Hedge funds are investment funds that are managed by an investment manager or broker. Private money is pooled together and invested according to a specialized strategy that takes the group members goals and preferences into consideration. For example, if the group prefers to be aggressive about making money, then the investment manager may invest in companies or assets that come with higher risks but offer higher payouts. These funds are generally limited to a small group of people and have a minimum investment amount of at least $10,000. This begs the question of whether investing in hedge funds is right for you.

The first thing you should know is that to even take part in most of these funds, you must be an accredited investor. This means you have to have over $1 million dollars in assets or at least $200,000 in annual income. Since the minimum investment is so high, this is likely to ensure that you won’t be spending money you don’t have. Hedge funds are high risk investments and it is very possible that you will lose every penny that you put into the fund. Therefore you should never be investing in these funds with money you can’t stand to lose.

But with that high risk come the possibility of high returns. Some funds return as much as 20% a year depending on the strategy of the fund manager. If you are looking to make money fast then investing in these funds is certainly one way you can do it. However, you must be certain that you are working with a fund manager who is knowledgeable and experienced in the market. All it takes is one bad deal to send your money down the drain. Take the time to thoroughly investigate the person handling the fund until you are certain they know what they are doing.

Investing in hedge funds is also very costly. In addition to your initial investment, you will also be paying the fund manager a fee for every year they manage the fund. That fee can be anywhere from 1.5% to 20% of the gains made in the fund. On top of that, you must agree to be a part of the fund for a contracted length of time, typically one year. This is to avoid any losses that may result from members pulling their money out and forcing the fund manager to sell assets at a loss. Learn all you can about hedge funds to determine if it is the best investment option for you.