Beyond Stocks and Bonds: A Simple Guide to Private Market Investing

Published August 2026

For decades, the investment playbook was stocks for growth, bonds for stability, maybe some cash on the side. But the investing world is constantly evolving. Interest rates have swung sharply, and public market volatility can rattle even the most patient investors. And there’s a fact that’s easy to miss: a large and growing share of business activity now happens entirely outside the stock market. An investor who owns only publicly traded stocks is choosing from a small and shrinking slice of the businesses out there.
tfolios matters more than ever.

Private market investments are built to close that gap. They sit within the broader universe of Alternative Investments, and when used appropriately, can fill a gap that stocks and bonds leave open.

What These Investments Actually Are

• Private equity is money invested directly in companies that aren’t publicly traded, sharing in the upside as the business grows or is sold. A related category, venture capital, focuses on younger, earlier-stage companies and is often the earliest point at which an outside investor can participate in a company’s growth.

• Private credit is lending done outside the traditional banking system, with private investors financing small and mid-size businesses directly, often at higher yields than traditional bonds.

• Hedge funds use flexible strategies such as short-selling, leverage, and market arbitrage, which are designed to manage downside risk and generate returns that don’t move in lockstep with broad market benchmarks.

• Real estate, through private funds, usually means owning a stake in commercial property, generating rental income and appreciation without the work of being a landlord.

• Infrastructure covers toll roads, pipelines, cell towers, and, increasingly, data centers that power cloud computing and AI, generating steady cash flow regardless of the economy.

The Case for Private Markets

Stocks and bonds may fall together when markets get rough, as they did in 2022. Private investments tend to move at different speeds and sometimes directions, which usually leaves a portfolio better diversified.

But diversification isn’t the only reason to pay attention here. Companies are staying private far longer than they used to, and some may never go public at all. The typical age of a company at IPO has roughly doubled since the 1980s, from about 6 years to around 11, and most U.S. companies with revenue above $100 million are still privately held. An investor limited to public markets cannot reach that part of a company’s growth story. Meanwhile, roughly a third of the S&P 500’s market capitalization is held by its ten largest companies, a concentration that has investors increasingly concerned about how much the index depends on a small group of names.

Private credit earns a premium for lending in a smaller, less-liquid market, which means anyone who sees the bond portion of a portfolio as an unexciting necessity may want to take a second look.

None of this argues for replacing the stocks and bonds that carry a portfolio’s weight, but alternatives can add a third pillar that reinforces the structure against unexpected shocks.

What It Means to Give Up Liquidity

Private investments are not liquid; money is typically committed for years. That sounds alarming until it’s put in context. Most investors already accept some degree of illiquidity elsewhere, money tied up in a 401(k) or other retirement account until a certain age, the equity in a home, or the cash value in an annuity. Private markets add another form of it. The real question is whether the investor is being paid for that illiquidity, and in private markets, that’s generally true. Investors expect, and usually receive, a higher return for giving up easy access to their money.

Private market funds are generally structured in one of two ways. Drawdown funds raise a fixed pool of capital and return it over several years as investments are liquidated. Evergreen funds, including interval and tender offer funds, offer more flexibility, with regular redemption windows and simpler 1099 tax reporting rather than a K-1.

A useful way to think about allocation is in terms of time horizon. Money a client might need within the next year belongs in fully liquid, traditional investments. In contrast, money that won’t be touched for one to five years has room for evergreen funds, since their periodic redemption windows offer some flexibility without full daily liquidity. Truly long-term money, five to ten years out, is where drawdown funds fit best, since that’s roughly how long the capital stays committed before it’s returned.

Key Risks to Understand

Illiquidity risk is real. Money may not be accessible exactly when needed. Manager experience matters too, since the spread between the best and worst private managers is much wider than in public markets, which is why due diligence matters so much here. Private funds are also less transparent, with valuations updated periodically rather than priced daily, and fees run higher, so returns after fees need to justify the cost. Concentration risk is evident in drawdown funds, especially since capital is deployed across a relatively small number of deals, and a single bad investment can meaningfully drag down returns.

Getting Started

The hardest part of considering alternatives is usually the first conversation. “Illiquid” sounds alarming, and “private” can sound exclusive, but neither reaction tells the full story.

What alternatives really offer is access to growth occurring within companies that never appear on a stock exchange, and to credit markets that pay more than the bonds already sitting in most portfolios. Sized appropriately, they also tend to smooth out the ride.

Because every investor’s time horizon, liquidity needs, and risk tolerance are different, alternatives don’t work the same way for everyone. Investors looking to explore specific allocations should reach out to their investment advisors to map out a customized solution that fits their goals.

_{^{by CEO / Founder John Crosson, MainStreet Advisors.}}