If you have been paying much attention on what is new in the investment world, you might probably heard crowd finance, the debt and equity crowd funding, the peer to peer finance lending and community investments.
You may also consider on the list
- private investments,
- pre-IPO trading shares,
- the hedge funds,
- the venture capital
- and private equity.
All of the items listed above might not be the same in name, but they have something in common, people are giving money as investment so it can secure their funds.
Remember that investing in private entities and companies are more accessible with small investment amounts, and with a helpful regulatory this can adjust the availability in a streamlined processing.
In an opportunity to take part are increasing by bounds, and of course, this private investments are not open for everyone. You have to consider things and the standards before deciding that this one is not for you, understanding the changes that happen in private securities category and the affect on you by those changes.
Just recently, the opportunity in private investment has become inaccessible or even impractical for natural investors.
SEC (Securities and Exchange Commission) has put a limit on this type of opportunities only to those investors that are considered accredited, meaning this is only granted for individuals out there that has substantial regular income or its net worth.
But for the record, even these investors who have satisfactorily meet the accreditation standards might found out the expensiveness of engaging in private investing, some of them might conclude that this type of investment is time consuming, exclusive and very opaque to participate.
But everything has changed, new regulations that was crafted in the past has been amended in reflection to the recent economy status. The advance in the technologies has been streamlined by investment process, and private investments offering online are booming as result.
So we have here the things that you should need to know about private investments:
- “They are not the same”, what we mean here is about private investments. Some might involve in equity like share in the company, debt, bonds and any other security types. It can also be also in companies that just started up that has potential growth ahead. Or established companies that are seeking for additional capital for them to expand business operation, they can involve a private fund that can be invested in different types of company assets in private companies. The funds offer a professional management and diversifications.
The “Hedge funds”, this is a private fund that was originally tagged as “hedge” meaning it is against the risk range of investments.
Our point here is for you to judge if an investment is valuable component in diversifying your portfolio, of course you need to basically consider its merits and how this fits with the goals you have set, the risk tolerance of the assets whether it is private or even public.
- “Being rich is not a main requirement in order for you to participate.” This was one of the reason why private investment is only limited to those who are considered wealthy has the capability to be called as “accredited investor”. In fact, in order to become one, you need to have a greater than 1$ million net worth, excluding your primary residence, or personal income that is greater than $200,000 in two to 3 three years or $300,000 of joint income.
The regulation that has been imposed limit to non-public investments in order to protect those with sophisticated risk level. But as what most law impost, private investing will require accreditation.
But as what has been amended in the 2012 Act for Business Startups, non accredited investors has the capability to invest in small business that has just started up with a specific conditions that should be met.
This type of regulations opens up opportunities for potential investors, including investments on local businesses that will benefit the community of the investors.
- “Connection is not a requirement for you to participate.” Until lately, many investors in the private securities category need not to be well heeled and well connected. Without any inside track on the right business deal, many investors had no idea of knowing the type of investment opportunities available and how they can initiate the transaction. With the help of websites, it becomes a marketplace on private investments in a fast track way.
The existence of technology made private investing smooth and very transparent. So when a brokerage online become popular in public trading of securities and change the individual investing system fundamentally, you can look for similar changes that take place in private security investment.
With the help of online brokerage, this will bring immediate access, efficiency and transparency to the company that has lacked qualities.
- “Potential to improve your personal portfolio with private investment.” Since debt securities and private equity are not sold and bough on stock market as what public securities are, they are somewhat less liquid, and are riskier. But reasons are there why these type of investments often maximized by institutional type of investors, the rich and endowments. The asset that they represent is less correlated to other assets stated in the portfolio. This means that the value cannot move in similar direction at same time or as amount in portfolio moves in public stocks. This is the main reason for it to become possible to decrease overall volatility of the portfolio and increase the forecasted returns, by including your private investments as well diversified mix holdings
- “Rapid flux in Private investment.” You need to keep eye on new developments. As investment in the private marketplace becomes streamlined and accessible, more transparent, and more confidence in the investor.
The increase in liquidity of these types of investments and the fast track development on secondary market decreases the risk.
This could lead to even lower investments and ability to even diversify to more opportunities creating an avenue for potential investors to create equivalent to their equity funds.