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Warren�s Wisdom: Funds and Other Hedges . . .January 11, 2006

 

Funds and Other Hedges . . .

 

Hedging has always been an integral part of the world of financial planning and via recent publicity regarding Hedge Funds, it has become a topic of conversation around town as well.

 

In our experience, just about everyone needs to have some hedges as a part of their lives. That is, virtually no one has the resources to be comfortable without any insurance, any back-ups of their computer data or any alternate travel options in case the weather turns bad.

 

At Warren Ward Associates, reviewing insurance policy coverage is something we do for almost all of our clients. We consider both the various available types of insurance as well as appropriate levels of coverage. The act of hedging some of life�s risks can be a critical step in making sure that longer term goals are met, regardless of what sort of problems life should dish out. In fact, we recommend some level of hedging (usually through insurance) to virtually all our clients.

 

Speaking strictly about investing, however, pretty often these days one of us is asked the question: �should I invest in a hedge fund�. Just as with similar questions about specific stocks or mutual funds we respectfully suggest that the focus be returned to the formulation of a suitable Investment Policy Statement. Once someone�s personal tolerance for risk and long term goals are reviewed, we usually find that specific questions about individual investments can be answered fairly easily.

 

Like the oil & gas limited partnerships of the 80s and the tech stocks of the 90s, hedge funds have gotten a lot of press recently but very little in-depth explanation. It seems to us that going back to basics is the best way to approach any financial planning or investment-related question. Knowing what you want to accomplish, and over what time-frame, is always a good place to begin � and, for the record, we have yet to recommend a hedge fund to a client.

�2006 Warren Ward Associates. All rights reserved.