Conventional investing is a pretty dull game. You purchase your index funds or shares of stock on your own and forget about them or in the case with many investors, your financial adviser purchases stocks on your behalf and often times they’re already sold before you even hear about them.
While true diversification is a critical component for a successful portfolio, I would argue the number one reason to invest in private placements is the benefit of above-market returns combined with below-market volatility.
Cambridge Associates, an index that tracks private equity performance, reports that since 2000, Private Investments experienced an impressive 16% annual return compared to 7.4% from the S&P 500.
Private placement securities are similar to typical stock offerings but to private investors, rather than the public, they allow companies to raise significant capital without having to become a publicly traded company.
Private investment opportunities are typically offered in the early stages of a company’s life when they are trying to grow or acquire key assets. Companies and investors both benefit greatly from the issuing of private placements. Investment companies that use private placements do so by providing opportunities to investors with defined exit and the expectation of an ROI.
Heightened volatility in the equity markets and low bond yields have made investment success challenging for many investors, and the future doesn’t hold much promise in the public markets. A recent report by Deutsche Asset Management’s Quantitative Strategies Group forecasted that the long-term (20 years) forecast for the U.S. equity markets is considerably lower than the historical returns of the 1980s and 1990s.
With these lower return expectations, what is an investor to do with heightened return requirements given inflation and the other economic factors increasing financial demands when they retire?
Did you know there is a vast discrepancy between how individuals and institutions allocate their investment capital?
According to the 2017 American Association of Individual Investors Asset Allocation Survey, the average individual investment portfolio consisted of about 66% equity, 16% fixed income, and 18% cash. While individual portfolios are highly skewed in the direction of equities, the same does not hold true for large institutional investors such as college endowments or pension plans whose asset allocation models look quite different.
Some Americans are getting seasick from Wall Street volatility and are looking for alternative investment options. You may be considering alternative investments as well for placing and growing your money.
But, where to start?
Start where the wealthy put their money. Institutions, such as hedge funds and university endowments, as well as ultra-wealthy investors have long invested in private markets as an alternative to the stock market since growth and returns in the private markets have outpaced those in the public market.
Just as in sports, the wealthy know that for growing or maintaining wealth a good defense is just as important as a good offense.
In financial terms, for growing wealth, not only is it important to increase income but it’s equally important to protect that income from the IRS.
Just as zealous as the wealthy are about growing their proverbial “pot,” they are equally fervent about defending that pot from being chipped away by taxes.
2019 is here and let’s go counter-intuitive.
Don’t plan for retirement.
In the world of finance, there are two types of financial advisors, financial planners whose goal is to help customers get ahead and wealth managers who assist those who have already made it.
Financial planners primarily assist with lifestyle planning, including budgeting, college, and retirement. Most of their clients are middle class.
Have you ever gone shopping for a cell phone and get the sense the salesperson you were dealing with was overzealous about a particular brand?
Ever felt pushed hard toward a certain brand even though you perceived it as being inferior to other available options?
The salesperson shouted from the rooftops about all the benefits of such and such phone while tearing down a competitor’s phone. Meanwhile, drawbacks of the featured phone were completely ignored.
Which investment does 145 years of data prove to be better?
Every asset class and company has their reasons for why they are unequivocally the correct choice for investors. In an environment like this, it is natural to become distrustful and overwhelmed.