Investor Beware: The Hedge Fund Tax Bite

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Oct. 17 (Bloomberg) -- Thanks to the Jumpstart Our Business Startups (JOBS) Act, thousands of hedge funds will soon start advertising to the millions of Americans who can theoretically afford to invest in them, but don’t. Investors should be careful. Bloomberg's Matthew Klein explains why on Bloomberg Television's "Money Moves." (Source: Bloomberg)

Hedge funds, you can have the risk of apical veins.

Normally i think of capital gains as easier for an investor than other types of taxes.

You say maybe not.

The problem is every time you trade you have to pay the capital gains tax.

You are much better off than if you have to pay the capital games tax every year.

The second point is hedge funds trade very frequently.

Usually you pay not the long- term capital gains, but the short-term rate of 43.4%. when you combine that with the impact of hedge fund fees, that means the typical tax sensitive investor only gets to keep 40% or so.

Basically you better not get out of the park for what you are investing in?

That is right.

They have found if you want an equivalent after-tax return to the s&p 500, you would need a hedge fund that can do 21% or year, which is very hard to find.

Next it is very hard to find.

What is the best advice as far as taxes go?

First of all, do not try to invest in a hedge fund without knowing about it in advance.

A lot of hedge funds might find this attractive work.

The other one, if you are in a position to have the charitable work to it on your behalf, give it to them.

Lex better way to go.

Joining me from bloomberg view.

This text has been automatically generated. It may not be 100% accurate.

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