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Hedge Funds vs Mutual Funds! What Is Right Investment For You?

Introduction To Investment

Today, we are going to cover the most important topic for investors which is hedge funds vs. mutual funds. Investing, stock speculation, mutual funds, hedge funds, banks, and investment consultants have been put under the spotlight since the 2008 financial crisis. As a result, many people have become afraid of investing their money and bringing it to the bank at all-time low-interest rates. Nevertheless, investing can still prove to be beneficial in the long term, for future expenses, or as an additional retirement option, and people should not shy away from going to get more info about options open to them in the world of finance.

Hedge Funds Vs Mutual Funds

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I believe that you will admit that we are in the midst of one major crazy financial mess. The part that makes things really crazy is the fact that it’s not just in the United States anymore but a rather serious global problem that if not handled properly could change the way we live our lives. Hopefully, things don’t get crazy but I truly do know one thing; FEAR is one of the most powerful forces on the earth and folks do some crazy things when they are backed into the corner.

What Is Mutual Fund?

Mutual funds is a great way to invest in a basket of products, such as:

  • Stocks
  • Bonds, or
  • Real estate.

The basket is managed by a fund manager, who will select which values should be added or removed from the basket, and when. Funds can be product-oriented (e.g. stocks, real estate). It can have a strong industry focus, a regional focus, or a combination of all. Therefore, by investing in mutual funds, you are investing in particular segments, of which you believe they will perform well over time, but more importantly, you are investing in the knowledge and resources of the fund manager, whose task it is to keep the fund growing and to limit its losses in bad times.

How To Invest In Mutual Fund?

In order to invest in mutual funds, you will need an investment account at your bank or at one of the many brokers available. Mutual funds can be bought in a similar way to stocks, but instead of buying a share in a company, you are buying a share of a basket, a fund. Funds can, like stocks, pay out dividends on a periodical basis, or not.

Types Of Mutual Funds:

  1. Money Market Funds – Money invested in assets for a short period (Periodic Investment)
  2. Fixed Income Funds – Money invested in fixed bonds for long-term return.
  3. Equity Funds – Money invested in the stock market (Risk is higher)
  4. Balanced Funds – Money invested in different assets just to achieve a target return.
  5. Index Funds – Money invested in the stock market index.
  6. Specialty Funds – Money invested in special assets like real estate or commodities.
  7. Fund of Funds – More or less similar to balance funds.

What Is Hedge Fund?

In other terms, hedging means risk reduction. This is what most hedge funds are meant to do. In the investment world, the risk is usually a function of returns, the higher the risk the more the expected returns for that particular investment. Hedge fund managers are meant to work in such a way that they can reduce the risk without really cutting into the investment income.

Unlike most types of investments, hedge funds are not particularly liquid. This means once you are in, it is more difficult for you to sell your shares. This is usually because; hedge funds will try to generate returns over a specific period of time. This period is known as the “lockup period” where it is not possible for an investor to sell their shares. Because most investments are done over a long period of time, an investor may be in lockup for years at a time. If you didn’t know this then we would recommend that you take a look at these share tips UK to see if there was anything else you didn’t know about.

Is Hiring A Fund Manager Necessary?

First, hire a fund manager because a manager can take the stock market risks from the fund’s portfolio by selling the stock index futures.

Alternatively, they can increase the returns from the investments of relatively low-risk investments by borrowing money. Even with all these strategies, one should note that the risks will remain. Because their work is not very simple given that taking risks away from an investment is not entirely possible.

Fund managers are paid a higher amount of money and are paid differently from other investment managers. In addition to earning a certain percentage from the money the investors have earned, managers get a “management fee” which could be anywhere between 1% and 4% of the net value of the fund’s assets. While this is good for the managers, it is not very good for the investors as it can be frustrating to pay poor-performing managers. It could also lead to managers investing more aggressively to get more money and thus increasing investor risks.

Types Of Hedge Funds

  1. Fixed Income Arbitrage – High leverage Opportunities
  2. Fund Of Funds – Money will be invested in a basket of different funds to get the target return.
  3. Long / Short Equity – Money invested in a stream of long and short-term investments.
  4. Global Macro – This is based on the financial stability of the global environment.

Now, let’s come to the most important topic which advantages and disadvantages of hedge funds vs mutual funds.

Number 1 Hedge fund?

The number one hedge fund in the world is Bridgewater Associates, which currently manages about $125 billion in assets for its approximately 375 clients. Founded by Ray Dalio in 1975 with just $5,000 of personal investments, Bridgewater has become a powerful presence in the investment industry and is often referred to as the “largest and arguably most successful” hedge fund.

While there are other funds that have had more profitable quarters than Bridgewater, their consistent track record of success over four decades puts them at the top of investors’ lists when looking for a safe and lucrative hedge fund investment. From pension plans to sovereign wealth funds, Bridgewater continues to demonstrate its ability to generate superior returns which have kept it firmly rooted in its position as the number one hedge fund.

Difference between Hedge Funds Vs Mutual Funds

Mutual Fund Hedge Fund
Mutual funds are a great way to invest in a basket of products, such as stocks, bonds, or real estate usually, involve a range of investment techniques and generally invest in a wider range of assets.
It is simple to invest. A lot of expertise is required to understand its methodology.
Managed by fund manager. Managed by fund manager
Multiple opportunities
You can earn an average return You can earn a high rate of return
Low – Medium risk High – very High Risk
Offers transparency Least transparency
Low- Medium fee structure Medium – High fee structure
Best for short to long-term investment Best for long-term investment
High liquidity Low liquidity
Predictive investor strategy Planned Investor strategy

List Of Top 10 Hedge Fund Companies In the USA

  1. Viking Global Investors LP
  2. Man Group plc
  3. Lone Pine Capital LLC
  4. AQR Capital Management LLC
  5. BlackRock
  6. BlueCrest Capital Management
  7. Brevan Howard Asset Management LLP
  8. Och-Ziff Capital Management Group LLC
  9. J.P. Morgan Asset Management
  10. Bridgewater Associates LP
Whether hedge funds or mutual funds are better is an age-old debate. Those who swear by hedge funds often cite their ability to move quickly, buying profitable positions before the market takes off and selling off quickly when conditions deteriorate. They also admit that, unlike conventional mutual funds, hedge fund managers are willing to invest in more unusual assets that aren’t commonly traded for larger returns. While this can be a great way to generate more money, it also comes with a certain level of risk.
Mutual funds typically don’t take on as much risk as hedge funds, but they also don’t offer the same potential for high yields. Ultimately, it’s up to each individual investor to weigh the pros and cons and make the best decision about which type of fund is best for them and their goals.

Are hedge funds only for the rich?

Hedge funds are a complex and unique means of investing, available only to the most knowledgeable and well-funded individuals or entities. These so-called accredited investors must understand the risks associated with these investments in order to maximize their potential returns.


Mutual Funds – Investing in mutual funds can prove to be very beneficial, as you will automatically invest in the background, market fluctuations are flattened, and you have a mutual fund manager in the background who will do all the work of selecting which products should be added and removed from the fund. Your task, however, is to regularly evaluate the performance of the fund, and decide whether you would like to keep it, or perhaps exchange it for another fund. If you are not well familiar with the familiar funds, it is recommended that you seek a specialist, who can help you with your decisions.

Hedge funds are not regulated by the US security and exchange commission (SEC). They, therefore, do not have any financial industry oversight entity although in the recent past debates have pointed to the fact that there will be an oversight entity placed soon to regulate this complex industry.

The next time you hear someone talking about this type of investment, you should take a look at these definitions and compare them to see if it is the right type of investment for you.


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