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Our financial advisors can help you evaluate whether hedge funds should have a place in your portfolio. First, what is a hedge fund? A hedge fund is an investment that uses alternative measures to try to earn significant returns for the investors. Hedge funds are for more sophisticated investors. Individuals with significant assets or large institutions are the most common investors for hedge funds. They are riskier investments that are managed very aggressively, and creatively, to try to find the largest returns.
Hedge funds are only available to accredited investors. Depending on your state residency, there is typically a requirement for the investor to have a net worth of one million dollars or have a minimum annual income, along with significant experience investing. Generally, a large initial investment is necessary and it cannot be touched for a minimum of one year. After the first year, investors can make withdrawals only during specific time periods such as quarterly or bi-annually.
The main goal of hedge funds is to maximize the return on investment, whereas many investors just try to minimize risk. Some of the different styles of hedge funds include long-short strategies, investing in derivatives, and leveraged investing. Hedge funds are not typically correlated to the stock or bond markets, so they can be a good way to diversify your portfolio and bring returns even when other investments do not. They are also relatively unregulated, which allows investment into a broader range of securities and the ability to use more creative techniques. Hedge funds are a unique alternative investment vehicle.
If you need more information about hedge funds, contact CIC Wealth today; our hedge funds financial planners are here to help.
Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs, and international economic, political, and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.