Hedge Fund Investing, Myths and Facts
Everywhere you look, from the newspaper to television, hedge funds are a hot topic. Though the world’s fascination started years ago, with the recent Madoff scam, there’s been an increase in negative media attention. Unfortunately, this one scandal has skewed the public’s view of the entire market. Ever heard of the saying, “One bad apple can ruin the whole bunch”?
Since the mass media has painted a picture that’s far from true, we felt it was important to outline the facts of hedge fund investing. In this article, we’ll give you opportunity to learn the truth and dispel the myth about hedge funds. First things first, let’s take a look at some of the stigmas about the hedge fund market.
Top Hedge Fund Investment Myths
1. “Madoff Scams” are Common: The fact is, in today’s world, scams are becoming more frequent in every sector of the investment world. Though there have been two major hedge fund scams over the past few years, there were thousands of other hedge funds that performed ethical business, and had high yields. We understand that it is hard to ignore something as big as the Maddoff scam, but it is self-restricting to prejudge an entire market based upon the idiocy of one person.
2. Hedge Funds are Bad for the World: Though this is the perception that the media has beaten into you, it is anything but true. If hedge funds are making more money for investors than any other major investment medium, how could they be bad for the world economy? The fact is, the wealth that is developed in these funds will be spent in economies all over the world, providing a sort of “stimulus” that can’t even be mimicked by the government.
3. Hedge Funds are Very Risky: Generally, hedge fund managers use rather low risk strategies, and invest in many of the same things that the typical investor does. As a hedge fund manager, your focus is to protect your investors from risk first, and attain profit second. Any investment professional will tell you, stability is what attracts LARGE investors, not monumental yields. In short, don’t be scared just because you heard a few bad stories, if anything, the hedge fund market should be considered the safest of all alternative investments.
4. Hedge Funds are All Dying Off: In the past two years, there have been a number of hedge funds which have gone out of business. Despite this fact, there is one thing that most people don’t account for, the number of new hedge funds which were created in that time. In all reality, with the new popularity of offshore hedge funds, there may be more funds that were created than closed. Once again, since some of the major hedge funds have closed recently, it has created a perception in the media that is far from true.
5. Hedge Fund Investors Must be Rich: Though most hedge fund managers only offer investment opportunities to those with 1M or more, there are a number of funds which require far less. Recently, since hedge funds have become so popular, there have been a number of new funds which offer investments as low as 100K. Even though these funds may require less to start investing, with the collection of a large number of investors, they can all trade as one to earn higher yields than they would alone.
Though it’s important to understand the truth about hedge funds, it’s far more important to remember this: the investment world is full of two types of people, those who know what they are talking about, and those who think they do. Typically, those who THINK they know everything agree with the general public. On the other hand, those who actually do know the facts have learned through extensive research or first-hand experience.
As with any alternative investment, you’ll never understand the intricacies until you have first-hand experience. Despite the myths in the media, the fact is, hedge funds outperform the equity markets every single year! With Trillions invested in hedge funds, this “infamous” market will continue to blossom, no matter what adversity it encounters…
InsideTrade LLC Staff
Phone: (949) 444-2111