To understand how hedge funds and mutual funds differ from each other, we first need to take a look at the things they have in common. This is because they operate on the same core principle: Both types of funds pool money gained from investors in order to make investments chosen by the fund manager or management team. This is a very advantageous way to invest for several reasons:
- You don't need to buy, sell and track stocks or other assets and investments yourself – the fund's employees do most of the work for you.
- Since the fund pools the equity of multiple investors, it can make more large-scale and potentially more profitable investments compared to each investor acting individually.
- With the pooled equity comes a certain amount of inherent risk management, as both gains and losses are shared equally among investors.
- Depending on the talent working at the hedge funds or mutual fund, they may have the know-how which individual investors lack, possibly leading to more effective investment strategies.
This makes funds much more convenient investment options for most non-professional investors compared to building your own portfolio of assets from the ground up.
And depending on the fund you've chosen, your investing experience may be even more convenient and laid-back, as the CARL app allows you to invest from wherever you are, at any time you want.
All you need as an investor is a smartphone and a CARL account. Simply choose which quant you wish to invest in, and all of the day-to-day tradings will be taken care of by the hedge fund's team.
Most people are at least somewhat familiar with how mutual funds operate. Mutual funds are available to the general public, and SEC regulations require them to disclose details about their investment model in a publicly available prospectus. They also usually don't require potential investors to provide significant minimum investments.
Mutual funds are great investment opportunities for most citizens, as they don't require large investment sums, and the risk involved is usually very low. Mutual funds make extensive use of diversification to limit the risk they're exposed to, and SEC regulations prevent them from investing in many of the more risky alternative investment vehicles. On the other hand, this does mean that the profits from mutual funds tend to be much lower than the potential gains of hedge funds. For example, CARL's quants offer 15%+ targeted returns, significantly more than your typical mutual funds. This is because – in contrast to our quants – mutual funds are limited to traditional investments such as stocks, bonds or securities.
In contrast to mutual funds, hedge funds are usually not publicly available. In fact, before CARL started providing unprecedented access to our sophisticated quant strategies, investors typically needed to either know someone who could get them access.
They had to actively seek out and contact hedge fund firms just find out what they're trading in and what their overall strategy is, etc. This system has made it much harder for ordinary citizens to invest in hedge funds, as it limits access to a select few privileged high-net-worth individuals.
CARL believes that this is a very unfortunate state of affairs, as hedge funds can be a significantly more advantageous investment vehicle compared to mutual funds.
Since they aren't publicly traded and few SEC restrictions apply to them, they have many more options when it comes to investing.
From financial derivatives to private equity,
hedge funds are legally allowed to invest in a number of alternative investment vehicles which provide significantly higher targeted returns
at an increased risk. To manage this risk, hedge funds use diversification and hedging strategies.
While anyone can invest in a mutual fund, the SEC mandates that hedge fund investors must qualify for accredited investor status. This means you prove one of the following to be allowed to become an investor in CARL's quants or hedge funds in general:
- You have an annual income in excess of $200,000 (or $300,000 if you're married)
- You have a net worth in excess of $1,000,000 (excluding the value of your primary residence)
- You hold a Series 7, Series 65, or Series 82 license
The two types of funds discussed here are not mutually exclusive – if you qualify as an accredited investor and thus could legally get access to hedge funds, you can still invest in a mutual fund if you so choose. For example, you may be wary of the additional risk that hedge funds expose you to. Or you may not be willing to pay the often steep minimum investment sums that most hedge funds require. However, if you already qualify as an accredited investor, there is a good reason why mutual funds may no longer be the best investment option for you:
As inflation causes your financial assets to lose value over time, you'll need to do something with your money just to prevent your personal wealth from dwindling. Since inflation has already outpaced the interest rates on savings accounts, this means you need to actively invest. Unfortunately, stocks and bonds no longer offer significant returns – you may not even be able to prevent your wealth from losing value. CARL believes that alternative investment vehicles are the only investment that can still provide returns significant enough to not just help you break even but grow your wealth. In other words:
- The increased risk of hedge funds can be managed with portfolio diversification and hedging strategies
- The significantly higher targeted returns of hedge funds over mutual funds are worth the slightly increased risk
- Hedge funds can always choose to invest in lower-risk assets, but mutual funds are prohibited from investing in most high-yield assets
While mutual funds may seem the prudent choice as they expose you to lower risk levels, hedge funds are the only way to generate the returns you need in the current economy. Add to this the fact that CARL's quantitative strategies offer 15%+ targeted returns at a significantly lower minimum investment level ($20,000) compared to other funds and with substantially greater liquidity thanks to having no lock-up periods, and you'll understand why hedge funds – and CARL's quants in particular – are the only way to go if you already qualify as an accredited investor.
Hedge funds have historically been an investment opportunity for the uber-rich. CARL now changes the game and provides you access to some of the most sophisticated quants strategies available today at a significantly reduced minimum investment level. Set up your CARL account today to access all of the relevant information about our quants from your smartphone, allowing you to make informed investment decisions without having to collect all of the information yourself. It's never been so easy to benefit from the power of quants!