Do Private Markets Deliver an Edge? | The Informed Investor 11

Episode 11: Do private investments deserve a place in your portfolio? Some investors may see private assets as a tool to boost returns and increase diversification. Research on these questions is ongoing. Private investments tend to comprise illiquid assets that trade infrequently. As a result, their valuations may be difficult to assess, and their returns may behave quite differently than those of public market equivalents. While recent headlines suggest retirement plans like 401(k)s may get access to private investment options in equities, debt, and real estate, and many players in the financial industry are talking about creating products for everyday investors that feature private investments, it’s an open question whether these options are appropriate for the average investor as opposed to solely accredited investors who meet specific wealth and income criteria. In public markets, investors can choose widely diversified, low-cost portfolios. In private markets, especially for smaller allocations, that’s not so easy. So due diligence in the manager selection process is key for any investor considering a private allocation. Assessing the costs is equally important. One cost is the stated fee. Another is the opportunity cost—the possibility of missing out on other options that might have more transparency around expected returns and risks. And taxes should be considered as they may be more complex with private investments. In Episode 11 of “The Informed Investor,” Dimensional’s Mark Gochnour, Head of Global Client Services, Wes Crill, Senior Client Solutions Director, and Jake DeKinder, Head of Client Communications, examine the allure of private markets as well as the return potential, risks, and costs. TIMESTAMPS 00:00 Intro 00:33 The headlines 01:13 Results of FINRA Investor Education Foundation quiz 01:38 If interests go up, what happens to bond prices? 02:17 If the interest rate is 1% and inflation is 2%, what happens to your money? 02:58 What are alternative investments? 04:24 Framework for evaluating investments 05:44 Return correlations of private and public investments 07:02 What is the impact of “mark to market” accounting? 09:03 Do private investments expand your opportunity set? 10:48: Expected returns of private investments 12:49 Performance of large vs. small endowments 13:33 Risks of investing in private markets 15:53 Liquidity of private investments 16:58 Costs of private investments 19:07 Weighting of private investments in a portfolio 19:57 Key takeaways LINKS FROM TODAY’S EPISODE: The Informed Investor on YouTube    • The Informed Investor   Mark Gochnour on LinkedIn   / mark-gochnour-9a23598a   Wes Crill on LinkedIn   / wes-crill-77a49417   Jake DeKinder on LinkedIn   / jake-dekinder-cfa-4105b98   Learn more at https://www.dimensional.com/ #401kprivatemarkets #privatedebt #privateequity #privaterealestate #whatisprivateequity #dimensionalfundadvisors #dimensional #dfa