You’ve no doubt heard about hedge funds, but you might feel they are only for the wealthy investor. Hedge funds are known for their high fees and high minimum investment requirements.
But nowadays anyone can take advantage of a hedge fund-like investment strategy without being a multi-millionaire.
There is a new player in the fintech space that is trying to make hedge funds strategies accessible to the average investor, Titan Invest. They are replicating the hedge fund investment strategy with low fees, no accreditation requirements, and you can get started with no minimum investment.
What is a Hedge Fund?
According to Investopedia, a hedge fund is an investment partnership that includes a fund manager or general partner and individual investors or limited partners. Everyone involved pools their money into a fund that the fund manager invests according to a specific strategy. So far that sounds like a mutual fund, but there are some key differences.
- have much less oversight than mutual funds
- frequently bet that a particular stock will decrease in price, this is called shorting the stock (learn more about that here)
- frequently use borrowed money to buy stocks, this called leverage (learn more about that here)
These three differences mean that hedge funds carry more risk than your average mutual fund. And more risk can mean higher returns.
The term “hedge fund” comes from the techniques that fund managers use to make money, including hedging their bets by buying or shorting stocks. This ability to hedge means that these funds can make you money whether the market goes up or goes down. Your profit depends on the manager’s ability to predict the market.
They are generally considered to be riskier than investments the typical person is familiar with, therefore they are usually restricted to more savvy investors. They aren’t for everyone.
Are Hedge Funds Actually Better?
For the vast majority of people, no. For 99% of us, the recommended strategy is to buy and hold a low fee broad-based index (or mutual) fund. We want to slowly and steadily invest and build wealth, without trying to time the market–knowing the stock market as a whole will rise over time.
A hedge fund does not fall into this advice. Hedge funds typically have very high fees and do not follow a buy and hold strategy–but rather try to time the market.
Here’s an interesting article from Investopedia that discusses how hedge funds can outperform the market during a downturn but generally lag during a rising market.
Warren Buffett’s Bet
Warren Buffett made a million-dollar bet with a hedge fund manager that the Vanguard S&P500 Admiral Fund (VFIAX) would outperform the hedge fund over a ten-year period due to the high fees that hedge funds charge. The bet began on January 1st, 2008 and the hedge fund manager conceded defeat in May of 2017.
There are two interesting points about this bet. One is that the hedge fund outperformed the index fund through the 2008 financial crisis and the index fund didn’t pull ahead until 2012.
The second point of interest is that the Treasury bond where the million-dollar bet money was being held actually performed the best of all!
How Can You Invest in a Hedge Fund?
Not everyone can invest in a hedge fund. The Balance explains that generally, a fund manager will only accept you if you are an “accredited investor” or “sophisticated investor” in order to follow government regulations. (You can read about that here.) Generally, an accredited investor must meet one of the following criteria:
- individual annual income of $200,000, or $300,000 if married, for two consecutive years
- have $1,000,000 in net worth excluding your primary residence
However, a company like Titan helps non-accredited investors attempt to reap the rewards of hedge funds without actually investing in restrictive hedge funds.
Related: The Best Robo-Advisors to Automate Your Investing
What is the Minimum to Invest in a Hedge Fund?
The hedge fund manager sets the minimum investment amount, and it’s usually a high threshold. You will often be required to invest at least $100,000 and may have to go as high as $1,000,000 for a traditional hedge fund. This requirement ensures that the fund remains somewhat exclusive and that everyone involved has enough financial “skin” in the game.
How Do Hedge Funds Make Money?
Hedge funds make money through management and performance fees. Management fees are often assessed at 2% but they can range from 1% to 4%. These funds pay for the expenses that the fund incurs, including overhead and daily expenses.
Performance fees can be as high as 20% of profits. Performance fees help ensure that the fund’s management pushes hard to make money and are a type of insurance for investors that their money will be properly managed. These fees usually go to rewarding the staff for a job well done. (Get more info on this here.)
Titan Invest Review
First and foremost, it’s important to note that Titan is not a hedge fund. Instead, they build strategies similar to those of long-term, fundamental-focused hedge funds and attempt to deliver above-market returns to the average investor.
Most large hedge funds must report their long holdings every quarter. Titan uses software and human judgment to analyze these hedge fund’s holdings and identify/ manage a portfolio of their 20 highest conviction stocks.
They then short 0% – 20% of your portfolio, depending on your personal risk tolerance. This hedge is automatic and dynamically applied for your based on several factors. It is designed o mitigate volatility for clients on a personalized basis.
They use both proprietary software and real humans to manage your portfolio and do not use leverage of any kind in client’s portfolios.
There is no minimum investment, which makes their funds accessible to a lot more people than a traditional hedge fund.
Minimum Investment and Withdrawal Requirements
You don’t need anything to get started with Titan. Compare that to the fact that you’ll typically need $100,000+ to get started with most hedge funds.
However, deposits to your investment account must be at least $10 per transfer. You can set up automatic transfers or send in additional money in “one-off” deposits.
The $10 transfer limit also applies to withdrawals. When withdrawing funds from your account, you must transfer at least $10 at a time. If your balance falls below the $10 requirement you don’t have to do anything, however, if you want to withdraw funds at that point, you must withdraw the full balance.
Related: Fundrise Review: Commerical Real Estate Investing for Everyone
Titan charges no fees on accounts with balances under $500 and 1% of assets under management for accounts above $500.
That means you will pay $10 for every $1,000 in you have invested with Titan. This is obviously much less than the typical hedge fund which often charge 2% of assets under management plus “performance fees” of up to 20% of profits.
Fees are charged to the account on a monthly basis, based on the average balance of the previous month.
While their 1% fee is less than hedge funds, it is more than other investment brokers that are either robo-advisors such as Betterment or “do it yourself” style firms such as Fidelity or Vanguard.
However, with both robo-advisors and “do it yourself” brokerages there are typically no humans involved in your portfolio, other than yourself. Titan uses both investing software and human experts to create and manage your portfolio. This is why they say you can expect to pay more than you would at a pure robo-advisor.
Types of Accounts with Titan
Titan offers both taxable brokerage accounts and IRA’s–both traditional and Roth. If you have a 401(k) you’d like to roll over they can take care of that for you as well.
They do not yet offer small business retirement accounts, joint, custodial, or trust accounts.
Titan launched in February of 2018 giving us a very short time frame to look at when it comes to past performance. Typically mutual funds will give you five and ten-year histories. However, since Titan is new to the investing marketplace they don’t have those stats quite yet.
Since inception, they have had net returns of 15% while the S&P 500 has returned 11.4%. (As of January 31, 2020)
They ended 2018 with negative returns of 7%, while the S&P500 also fell 6.1%. In 2019, they rebounded with a whopping 33.7% return, while the S&P500 came in with a beautiful 31.5%. In comparison, Vanguard’s Total Stock Market Fund (VTSAX) rose 30.8% in 2019.
See full performance disclaimers at the end of this review and on Titan’s website.
However, the point of hedge fund style investing is that it allows you to make money even when the market is going down–assuming you can predict it’s falling before it happens.
Performance figures reflect a hypothetical Titan client with an Aggressive risk profile; clients with Moderate or Conservative risk profiles would have experienced lower returns. See full performance disclaimers at the end of this review and on Titan’s website.
Getting Started with Titan
You can sign up with Titan either on their website or through their app. To sign up on their website simply click the “Join now” button in the top right corner of any screen. On the app, click on the “sign-up” button on the opening screen.
You will be then be taken through a series of questions to gather your personal information. They will ask for the following information:
- Email address
- Social security number
- Home address
- Phone number
- Employment status
All investment brokerages are required to gather this information from their customers. Nothing here is out of the ordinary.
To actually invest and access your account, you will need to use their app. They are working on a full desktop version but for now, the app is the way to go.
Is Titan Invest Safe?
Yes, Titan is as safe as any other investment platform. They are a legitimate company that takes your personal information very seriously. They use bank-level security to ensure that your private information is stored securely.
You have probably heard of hedge funds, including how profitable they can be, but you may have thought you could never participate. With the help of Titan, you can take advantage of the hedge fund investment strategy without being a millionaire or earning a six-figure income.
If you’ve been curious about hedge funds this is a good opportunity to dip your toes in the water. With no investment minimum, you can try the Titan app and see if it’s for you.
Of course, any legitimate investment comes with risk, and hedge funds are known to be riskier than other forms of investment.
So be sure to keep that in mind. As with anything, you’ll want to be cognizant of your overall holdings and make sure your portfolio as a whole is in line with your risk tolerance.
But with that said, if you’ve been wishing you could get into hedge fund investing but thought it was out of your league you will be pleasantly surprised with Titan.
All opinions are our own. This is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services. Titan uses a proprietary algorithmic strategy in selecting recommendations to advisory clients. Please see Titan’s website (https://www.titanvest.com/) and the Program Brochure (available on the website) for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Titan’s registration as an SEC registered investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made. Nothing here should be considered as an offer, solicitation of an offer, or advice to buy or sell securities. The above content is for illustrative purposes only to demonstrate products, services and information available from Titan. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections, are hypothetical in nature and may not reflect actual future performance. Performance results are net of fees and include dividends and other adjustments. All Titan performance figures represent performance of a hypothetical account created on Titan’s inception date of 2/20/18 using Titan’s investment process for an aggressive portfolio, not an actual account. All Titan performance results include the use of a personalized hedge for a hypothetical client with an “Aggressive” risk profile; clients with “Moderate” or “Conservative” risk profiles would have experienced lower returns. Please visit https://support.titanvest.com/investment-process/hedging for full disclosures on our hedging process. Wherever Titan’s Flagship strategy performance results are shown alongside other investment managers’ comparable results, “Inception Date” is defined as 2/20/18. 2020 YTD results are measured from 1/1/20 through 1/31/20. 2018 results are measured from Inception Date through 12/31/18. All-Time (Annualized) represents internal rate of return from Inception Date through 1/31/20. Results for the Titan Flagship investment strategy as compared to the performance of Illustrative Benchmarks is for informational purposes only. Performance results were prepared by Titan Invest, and have not been compiled, reviewed or audited by an independent accountant. Titan makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information and will not be liable for any errors, omissions, or delays in this information or any losses or damages arising from its display or use. Performance estimates are subject to future adjustment and revision. Investors should be aware that a loss of investment is possible. Additional information, including (i) the calculation methodology; and (ii) a list showing the contribution of each holding to the portfolio’s performance during the time period will be provided upon request. See Titan’s website for full performance disclosures (https://www.titanvest.com/disclosures) on Titan and the Illustrative Benchmarks. By signing up for Titan from this page, you acknowledge your receipt of the Wrap Fee Brochure and Solicitor Partner Compensation Disclosure. In addition, you understand the new account opening requirements. Solicitors may receive compensation for funded account openings on the Titan app that occur through this referral landing page.
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