Hedge Fund Investing: Benefits and Points of Concern

When it comes to hedge fund investing, there are benefits to the regular investor as well as points of concern.

These specialized portfolios are for high net worth individuals who are attracted to potential growth, as well as the chance to become part of an “elite” membership. There are features of hedge funds that present growth opportunities, but there are points of concern as well.

Benefits

The primary draw of hedge funds is the potential for large returns. By hedging against market declines, it is the job of the hedge fund manager to strive for alpha regardless of the current state of the overall market.

Hedge fund investing can also provide diversity to an investor’s portfolio.

With plenty of styles to choose from among hedge fund managers, you’ll probably be able to find an operation that suits your interests as an investor.

Points of Concern

The high cost of membership. Saying you want to invest in in a hedge fund and being qualified to do so are two entirely different things. If you don’t have a high net worth, such as $1 million or more, gaining access to the best hedge funds will be impossible. Check with the SEC requirements to determine if you meet the requirements of an accredited investor.

Fees and taxes add up. You cannot expect to invest your money and benefit from large returns without any expenses. Hedge fund fees can be high, checking in at two percent of your portfolio and up to 20 percent of profits. Even more so, the way you earn money through a hedge fund, with unique trading patterns, can result in a higher tax bill.

Hedge fund investing is anything but liquid. If you want your money to remain easily accessible a hedge fund is not the right answer. You will be required to commit your money for a predetermined period of time, typically a minimum of three months. Also, some hedge fund managers are known for limiting withdrawals.

With hedge fund investing, you have the chance to get involved with some of the biggest and most successful names in the industry. From George Soros to T Boone Pickens, there are billionaire hedge funds that could change your investing strategy forever.

Recommended Reading

The 40 Biggest Hedge Fund Billionaires

Hedge Fund Positions: The Trinity

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