South Coast Today – These investments are too rich for my taste. Wealthy families often hire private money managers, pony up for hedge funds and set up a slew of trusts. And we ordinary folks look on, figuring we’re missing out.
And, of course, we are missing out  on a fistful of costs that could wreak havoc with our investment returns. Feeling envious? Maybe you should feel sorry instead.
Hedging your bets: Among investment status symbols, nothing can quite rival hedge funds.
But this is a status symbol with an eye-popping price tag. A hedge fund might charge 1 percent or more of assets each year, while also taking 20 percent of all gains above a specified level, such as the Treasury bill rate.
It’s even more costly if you buy funds of funds, which make money by investing in a range of hedge funds. These funds levy a second layer of fees, which might be 1 percent a year, plus 10 percent of all profits above some target rate.
Hedge funds pursue a variety of exotic strategies, including trading currencies and commodities, employing leverage and shorting stocks in a bet they will fall in price. Result: A hedge fund should perform quite differently from conventional stocks and bonds, thus reducing a portfolio’s overall risk level.
But star-struck small investors don’t swoon over the diversification benefits of hedge funds. Instead, they lust after outsized returns.
