Boglehead. I am of course wary of anyone taking any management fees from my investments. On further discussion, his agreements are to give a certain agreed upon APR on the principal regardless of gains or losses. I would signing for a guaranteed return of 10% annually. The company is an LP between him and his wife so if stocks tank, their shared assets are at stake to recoup the losses.
It sounds too good to be true, so tell me: how does this end? How does it go wrong? I mean, the obvious way it ends is that he invests poorly and loses all the money, then I'm left deciding if it's worth my time and money to go to court against a friend and recoup losses. Is it totally stupid to invest a small portion of my disposable capital and treat it like a really HYSA (that of course isn't FDIC insured)? Have others of you invested in similar situations?
TIA!
EDIT: I appreciate the responses and understand how “Madoffian” this seems/is. It’s not a guaranteed return in the sense that he says his investments are guaranteed to do that well. It’s that he is saying he can beat a 10% return, so he keeps the rest as profit and returns to you the agreed upon APR. If he doesn’t beat that 10%, then he has to pay out the 10% from his fund to meet the APR. does that change how anyone views this?