Everywhere you look, from the newspaper to television, people are talking about hedge funds. Though the world’s fascination started several years ago, with the recent Madoff scam, there has been an increase in negative media attention for the entire hedge fund world.

Since the mass media has painted a picture that is far from true, and many have jumped on the bandwagon, we felt it was important to outline the facts of hedge fund investing.  In this article, we will give you opportunity to learn the truths, and dispel the myths that have spread amongst the general public.  First things first, let’s take a look at some of the top stigmas associated with hedge fund investments.

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 is important to recognize the truth about hedge funds, it is 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 do are watching television and agreeing with the general consensus of the public.  On the other hand, those who are educated through first-hand experience and/or mentoring understand the facts of the business, and profit from their information and relationships.

As with every other alternative investment market, you will never understand the intricacies of the hedge fund business until you have taken part in it as a broker or investor.  Despite the myths you hear, the general fact is, hedge funds outperform the equity markets every single year, no matter what the market is doing!  With steady growth over the last decade, and Trillions of dollars invested in hedge funds already, this “infamous” market may never stop expanding…

InsideTrade LLC Staff
(412) 235-2855