When it comes to investing your money, you’ll find dozens of options available. You can put your money into a business, use it to buy trading stocks, or put it into alternative investment funds like hedge funds. Hedge funds, as their name suggests, essentially takes your money and make an educated bet into companies or alternative investments. They are known to be risker than most investments, but of course, the higher the risk, the higher the returns. Let’s take a look at this investment strategy.
What are Hedge Funds?
If you are familiar with mutual funds, hedge funds are quite similar; both function as a consortium of funds, and they both require you to have investment managers. Hedge funds are generally considered very risky investments but ones that come with potentially high returns because they aren’t regulate the same way as a mutual fund. Typically, mutual funds have a well-balanced portfolio or risker stocks and lower-risk stocks. Also, mutual funds usually have a nice balance of different industries for diversification of risk. However, hedge funds, on the other hand, are free to invest their investor’s money into anything they see fit. This opportunity to earn big money in just a short time is precisely what lures people to invest their money in hedge funds.
Why are Hedge Funds Attractive to Investors?
Other than the fact that there’s a lot of money at stake, hedge funds are preferred by bolder investors as there’s basically no limit as to how they can invest your money in this system. Whether you want to put your money into real estate or commodities, or you want to do some short stock selling or arbitrage, you simply tell your hedge fund manager what to do.
How is it Possible to Earn Large Sums of Money from Hedge Funds?
Leveraging is one of the most common strategies used by hedge fund investors. They borrow funds from a lender and use these funds to make what they believe will be the most profitable investments. Obviously, this is a very risky move. If your instincts fail, you can end up with large debt instead of the massive earnings you were hoping for. If you know exactly what you’re doing and if you’re able to properly gauge the proportions of rewards to the risks, you can get considerable profits from this investment option.
How Does One Invest in Hedge Funds?
Hedge funds are private investment funds, which means the funds are not publicly traded in regular markets. Hedge fund investing is something of an exclusive activity, open only to people who were privately invited to join the venture. If you’re interested in investing in hedge funds, the first thing you need is to get invited. Once you gain access to these private investing activities, you will need the services of a fund manager, most of which charge sizeable fees regardless of whether or not you make good profits. This manager will take care of all the investment details for you.
What are the Initial Expenses Involved in Hedge Funds?
First, you’ll have to pay your fund manager the appropriate fees which are typically higher than the fees charged for mutual funds. It’s also important to note that most hedge funds require a minimum of $1,000,000 as an initial investment. If you don’t have this kind of cash, you may be tempted to borrow a large portion from your lenders which can eventually lead to massive debt.
“Because hedge fund communities are exclusive, being invited and accepted into such a group is a feat in itself,” says Tyson Pratcher, Managing Director at the RockCreek Group. Should you manage to get in, don’t waste your opportunity. Study the trends carefully and be vigilant in monitoring your investment.
In Summary, if you qualify as an accredited investor and you are interested in investing in a hedge fund, then you should really think about the risk involved. There will be fees. Without a doubt, there is definitely value if you can find an experienced hedge fund managed by a fund manager that you can trust.