Introduction to Hedge Funds for Kids and Teens
This video explains the concept of a hedge fund in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about hedge funds, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is a hedge fund
- Why the name “Hedge Fund”
- Who invests in them
- What do hedge funds invest in
- Do they always beat the market
- How much are Hedge fund fees
What is a hedge fund?
Why are they called hedge funds?
When hedge funds were first created, they focused on hedging or minimizing their risk, and that’s how they got their name. Nowadays, their focus is more on trying to increase returns than to decrease risk.
Even though their focus shifted, the name hedge fund stuck.
Who uses / invests in hedge funds?
Hedge funds often have high minimum investments, and therefore they are usually used by institutions, sophisticated investors, or people with a very high net worth – individual investors like you and me won’t even qualify.
Hedge funds are able to take huge risks since their clients have a lot of money, and would be able to absorb any possible losses that risky investing entails.
What do hedge funds invest in?
Because hedge funds are regulated much less than regular Mutual Funds, they can invest in practically anything, including coins, art, stamps, or even patents!
Hedge funds can also short stocks or other securities.
Do hedge funds always beat the market?
Since hedge funds use risky investment strategies, do they make above average returns?
The goal of a hedge fund is to use these strategies to make high returns, but that doesn’t always happen. Like with any other investment, high risk can lead to high returns, but also high losses.
And the high fee they charge also eats into potential gains.
Because of all this, hedge funds don’t always provide above average returns.
How much fee do hedge funds charge?
Most hedge funds use something called the ‘2 and 20 rule’, where the fee is 2% of the money invested and 20% of the profits earned above a certain amount.
Can hedge fund investors take money out of the fund any time they like?
Most of the time, hedge funds require their investors to ‘lock up’ money for a certain time before they can take it out.
This period is very long – usually a few years.