If you are like most people, you would like to invest more money, but you don’t know where to begin. We all grew up knowing a bit about buying bonds and cds from the bank as an investment, but those don’t yield much in return. Plus, they take years and years before they are ready to cash in. They offer a safe investment and they return a bit more than a savings account, but there are alternative ways to invest your money. Of course, the more risk, the more reward.
Hedge funds are alternative investments that use several strategies to have their investors receive a good return for their money. It’s basically an investment partnership, where the hedge fund manager groups the money of several investors. People can invest aggressively, meaning they are taking certain risks to achieve high returns. Hedge funds are usually only accessible to accredited investors, unlike mutual funds, so this means that you will have to do a bit of research to find the right investor that you trust.
Some investors go with hedge funds because there are less regulations when investing rather than going with mutual funds. A hedge fund can invest in almost anything. They can be investments in real estate, stocks, currencies, or any number of things. A global macro strategy is a type of hedge fund that bases its investment on economic and political views of countries. They watch the trends carefully. Global macro strategies that focus on liquid assets which usually do not include risks are a bit safer of an investment. While mutual funds can only be invested in stocks and bonds. Hedge funds are generally managed much more aggressively than mutual funds, so the return could be immense. However, many do not believe the risk of it is worth it.
You might be thinking right now that hedge funds sounds like a good investment opportunity for you. Might want to take a seat for this one. The average hedge fund investment is between $500,000 and $1,000,000. Once again, that is the average investment. Still think that you might want to check out hedge funds? But again, if you have the money, some people view hedge funds as a way to make a lot of money quickly. The whole high risk and high reward theory. However, is it worth it? There are lock-in periods where the investor is not allowed to remove their money. You may be making a fortune, but how good is it if you have to wait a couple years to have access to it?
Hedge funds have a hedge fund manager that pools all of the investors’ money and manages it. They get a two percent fee for doing this. If a hedge fund has fifty million dollars invested in it at the beginning, the manager would collect a million dollars of it right off the top. From there forward, the hedge fund manager receives twenty percent of all profits from the investments. As you can see, a hedge fund manager can acquire quite a bit amount of money. The better their investments do, the more money they make.
But is it worth the high fees? Mutual funds can yield great returns as well, is more regulated (that could be a good or bad thing), and the fees are not so exorbitant. You wouldn’t need such a huge amount of money to invest in the beginning either. It all comes back in the end to how aggressive of an investor would you like to be. Speak to knowledgeable investors and money managers to find out more if you are interested!