Private vs. Public Investments: Understanding the Differences

May 5, 2021

Investors of all sizes are striving to find the best investment that fits their criteria. A good place to start can be considering whether it is a public investment or private investing. It is vital to understand the differences between the two markets, their benefits, and risks so that you can be prepared while knowing where your money is going.

Public Market

The public market is just that, public, and is open to everyone. The public market is open for everyone with a brokerage account and includes assets such as stocks and bonds. Many retirement accounts are composed entirely of public investments, but there is an alternative option for higher potential returns during economic downturns.

Both markets have their pros, cons, and things to look out for. One benefit of the public market is liquidity. The everyday investor can easily enter and exit the market at any time. Investing in public companies is highly regulated by various government agencies that ensure no fraud is happening, frequent audits, and regulatory oversight.

Market volatility is almost inevitable and something no one can predict. The risks are that public markets can be incredibly volatile and susceptible to devaluation during economic downturns. Price fluctuations, heavy trading, and external events can move the markets up or down.

Private Market

The alternative to the public market is investing in the private market. During an economic downturn, investing in private market assets such as real estate, art, collectibles, and commodities can potentially offset your portfolio. The private market is the opposite of the public market, in that, not everyone can invest in it and is typically illiquid. Private market investing is an investment strategy that’s been long used by the wealthy 1%.

Although illiquidity may have a negative connotation in the investing world, it may not be a bad strategy for a long-term investor. Alternative investments can balance an investment portfolio and make it relatively stable during a downturn in the markets. By finding a balance between investing in the two, investors may have a better chance at realizing long-term potential gains. Investors should consider diversifying their portfolios based on their risk tolerance.

When it comes to choosing whether you want to invest in the public market or the private markets, individuals will need to understand what the investment entails and research their options. Another vital part of investing in either option is doing their due diligence before choosing to invest, whether the investment is best suited for you and your goals.