Advantages and Disadvantages of Hedge Fund Investments

If you have dreams of huge bank accounts, luxury yachts, private planes and truly living large, the hedge fund investment game may be for you. Big money, the passion for taking risks and a strong disposition is required to participate and succeed in hedge fund investments. Regulators allow hedge funds to participate in greater investment and trading activities than most other types of funds.

Advantages of Hedge Fund Investing

  • The investment manager gets paid a huge performance fee for successfully turning large profits on the fund, therefore he is highly motivated to make the investment flourish
  • Hedge funds bank on the prosperity of only one investment and are not overly diversified investments
  • Aggressive investment strategies such as short-selling or using borrowed money to buy more assets (leverage buying) can legally be utilized
  • Huge gains in the millions are the potential reward for investing in hedge funds

Disadvantages of Hedge Fund Investing

  • Only the wealthiest individuals can participate in hedge funds
  • Hedge funds are extremely risky and millions of dollars can be lost in the blink of an eye
  • The performance fee for the investment manager may encourage them to take bigger risks with your money
  • There are very few government regulations overseeing hedge fund investments

If you have a will of steel and the financial resources to invest in hedge funds, you can potentially make sky-high profits off of this investment opportunity. However, the disadvantages of hedge funds are real and viable and must be properly considered before jumping into this investment strategy. Just remember that hedge funds are extremely exclusive, and being allowed the opportunity to invest in one is a big advantage in itself.