What are Hedge Funds?

Aah, so now you’re making some serious money as a Mompreneur and you’re ready to become a savvy investor?

Let’s start with what a hedge fund is…

As again, hedge funds are not in my field of expertise, I’m grateful for the information in the definition and explanation in the contributed post below.

What are Hedge Funds?

When it comes to making money in any way shape or form, you should take a good long look at your personal financial portfolio.

This can take a little while, as all of your personal investments will fall into this portfolio (including credit cards, loans, and finance agreements to name just a few things), but it is extremely important that not only do you know how your personal finances shape up, but also how you can then go on to improve them.

Now, seeing as this is a long and sprawling topic, let’s take a look at just one area of personal finance portfolios that you can use to improve how you appear to potential lenders and investors down the line: hedge funds.

Now, hedge funds have been incorporated into increasing numbers of personal finance portfolios over the past decade or so. So, it’s time to understand what they are in order to incorporate them into your own!

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What is a Hedge Fund?

A “hedge fund” is essentially an investment partnership.

It brings together numerous individuals, including yourself, professional fund managers, and investors.

These can often go by different terms, with fund managers often being referred to as “general partners” and investors being referred to as “limited partners,” so if you’re doing a little research into the area, try not to get confused between the names!

All of these individuals work together to create a pool of cash that can then be invested in areas that will bring back a return profit for all involved.

The role of the investors or “limited partners” is to place cash in the pool and the role of the fund manager or “general partner” is to manage these assets and invest them wisely. This, of course, is a relatively risky process.

The name itself suggests that you’re “hedging your bets” when engaging with it, as the fund manager is likely to “go long” and invest in areas that may or may not pay off in the future.

Why Invest In a Hedge Fund?

Now, if there is risk involved, you may be a little more reluctant to contribute your cash towards a hedge fund. This is understandable. But generally speaking, you can expect to make money regardless of whether the market tends to trend up or down.

It’s the fund manager’s responsibility, after all, to use their knowledge and experience to all of your advantages and make as wise investments as possible.

Today there is also algorithmic trading software, such as that provided by Algo Terminal, that can help you all along the way while minimizing risk and bringing back as much profit as possible.

Things to Look for In a Hedge Fund

So, if you feel like you might want to engage with this activity, boosting your personal finance portfolio and making some money along the way, it’s time to start taking a look at different hedge funds that you could invest in. Here are some key qualities that you should keep an eye out for when deciding which fund to join!

Qualified Investors

You don’t necessarily want to get involved in any old hedge fund. After all, you want to be engaging with another group of individuals who are serious about what they’re doing. So, look out for hedge funds that are only open to “accredited” or “qualified” investors. This means that everyone involved has met certain net worth requirements and can afford to make the most of the activity.

Leverage Funds

Some funds will take on leverage (or in other words, will borrow money) in order to boost the amount that they can invest in the first place and thus bring a whole lot more money to everyone involved. It is entirely up to you whether you want to engage with this type of hedge fund or not. Just remember that if you do engage with a leveraged fund, you are gambling with money that is not your own.

Investment Latitude

Before choosing a fund, you need to decide what kind of investment latitude you’re interested in. This will be outlined in the fund’s mandate. Generally speaking, an average hedge fund will allow the general partner to invest in pretty much anything that they like. This could include land, real estate, currencies, alternative assets, and derivatives, as well as stocks and bonds.

As you can see, there’s a whole lot to take into consideration when getting involved with hedge funds. But it’s not all as complicated as you might have initially imagined! As long as you take your time and fully evaluate every potential hedge fund available to you before getting involved, you should be able to make an informed choice and hopefully make significant returns!

Over to You

Have you started investing in any hedge funds?  Have you made money or lost money?

About Lauren Kinghorn

Inspiring the Spotlight on Mom Entrepreneurs

4 Replies to “What are Hedge Funds?”

  1. Yvonnne

    I’ve not invested in hedge funds before but it’s good to know my options. I’m averse to risks in my investments so when you mentioned that ”generally speaking, you can expect to make money regardless of whether the market tends to trend up or down”, it made me more receptive to the idea. Thanks for sharing.

    Reply
  2. Melissa

    I never gave much thought to a hedge fund before reading this post. It is something to think about though when you have your own business. I am glad I have run into your post and this is something I am going to write down in my goals. I thank you for providing information to mothers who work from home that helps motivate and inspire us to continue on.

    Reply
    • Lauren Kinghorn Post author

      Aah, you are most welcome, Melissa. That’s my goal with this website.

      Is there anything specific you would like me to write about? Are you facing any challenges right now as a Work-from-home Mom?

      Reply

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