Independent Salt Lake City Fee-Only Financial Advisor Defines Hedge Funds

Aug. 31, 2009 - PRLog -- Traditionally, a hedge is an investment that minimizes the risk associated with another investment. The hedge is designed to increase in value when the value of the original investment declines.

Recently, the phrase “hedge fund” has taken a new meaning. There is clearly confusion about the term, but here are some general characteristics of current-day “hedge funds:”

• Hedge funds can invest in almost anything – stocks, bonds, options, mortgage-backed securities, commodities, currencies, insurance policies – there is practically no limit.

• Many, but not all, hedge funds attempt to increase their returns by investing borrowed money (using leverage).

• Hedge fund managers generally receive much higher levels of compensation than mutual fund managers. Mutual fund managers are prohibited from charging a fee that’s based on investment performance; hedge funds can charge an investment-performance fee. This provides a heavy incentive for successful investment managers to start hedge funds instead of mutual funds.

• Only “accredited” investors are permitted to invest in hedge funds. Individual investors must have a net worth of at least $1 million or income of at least $200,000 per year.

• Hedge fund Investors are often not permitted to withdraw invested funds at will. There are periods when withdrawals cannot be made at all or there may be a fee for withdrawals.

• Hedge funds are often organized in tax havens like the Grand Cayman Islands in order to provide tax benefits for the fund (though investors still have to pay tax on their returns).

• Because hedge funds must invest large amounts without other investors discerning the strategy they are using, the funds typically operate under a good deal of secrecy.

I would like to thank and give credit to Thomas Fisher, CFP® of Fisher Financial Strategies, an independent fee-only planning firm in Cambridge, MA, for his research and writings on hedge funds.

To view the entire article, visit http://www.utahfinancialadvisor.blogspot.com/2009/08/what....

About Mr. Jefferies

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a member of the National Association of Personal Financial Advisors (NAPFA) and a candidate for CFP™ certification. He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is a platinum expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Contact Info

View Lon's blog at http://www.utahfinancialadvisor.blogspot.com, and visit Net Worth Advisory Group's home page at http://www.networthadvice.com. Lon can be emailed at lon@networthadvice.com, or phoned at (801) 566-0740.

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Fee-Only Financial Planner
Net Worth Advisory Group
6975 Union Park Center, Suite 465
Midvale, UT 84047