Five Myths About Private Markets

TruePoint Capital

Unhappy with Wall Street advisors and managed funds who never beat the market, many investors and taking control of their financial destinies.
For those looking to venture out on their own, what are the options? Take on stock trading on their own? That’s a fool’s errand.

A study cited in a recent article found that the average 20-year annualized return of retail investors was only 2.5%. The average annual inflation over the past 20 years has been 3.25%. When factoring in inflation, the average retail investor is losing .75% per year.

Many investors are tired of the stock market altogether – growing increasingly weary of watching their 401(k)’s rise and fall with the whims of a trigger-happy investing public.

Why subject an investment portfolio to mob mentality driven by social media trends, geopolitical conflicts, the latest economic news or dizzying talking heads on cable business shows that wreak havoc on one’s retirement goals?

Tired of the public markets, intrepid investors are turning more and more to the private markets for consistent and predictable returns shielded from Wall Street volatility.

While many willingly dive into private market investing, some hesitate to dip their feet in that pool – held back by common myths they’ve heard about when it comes to private markets.

What are the five most common myths about private markets?

The Ultra-Wealthy Prefer Stocks Over Private Market Investments. 

This is very false. The ultra-wealthy are heavily allocated to private markets – with asset allocations in the private dwarfing those of public equities.

According to the most recent quarterly asset allocation report of the members of Tiger-21 – a social network of ultra-high-net-worth individuals (UHNWIs) – these UHNWIs allocated more than 50% of their investable assets in private market investments like commercial real estate and private equity. Allocations to public equities represented less than 20% of a typical member’s portfolio.

Private Market Investments Are Higher Risk Than Stocks.

While certain private market investments like gold, crypto, and start-up investing can be extremely high-risk like stocks, certain other private alternatives such as commercial real estate and private equity are considerably less risky than stocks.

Also, because real estate and private equity are often backed by tangible assets, the likelihood of losing the entirety of one’s investment is less likely than with investments in stocks.

On Average, Private Investments Deliver Lower Returns Than Stocks. 

Not only do the average long-term returns of commercial real estate and private equity exceed the average return of the S&P 500, but those returns are generated at a lower risk.

Private Investments Are Only Available To The Rich Or Well-Connected. With recent changes to securities offerings through the JOBS Act that have loosened restrictions on advertising and general solicitation, investment opportunities in the private markets have not only become more discoverable but also more accessible to more and more qualified investors.

Additionally, with a recent amendment by the SEC expanding the definition of an Accredited Investor, more investors than ever are now eligible to invest in exempt private offerings.

The Cost Of Entry Is Too High With Private Market Investments. Compared to stocks that can often be bought for pennies, private investments may seem high but they’re certainly not prohibitive with minimum investments starting as low as $10,000 depending on the fund.

Private market investments that offer both cash flow and growth can build the type of reliable wealth that public equities can’t – all with less volatility, less risk, and more security. Discover for yourself why investors are abandoning the stock market in droves for promising private markets.