What Is the Difference Between a Hedge Fund & a Mutual Fund?

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The difference between a hedge fund and a mutual fund is that a hedge fund is hedging against a specific strategy in the hopes that it will go down and that the company will lose value. Discover how a mutual fund implies a hope for an upward trend with help from a registered financial consultant in this free video on investments and personal finance.

Part of the Video Series: Beginner Investing
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Video Transcript

This is financial adviser Patrick Munro talking about what is the difference between a hedge fund and mutual fund. The mutual fund is by far the most common investment that's available to the average American. In mutual fund of course there's nine thousand of them and they allow you to participate in the shares of that company. And their primary goal is to allow the upward trend growth of that company, the mutual fund in other words. If the fund goes up in value so does your fortune go up in value as well. The hedge fund is quite opposite to that. What it's doing is it's hedging against a specific strategy hoping that it'll go down, that a company will lose value, that a strategy will prove to be unsuccessful. The most successful hedge fund as of late has been one that bet against sub prime mortgages as a strategy. Sub prime mortgages was a way for people with bad credit to get a home of their own and forward relying on increasing property values. Some hedge fund manager bet and realized that that would blow up later on and indeed it has. This is the definition of a successful hedge fund. This is financial adviser Patrick Munro talking about the difference between hedge funds and mutual funds.

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