Hedge Fund Investing: What It Is

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While it is really not that difficult for a person to begin hedge fund investing, such a move does entail a significant investment in terms of time, as well as reliable and accurate advice from professionally trained and licensed hedge fund consultants in order to ensure that you can avoid common mistakes or over-concentration in one type or overly similar investment portfolios.

Before you go on reading, keep in mind that this article is not meant to be a definitive financial guide, nor is it an implicit or explicit offering of services, but rather a way to de-mystify the entire process involved in hedge fund investing and hedge funds work.

A hedge fund is defined as a private and largely unregulated pool of capital, by which its managers can purchase or sell any assets, take a financial risk on falling as well as rising assets, and participate in the profits that will be earned from money that is invested. First created in 1949 by sociologist, author, and financial journalist, Alfred W. Jones, hedge funds typically charge a performance as well as a management fee, and they are typically offered only to qualified investors.

Interestingly enough, there has been an increase in hedge fund activity in the public securities markets over the past few years, and it now accounts for as much as 10% of all fixed-income security transactions in the United States, 35% of activities with regard to derivatives with investment-grade ratings, 55% of the total trading volume for bonds in emerging markets, and 30% of equity trades. Furthermore, hedge funds are also quite prominent in certain specialty markets, among them trading within derivatives with high-yield ratings and distressed debt.

If you are interested in investing in hedge funds yourself, it would be helpful to keep the following tips in mind:

1. You will have to be an accredited investor.

2. You would do well to learn as much as you can about hedge funds. Good sources of information and advice are hedge fund related blogs, news articles, white papers, books that are written about hedge funds and articles that are written by hedge fund managers. You may also want to speak to people who work with hedge funds personally or that have invested in hedge funds previously.

3. Make sure that you work only with licensed hedge fund consultants and hedge fund brokers. Use the information that you have picked up in the course of your research and work with someone who you can trust and will not steer you towards certain types of funds that may not necessarily be the right option for you.

4. Keep your financial advisor updated on your day-to-day activities throughout the duration of your investment in Hedge Funds.

6. Never rely on a single strategy. Keep in close contact with your financial advisors and have them help you develop a portfolio of investments that will best suit your specific financial position and goals.

7. Finally, keep informed and current on the various aspects of the industry.

Ephren W. Taylor II first revealed his extraordinary knack for making money at age 12 and he hasn't slowed down since. He was a self-made millionaire while still in his teens. In his twenties he became the youngest African-American CEO of any publicly traded company ever, City Capital Corporation (CTCC). Today Taylor and City Capital oversee tens of millions in assets for clients ranging from entertainment icons and pro athletes to church members and private companies. He is a dynamic speaker and author of the best seller "Creating Success from the Inside Out." Learn more at CashFreeInvesting.com, IRACashFlow.com or Ephren.com.

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