| All savvy investors take time to ponder over | | | | 3) As hedge funds are exempted from stringent |
| their investments. If you are an accredited | | | | disclosure requirements, they allow fund managers |
| investor, you have more to think about simply | | | | more freedom to buy and sell assets, or to |
| because there are investment options available to | | | | employ any trading strategies that they deem fit. |
| you that the general public does not have access | | | | This allows the fund managers to respond quickly |
| to. | | | | to market changes. |
| For clarity of thought, it is always a good idea to | | | | 4) Due to the growth of the hedge funds |
| make a list of the pros and cons of each type of | | | | industry as a whole, there are more options |
| investment instrument. As an example, we will | | | | available to the accredited investor. |
| briefly discuss the pros and cons of hedge funds | | | | 5) When a hedge fund trading strategy works in |
| investments. | | | | your favor, the returns can be much greater than |
| CONS | | | | traditional public funds. |
| 1) Hedge funds come with high management and | | | | Ultimately, as an investor, your challenge will be to |
| performance fees. This may not necessarily be a | | | | find the right mix of funds that will achieve the |
| con, as you shall see later. | | | | highest possible return in the shortest amount of |
| 2) Hedge funds do not require full disclosure like | | | | time. To achieve this, it is always a good idea to |
| public funds. As a result, it may sometimes be | | | | speak with a qualified advisor, as hedge funds are |
| hard to obtain precise information on trading | | | | notorious for being secretive. |
| strategies. | | | | Speaking to a qualified advisor will help you to: |
| 3) Hedge funds are usually not available to the | | | | 1) Learn more about the different types of hedge |
| general public. They are more commonly for | | | | funds available in the market, and determine |
| certain qualified accredited investors. For this | | | | whether you are qualified to invest in these funds. |
| reason, access is often restricted. | | | | 2) Understand more about the different trading |
| 4) Hedge funds may use proprietary trading | | | | strategies used by each hedge fund to invest in a |
| strategies. Such strategies may be complex and | | | | variety of assets. |
| difficult to understand. | | | | 3) Make wiser hedge funds investment decisions. |
| PROS | | | | To ensure that you make wiser investment |
| 1) Diversification: The proper hedge funds use a | | | | choices, get as many opinions as you can - either |
| multiple manager/multiple strategy approach to | | | | from investment forums or blogs (one of the |
| insulate their funds from weaknesses or drops in | | | | largest isnvestment forums is stock market |
| the markets. | | | | forum and stock market news at |
| 2) Hedge funds, when used appropriately, can be | | | | StockMarketsReview.com). Ultimately, the more |
| used to reduce investment risks (E.g. short selling). | | | | knowledge you gain, the less mistakes you will |
| Funds can perform well in up and down markets | | | | make and the more profitable your investments |
| worldwide. | | | | will be. |