3 Reasons Private Markets Feel Out of Reach When You’re Investing — But Are They?
Written by
Jacob Wade
Edited by
Amber Barkley
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Investing in a startup, buying commercial real estate or loaning money to small businesses seem like investments for the wealthy.
But there are more and more ways for average investors to access private market investing, and you don’t need hundreds of thousands of dollars to do so. Private markets have always felt like an exclusive club that only invited wealthy investors — and for a long time, that was certainly the case.
Here are a few reason why private market investments feel out of reach — but how you can access them today.
Reasons Private Markets Feel Unreachable
Private markets have always felt inaccessible to everyday investors. Here’s why.
Accreditation Requirements
Many private investments have requirements of becoming an accredited investor before you can participate. This means you need to make at least $200,000 per year for the last two years, or have a net worth of $1,000,000 or more, not including personal residence equity.
Many investors can’t meet these requirements — and therefore have not been able to access some private market investments.
High Minimum Investments
Private market investments often come with very high minimum investments. Whether it’s real estate syndication or private lending, some investments may have a $50,000 minimum or higher. This makes them out of reach for most everyday investors.
Not Many Platforms for Investing In Private Markets
Until recently, there were very few platforms that made it easy to invest in private markets. You would need access to private banking or a family office financial team to invest in many private market investments.
And while there are some platforms now available, you still can’t access many alternative investments through traditional brokers.
Private Markets That You Can Actually Invest In
Private market investing is becoming more and more accessible for regular investors. Here are a few popular private market investments that you may be able to participate in.
Private Credit
Private credit allows you to lend money to borrowers directly — essentially making you the bank. Borrowers are typically small and medium-sized businesses that need to raise capital for real estate or other business expenses.
These loans can pay out higher interest rates that you’d earn in a savings account — but come with more risk, too. If a borrower fails to repay the loan, you may end up losing money.
Private credit can be accessed on some alternative investing platforms such as Yieldstreet or RealtyMogul.
Crowdfunded Real Estate
While you can go and buy property for yourself at any time, there are now platforms that allow you to invest in commercial real estate for much less money.
Crowdfunded real estate platforms allow you to buy shares of ownership in a property, which is managed by a sponsor. You earn money from the rents being paid by tenants, but also pay fees to the sponsor for managing the deal and property itself.
Platforms like Fundrise allow you to invest as little as $500 and own a piece of a portfolio of properties.
Venture Capital
Venture capital investing is purchasing shares of ownership of a private company with hopes that you can multiply your investment through company growth.
In the past, venture capital investing was only accessible to accredited investors due to the high minimum investment and lockup of capital for long periods of time. But everyday investors can now access venture capital investing in startups through platforms like Wefunder.
Private Equity Portfolios
Investment companies such as Blackrock are now offering private equity investing through pre-designed portfolios that are accessible to everyday investors. There are many types of private equity investments, including leveraged buyouts, growth equity, venture capital and secondaries. These managed portfolios make it easy to gain broad exposure to private equity and other alternative markets within a single portfolio.
Minimum investments will still be high, though: around $10,000.
Is Private Market Investing Worth It?
Investing in private markets has a few advantages. First, it allows you to invest in assets that are not necessarily correlated with the stock market or other traditional markets. This can help increase diversification and lower your investment risk.
Investing in alternative private assets can also boost performance, and even the godfather of Modern Portfolio Theory, Harry Markowitz, suggested allocating some of your investments to alternative assets.
But there is considerable risk in private markets, which is why consumers have been unable to access it until recently. There may be high minimum investment requirements, and you may be unable to access that money for years at a time. And if an investment doesn’t go well, you could lose all of your investment capital.
Private market investing may be a good option for some investors — and is more accessible than ever. But you should also evaluate your risk tolerance before choosing to invest in private markets, and meeting with a licensed financial advisor can help guide your investment choices.
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