Why would anyone invest in a hedge fund? In your experience, is it worth the risk most of the time or not?

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“Anyone” can’t invest in a hedge fund. Most funds have subscription minimums, and can only receive money from accredited investors, institutions, or high net worth individuals etc. The average joe doesn’t have enough to even be considered. Those that do, often use alternative investments (hedge funds) as part of a larger diversified investment strategy. For them is it worth the risk, it depends on their goals and the underlying investment strategy they follow. Are hedge fund’s tremendously risky to investors, not really, save for blowups. All investors should be prepared for losses of course, but on average, with decent due diligence an investor can find funds that meet or beat the benchmark.

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I would only really do it for diversification. Generally speaking in down trending economies they do better than the index funds and mutual funds. Instead of being down 10% they maybe down 2%. There are many money managers who allocate 10-20% of their funds to hedge funds for that purpose. Personally if I qualified for the minimum investment at an HF, I’m probably doing pretty well for myself already and at that point, I’d probably do it just to see what kind of return I’d get. This would be a 5-10 year thing mind you, never expect instantaneous return with an HF. They’re like any other investment a person may make with just a much higher minimum investment.

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It’s all about appetite for risk in my opinion. Most hedge fund investors are looking for alpha whereas the average 401k holder really just wants a market return. Most people are not allocating the entirety of their investable income in a hedge fund. If I had a liquidity event for $100m, I would definitely put $20m in a HF to see if I can get a consistent 15% return versus a 7-8% index one. Cause I have all of this other case to live off of.

It enters in the alternative allocation, so either that, commodities or REITs…
On the other side, some might look to its correlation to the market and use them as hedge against a crash.

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