Chapter 6. Hedge Funds and Other Managed Alternatives

In This Chapter

  • Making sense of hedge funds

  • Deciphering wrap or managed accounts

  • Placing money with private money managers

Wealthier investors with large amounts to invest (typically well into the six figures) usually have more choices when it comes to investment vehicles. Some financial advisers and money management firms pitch alternatives to mutual funds to these folks.

The unbelievably wide variety of mutual funds enables you to invest in everything from short-term money market securities to corporate bonds, U.S. and international stocks, precious metals and other commodity companies, and even real estate funds. Although funds can fill many investing needs — as I discuss in Chapter 1 — you may be interested in and benefit from directly investing in things such as real estate, your own business, and many other investments.

During the early to mid 2000s, hedge funds were proliferating and promising high returns with less risk. In the prior edition of this book, I warned readers, "As with all sales pitches, you must separate fact from fiction and hype." This chapter can help you do just that if you're rolling in the dough. Plenty of hedge fund investors got burned during the financial market turmoil in the late 2000s.

Other types of privately managed investment accounts, such as wrap accounts, exist that have some things in common with mutual funds. The following sections provide some background that you need to know if you're going ...

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