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Tax Reform, My Way
We need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape. There are several things...
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Economic Survival in the 21st Century - the Three Key Questions to ask
In this “special report”, I want to pose a few important “philosophical questions” to my readers. Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressed the effects and implications of our aging population on things such as Social...
It’s Stocks, Not Markets, that Bring Investment Success
It’s Stocks, Not Markets, that Bring Investment Success by Gabriel Nijmeh If you are fairly new to investing and looking for some guidance or if you are seasoned investor, let me introduce you to NAIC. National Association of Investors Corporation...
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Investigate Your Investments
Are you not opening your investment statements that come every month? This article provides quick tips and guidelines to understanding your investment statements.
Have you ever said: "I don't even open my brokerage statements" or "I let them...
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Hedge Fund 101 - Make Money with Hedge Funds
Investors are always looking for the best investments that will yield the most profit. Any investor who can afford the extra cost should consider investing in Hedge Funds. Hedge Funds were started in 1949 by Alfred Winslow Jones, who pioneered non-traditional investment strategies. Jones innovated this new investment strategy by selling short stocks, while buying other stocks (long stocks). Hedge Funds are very similar to Mutual Funds, except that there are fewer regulations on Hedge Funds. As a result, Hedge Funds usually require a much larger investment.
What Are Hedge Funds?
Hedge Funds can help investors make more money with higher-risk investments. Other techniques used in Hedge Funds include “leverage,” which is borrowed money to trade in addition to the capital provided one’s investors. The usage of Hedge Funds also requires an incentive fee. An incentive fee is a fee based on a portion of the client’s profits as opposed to a fixed percentage of assets. This fee is then invested and ideally will gain the investor more money.
Generally, companies are the owners of Hedge Funds because most people do not have enough money to meet the minimum investment required to have a Hedge Fund. In 2004, Hedge Fund investments passed the $1 trillion dollar mark. In mid-2004 about 39 companies shared the total Hedge Fund values of 1.1 trillion dollars.
Common Techniques for Investing
There are also other techniques for investing with Hedge Funds. One way is to invest in a company just before a major merger. If one gains knowledge of a merger, and buys large amounts of share in a company that is about to merge, the shares go up greatly once the merger
occurs. This is, unfortunately, a very high-risk investment strategy because some mergers may not occur.
Other techniques include selling short, which is where one invests in seemingly undervalued securities, trading commodity and FX contracts, and taking advantage of the separation between the current market price and the highest purchase price in events such as mergers.
Why are Hedge Funds Beneficial?
Hedge Funds are also beneficial because of their high level of security. Hedge Funds are private, between individuals, and do not have to be made known to the government or other companies. Currently, Hedge Funds do not need to be registered with the SEC. Hedge Funds are also based in places with less regulations (I.E. The Cayman Islands, The Virgin Islands, etc). However, one drawback of Hedge Fund security is the fact that it looks suspicious to have secretive investments. For this reason, many companies and investors are criticized for being involved with Hedge Funds.
Conclusion
Hedge Funds are a very risky investment, with a large payoff. In order to invest in Hedge Funds, one must be prepared to make a very large investment. Hedge Funds are similar to Mutual Funds, except there are less regulations on Hedge Funds. Less regulations lead many people to be suspicious of investors who invest in Hedge Funds. However, if one is willing to take the risk, Hedge Funds can certainly pay off!
About the Author
Scott Hillsworth enjoys writing about financial topics. Learn more at Hedge Funds Blog, a weblog with daily hedge funds research and news.
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