The Difference Between a Public Investment and Private Investment

Public Investments

  • Securities that are traded on a public stock exchange
  • Required to issue a prospectus
  • A prospectus is a detailed financial disclosure document on the company and its operations
  • Stocks, Bonds, and Mutual Funds are some popular examples

Private Investments

  • Not publicly traded on a stock exchange
  • Exempt from issuing a prospectus and require less disclosure than public companies
  • Real estate, private equity, infrastructure, hedge funds, commodities, and venture capital are popular types
  • Traditionally been restricted to institutional and accredited investors but with recent regulatory changes private investing is becoming much more accessible, affordable and streamlined

Public vs. Private Investing

Hover over the table to highlight a side by side comparison of the differences between public investments and private investments

Public Investments Private Investments
Return Opportunity Public companies average about a 2-3% return rate. Private investments average higher return rates than public investments. There is also the chance to hit a home run and get a massive return.
Investment Liquidity Public investments are more liquid than private investment because they can be traded on a secondary market like the stock exchange. Private investments can’t easily be bought and sold on a secondary market, making them less liquid, and riskier.
Market Volatility The state of the stock market has an impact on public investments; a stock market crash would negatively affect the value of public investments. Private investments are not impacted by upward or downward movements in the public stock markets; making private investments largely immune to stock market crashes.
Risk Level There are varying levels of risk, from high risk to lower risk investments, allowing investors to choose which risk level they are comfortable with. All private investments are considered risky, but have the potential for higher returns.
Company Transparency Publicly traded companies are required to be fully transparent and issue a prospectus which allows investors to find detailed information about the company. Private companies are not required to be fully transparent, they are exempt from issuing a prospectus and can choose which information they make public.
Investor Qualifications Public investments have relatively low purchase amounts and no purchase qualifications; meaning anybody can participate. Most private investments require a higher purchase amount to participate and require investors to meet certain salary and net worth qualifications that differ depending on the province.
Deal Size Usually large amounts of money raised from a large group of investors. Public companies have a high number of shares available that can be bought and sold easily by anyone. Usually smaller amounts of money raised and less investors involved in the deal than public offerings. There are a limited amount of shares available which can’t be purchased by anyone.
Research Available Specialized analysts research public companies and the industries they operate in to produce detailed reports. Information is available but it is not nearly as plentiful and detailed as the research on public companies.
Regulations Very regulated and closely monitored by regulators. Not as regulated and not closely monitored by regulators.

Key Takeaways

Private investments provide investors:

  • new sources of income
  • help smooth out stock market volatility
  • a chance to hit a homerun with a massive return on the investment.

Private investments are becoming much more accessible thanks to new regulations and online private investment marketplaces like Crowdmatrix that allow accredited investors to access high-quality private deals and invest online

Start Diversifying Your Portfolio with Private Investments on Crowdmatrix

More Articles on the Blog