Financial corner: Are hedge funds a good or bad idea?

Many people find themselves feeling intimidated by the elusive and mysterious hedge funds. Let's look at some interesting facts about these types of investments. Hedge funds are investment vehicles that use a variety of strategies to produce returns that are not tied to the movements of the overall stock market. These strategies, such as shorting stocks and operating leverage, can be pretty risky. As a result, hedge funds can be volatile, and their performance can be challenging to predict.

In today's blog, Scott Tominaga of PartnersAdmin LLC shares some of the pros and cons of hedge funds to help people decide.

PROS:

• Hedge funds can provide investors with access to strategies that would not otherwise be available to them through other investment vehicles.

• Hedge funds can reduce the overall risk of an investor's portfolio.

• Hedge funds can generate high returns in good markets and protect investors during bad calls.

CONS:

• The strategies utilized by hedge funds are often quite complex, which can make them difficult for less sophisticated investors to understand.

• Due to their structure, most hedge funds do not present an equal level of risk to all investors. This structure can put some people at a disadvantage compared with others who have more access to and information about the fund.

• Hedge funds can often have high fees, therefore reducing the overall return on investment.

• Hedge fund performance is difficult to predict and can be pretty volatile overall.

• As with any investment, Scott Tominaga reminds us all that investors must weigh the good and bad points of hedge funds before deciding whether to invest in them or not.

Scott Tominaga is PartnersAdmin LLC's Chief Operating Officer with over 17 years in the financial services industry.

Read more about the finance industry on this page.