Investments in Stock – And Alternatives for Accredited Investors

The stock market has become a very popular investment vehicle for private investors over the past decades. However, the returns generated by investing in stocks aren't always on par with those typically generated by alternative investment options such as hedge funds. Let's take a look at how stock investment works and why CARL's portfolio of sophisticated quant strategies is a smart option for you if you qualify as an accredited investor.

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How to Invest in the Stock Market

If you're new to investing in general, then the stock exchange may feel like a relatively safe investment option for you. The stock market allows you to buy shares in a company's stock, each of which represents ownership over a small part of that company. This effectively gives you the right to receive dividends from corporate profits. To give you a simplified example, if a company issues 100 shares, you could buy 30 of them and thus be entitled to 30% of the total dividends the company is able to pay to its shareholders.

In many cases, shares also come with additional rights, such as the right to cast a vote in specific corporate decisions (electing the board of directors, for example). Corporations can determine which rights shareholders have when they issue their shares. Thus, the same company could issue multiple types of shares, each of which entitles you to a different percentage of the dividend yield while giving you various rights. For example, a company may opt to issue a certain amount of non-voting stock in addition to voting stock. This may allow them to receive capital without risking a majority shareholder having too much control due to voting rights.

Keep in mind that owning a specific percentage of shares in the stock of a corporation does not legally mean you have direct ownership over the company or its assets. For example, you cannot buy 50 % of all outstanding shares and then demand that the company hand over half of its assets to you. You are, however, entitled to your share of the money that the company pays out.

Common and Preferred Stock

Most corporations distinguish between two types of shares – common stock and preferred stock. The core difference here is that preferred shares benefit from preferential treatment when paying dividends to stockholders. The company has to pay dividends to investors holding preferred shares either before or at the same time as it pays dividends to investors with common shares. Preferred shares also benefit from asset preference in case of company liquidation. In other words, if the company is liquidated, the remaining assets will be divided among holders of preferred shares before holders of common shares get to see any of it. In case of bankruptcy, this can mean that holders of common shares receive no assets at all.

Notably, many corporations issue preferred shares without voting rights and common shares with voting rights. This means that preferred stock is a good option for investors who prefer a more hands-off approach, while shareholders with shares in common stock can influence the corporation in a more fundamental way thanks to their voting power.

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Investing in Small-Cap or Large-Cap Corporations

When it comes to investing in the stock of a corporation, investors usually differentiate between large-cap, mid-cap, and small-cap stocks. As the "cap" part stands for "market capitalization", this is essentially a way to differentiate companies according to the total value of their outstanding stock (market capitalization equals the current share price multiplied by the number of outstanding shares).

The phrase "small-cap" refers to companies with a market capitalization between $300,000,000 and $2,000,000,000, while large-cap companies usually have a capitalization of more than $10,000,000,000.

Typically, the terms refer to smaller companies and start-ups, which offer a lot of growth potential, and large companies that may not have the same potential for further growth but are considered to be less risky investments.

Who Can Invest in the Stock Market?

In the United States, any adult can buy and sell stock as long as they follow all legal regulations and file income reports with the IRS. The best way of doing this is by opening a brokerage account with any of the many available stockbrokers who will effectively act as a go-between for you and the stock market.

If you have the money necessary to pay for the services of a full-service stockbroker, you may also be able to fulfill the SEC's requirements for qualifying as an "accredited investor". This makes you eligible to invest in hedge funds such as CARL's sophisticated quant strategies with 15%+ targeted returns.

In the past, most stockbrokers were "full-service" brokers, which means they would offer financial advice tailored to your needs, but this made them expensive. Today, many online stockbrokers effectively give you the power to invest in stocks via mobile phone apps, similar to the CARL app for investing in quantitative hedge funds. Such brokers typically don't provide individualized financial advice, but they do offer an easy way of entering the stock market. Whether you're using a full-service broker or one of the many online brokers, you should be aware that you will have to pay fees and commissions on all of your trading activity.

Are ETFS and Mutual Funds Related to Stock Investing?

Both Exchange-Traded Funds (ETF) and mutual funds are investment vehicles designed to pool money from multiple investors, with the ultimate goal of acquiring enough capital to make more lucrative large-scale investments. These funds can invest in a variety of securities, and many of them focus on the stock market.

This essentially means that, instead of investing in individual stocks, you invest in the ETF or mutual fund, which may then invest your money in stocks on your behalf. This system works similarly to hedge funds, but there are a number of limitations that ETFs and mutual funds have to contend with. For example, they are prohibited from engaging in short-selling and other highly effective but risky investing strategies commonly used by hedge funds.

Sophisticated Hedge Fund Investments Aren’t Just for Institutions Anymore

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Is the Stock Market a Good Investment Opportunity for You?

Historically, the stock market has provided risk-averse investors with an excellent way to invest money for decent returns. This has led to a situation where many ordinary citizens either regularly invest small sums or buy stock in a "set-it-and-forget-it" manner to bolster their retirement, for example.

However, for high-net-worth individuals, the returns on individual stocks may not always be as attractive as they are to people of moderate means who invest in a more casual manner and expect less out of their investment. For high-net-worth individuals, alternative investing strategies can be a much more lucrative option.

Alternative investments such as hedge funds don't follow the same strict SEC regulations as stocks, and they often combine greater risk with much larger potential returns. For example, the hedge funds in CARL's portfolio feature 15%+ targeted returns, which is much more significant than the dividends you may earn via long-term stock investments. The main reason why many people stick with stocks over hedge funds is that the latter are only open to accredited investors. In short:

  • Stocks typically offer decent returns
  • Stocks are relatively low-risk
  • Stocks are available to all kinds of investors
  • Hedge funds offer substantial potential returns
  • Hedge funds are riskier
  • Hedge funds are only available to accredited investors

So if you have what it takes to be legally considered an accredited investor, you should take alternative investments such as hedge funds into consideration when building your portfolio.

Not Quite as Hands-off as You Might Like

Many people getting into stock trading for the first time assume they can just buy a certain number of shares to augment their income with a fixed dividend yield. Unfortunately, there are several reasons why this hands-off approach doesn't always work. For example, a company may issue additional shares after the initial public offering, effectively increasing the number of outstanding shares and decreasing the percentage of dividends you're entitled to with the number of shares you have. Even a buy-and-hold strategy requires you to buy additional shares if this happens, to keep your original percentage of all outstanding shares.

Stock market crashes can also wreak havoc on your portfolio if you haven't effectively diversified. This is why hedge funds, such as the ones CARL specializes in, typically "hedge their bets" by buying assets that are bound to go up if the market goes up as well as assets that will increase in value if the market goes down. If you're investing in individual stocks, you don't automatically have the same safety net to make sure your investments are high-yield and low-risk at the same time.

Payouts Are Timed Differently

If you own shares in a corporation, you may receive part of the dividend yield on a regular basis. Corporations typically follow a strict schedule on when dividends are paid out, so they may opt to pay out dividends every year, every quarter, every month, and so on, depending on their articles of corporation or articles of association. The company may also pay out "special dividends" on unscheduled occasions (in addition to the scheduled dividends) as determined by the company.

This means that if your investment generates returns, these will be paid out on a schedule determined by the corporation. On the flipside, hedge funds allow you to withdraw money from your investment as determined by the hedge fund's lock-up period. For example, a hedge fund with a lock-up period of six months may allow you to request a withdrawal at any point, but the fund has the right to process this withdrawal within the next six months. This is because the money you're asking to withdraw may currently be tied into illiquid assets, and withdrawing immediately might destabilize the entire fund. This is not the case with CARL, however, as our strategies have no lock-up periods and allow you to invest or withdraw on a monthly basis. This gives you a significant amount of flexibility compared to stock investments or most other hedge funds, as you can react quickly to changes in the market.

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3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

Set Up Your Account

Quickly and securely connect your CARL account to your bank and transfer investment funds.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

Fund Your Investment

Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

Invest With CARL for Greater Returns

As we've seen, investing in individual stocks is an advantageous and relatively safe way of investing your money. However, if your income or personal net worth is significant enough for you to be considered an accredited investor according to SEC regulations, and if your risk tolerance allows for it, you have many more options for investing. Quant hedge funds, which typically generate even more significant returns than investing in stocks or vehicles such as ETFs and mutual funds, are the perfect opportunity for accredited investors to really get the returns they want.

If you don't want to forego stock market trading completely, CARL's quants are a great way of diversifying your portfolio.

And with CARL, you don't just get access to sophisticated quantitative hedge funds with 15%+ targeted returns; you can also withdraw money on a monthly basis thanks to no lock-up periods. This makes CARL's quants some of the most flexible and lucrative options for investors. Set up your CARL account today and start investing in the real money-makers of the alternative investment world.

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