Are Hedge Funds For You?

by Alan Lavine and Gail Liberman

Should you invest in a hedge fund?  Most of us can’t do it. Only accredited investors with a net worth of at least $1 million or an annual income of $200,000 for singles or $300,000 for married couples can invest in hedge funds, according to the Securities and Exchange Commission.

      The benefits include:

• Hedge funds focus on absolute returns. These funds use strategies designed to perform well in up or down markets.  .
• Hedge funds are not dependent on interest rate stability or a favorable stock market to perform well.
• Hedge funds seek to profit from market volatility because they can take long or short positions in the market.
• Hedge funds limited the amount of money under management. This gives the more investment flexibility.
• Hedge fund mangers are compensated based on performance. Incentive fees can be as high as 50 percent if the fund doubles its money. In bad years, however, hedge fund managers don’t get paid. .

The drawbacks include:

• Hedge funds are largely unregulated. You must be sure you are dealing with experience and trustworthy hedge fund managers.
• Hedge funds require large minimum initial investments of typically at least $1 million.
• You may have to wait at least three months to take profits from a hedge fund.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.