If you are like me you have always been intrigued by the way wealthy people use the wealth they have to grow more money for themselves. One of the vehicles wealthy people use are Hedge Funds. There is a ton of media coverage of hedge funds. However, most of that media attention is negative. We at Residual Income Life are here to present our audience with the truth, whatever that may be. The truth about hedge funds, is there are far more honest hedge fund managers then there are cheats. The greatest truth is that you and I have the opportunity to have our own personal hedge funds. More on that later, we first need to understand what a hedge fund is and how it works.
What is a Hedge Fund?
Before we can take advantage of hedge fund trading strategies with your money we must understand how a hedge fund works. First and foremost, a hedge fund is a large amount of money that is managed by a hedge fund manager. You might be thinking how is that guy different from my current investment manager? The hedge fund manager is different in many ways. First, the hedge fund manager will use any investing tool possible to make you money. For example, hedge funds trade stocks, bonds, options, currencies, commodities, futures, etfs, and even real estate to make you money. Your current investments are most likely in IRA’s and 401K’s which own mutual funds and are based on the principle that you are willing to hope in 40 years you have enough to retire. Hedge funds are based on the idea of making as much money as possible with every trade, thus increasing returns and lowering your retirement age.
How Does It Work?
How a hedge fund works is actually very simple. The idea of a “hedge” is to have the ability to make money whether the market is up or down. For example, you will be both long (you want the price to increase) and short (you want the price to decrease) stocks. That allows you to make money in any economy. Secondly, as previously discussed your money will be invested in many different markets, also increasing potential gains. However, the SEC has very strict laws about who can invest in a hedge because of the risk. You have to have a million dollar net worth and have an initial investment of $100,000. I don’t know about you, but I don’t meet either of those qualifications. However, to most people’s surprise you can run your personal stock account at ThinkorSwim for example like a hedge fund. By that, I mean you can be long and short stocks, you can use options, currencies, and commodities to make money. I will warn you though you will need time to do research before you put money into any investment. You have the opportunity to make lots of money if you do your research. NEVER under estimate the importance of research. I learned the hard way that if you haven’t done your research you will lose money.
Keep your eyes open for my next blog post “How to Run Your Portfilio Like a Hedge Fund” were I take you through everything you need to know to trade like a hedge fund.
As always, if you have any questions or additions… leave me a comment to respond to.