Private Investments: Diversification Beyond Stocks, Bonds, and Cash

Protecting and Preserving Wealth Episode 90 – Private Investments

Speakers: Bruce Hosler, Jason Hosler, Alex Koury, & Jon Gay

[Music Playing]

Jon Gay (00:04):

Welcome back to Protecting and Preserving Wealth. I’m Jon Gay, joined by Bruce Hosler, Jason Hosler, and Alex Koury of Hossler Wealth Management. Good to be with you as always, gentlemen.

Bruce Hosler (00:12):

Good morning, Jon.

Jason Hosler (00:14):

Good to see you, Jon.

Alex Koury (00:15):

Hey, Jon. Good morning.

Jon Gay (00:17):

Now that we’ve done our round robin and all said hello, we’re talking about a real shift in the stock market today. And we’re recording this, full disclosure, on May 18th of 2026. A lot fewer public companies, a lot more private companies, and what that means in terms of where you’re putting your money and investing. Right, Bruce?

Bruce Hosler (00:34):

Exactly. The number of public companies a number of years ago was over 8,000, and now we’re down to only about 4,200 publicly traded companies in the United States today.

Jon Gay (00:47):

That’s half.

Bruce Hosler (00:48):

Correct. And it seems like it’s going to even be worse. However, business applications are at an all-time high, so there’s a lot of businesses being formed but what’s going on? What’s the delay going on, Jason? Why are these companies not going public?

Jason Hosler (01:05):

You see, the whole life cycle of these businesses seems to be extending. The unicorns, so that’s startups that are privately held, and valued at more than a billion dollars in their total capitalization. So, since 2016, we’ve increased from 114 to over 857.

So, there’s all of these big private companies and they’re choosing to stay private for longer. A great example that a lot of people are talking about this year in 2026 is, of course, SpaceX, the big IPO that’s expected this summer.

I think one of the things that we’re seeing in the entire overall cycle is that the benefits of being private versus the benefits of gaining investment from the public market, that calculation has shifted in the owner’s mind, those people who are making that decision to go get that public investment, and the control and flexibility that they have for staying private longer, it seems to be the winning choice.

Bruce Hosler (02:10):

So, Alex, talk to our listeners about Dr. Google and what he says about how many private companies there are in the United States.

Alex Koury (02:18):

So, yeah, so again, Bruce mentioned earlier, think about it, 4,200 companies are publicly traded today, but there’s over 18 million private companies in the United States with revenues exceeding $100 million.

So, the pool out there is quite large, and these aren’t just one person companies, these are companies that have employees, they have workforces, they have sales, they’re growing, they’re just getting all this private money, private equity, venture capital, angel investing to continue to grow as privately as they can for a select very few amount of people before they can liquidate in the public markets, or bring their company to the market for the purpose of liquidity to then unlock the value there.

So, again, think about 18 million companies out there, lots of great opportunities. Jason mentioned SpaceX, OpenAI is another one that’s going to probably go IPO this year as well. There’s a lot of great companies, a lot of very unique companies out there that you just don’t traditionally have access to until now, and that’s the big key.

Bruce Hosler (03:21):

So, let’s be clear, guys, the stock market, the bond market, and the crypto markets provide the biggest benefit that there is and the most important benefit, and that benefit is liquidity. Liquidity on a daily basis, there’s no tying up your money, no holding up your money, and that might be why the stock market has been so very important over all these years because it’s big enough that it provides the liquidity.

Of course, we don’t have that liquidity in the private markets. If you go to sell a piece of real estate, if you have a business you’ve held for 30 years and you’re ready to sell it, it’s not liquid and available on a daily basis. It doesn’t mean that your real estate or your business is not valuable, it just means that they’re not liquid like the stock and bond markets have been.

And if we look at the equity returns of the magnificent seven stocks and the other 493 stocks over the last five years, the 493 have kind of remained level, and there’s been a big dispersion between some of those big companies making money and the other 493. Now, it doesn’t mean that they’re not, but we’re starting to see a change in the way companies are making money and who’s making money, and who’s not making money.

Jon Gay (04:47):

And a quick note, the magnificent seven, for those who haven’t been listening to the previous episodes of the podcast, those are seven of the big famous tech stocks that have driven a lot of that S&P 500 growth.

Jason Hosler (04:57):

That’s exactly right, Jon. So, the Apple, Meta, Amazon, Alphabet, Tesla. So, those magnificent seven, they’ve diverged because of this AI trade. And the other publicly traded companies that are doing very well will have a piece of AI in some way or another, it seems right now, whether they’re a supplier, even making packaging for the AI chips, those companies have gone up a lot.

But that dispersion of returns is one reason why the traditional 60/40 portfolio, the traditional diversification isn’t fulfilling the same role in a portfolio that it used to, and there’s a sleeve that we think it’s important for investors to consider for private equity.

Bruce Hosler (05:42):

Alex, why do we feel that clients need to consider private equity?

Alex Koury (05:47):

Well, again, it goes back to the conversation about opportunity. For many, many years and decades, these private markets were closed off to investors like us. This wasn’t available. And now it’s being made available, through different companies, different funds that allow us to be able to participate in those markets.

So, if you can imagine, hey, here’s something that’s stable, it can grow over time consistently, potentially bigger returns than the public markets provide you with a smoother ride for a portion of your monies, you want to have a little bit of allocation there because in the years, especially when the markets are down, typically private equity can be flat or even up in value because the market in private money is not moving the same way that public markets do because public markets are based on the sentiment, up and down, big swings. We want to avoid a lot of that.

We also want to provide more potential alpha, or return, that we can provide someone by having a small little sleeve enough to where if you did need actual liquidity or money, you have other assets in your portfolio to get access to, but leave something alone that if you can envision 5, 10, 15 and longer years down the road, could be a very potential strong asset for your total portfolio.

Bruce Hosler (07:05):

So, that kind of leads us to the benefits that we would expect. So, daily liquidity comes with daily volatility; it’s a plus and a minus. Daily liquidity is good as liquid, but it’s volatile daily as well. And during the day, I mean, what happens in the morning may not happen in the afternoon, it could be different.

So, the first thing is they’re non-correlated performance with the stock and bond markets generally. It doesn’t mean that there can’t be some sentiment and correlation there. If the interest rates are high and the stock and bond markets are down, your private investments are likely impacted by higher interest rates or sentiment or the economy being down, but it may not be down as much, and it certainly is probably not as volatile just like Alex was explaining.

Jason, kind of historically, we don’t want to claim any specific historical performance, but as we look at the private investments that we consider in businesses and equity, how are those numbers historically?

Jason Hosler (08:08):

Well, the historical performance for private markets have been pretty good. In the new types of funds that are available for us to invest in, typically an interval fund type structure. So, it’s a mutual fund where your liquidity is available at intervals, an interval fund.

When we look at the performance that we see historically on those, usually, it’s been double digit, but not always. They tell us that they’re trying to target a rate of return of around 12% plus or minus six, so they’ll communicate that that’s what they’re after. Of course, nothing’s guaranteed, but we’ve seen good performance historically from these private market investments.

Bruce Hosler (08:50):

And of course, Alex, they have transparent daily valuations so when we look at the portfolio, we can see the value of those investments on a daily basis, but we get diversification because we have availability in the different sectors, Alex.

Talk to us about the different availability that we have in private investments because not all of it is private equity. I mean, private equity kind of comes to mind, but when we talk about private markets, talk about the different choices that are available in private investments.

Alex Koury (09:21):

So, one key theme that’s been happening for many, many years now, post-COVID, has been this need to upgrade the infrastructure across the globe, whether it be for utility purposes, electricity, power, railroads, roads, etc.

I mean, there’s a big, big concerted effort among all governments across the world that are pouring massive resources into upgrading the infrastructure that we need to support this AI, electrical grid, all these other things.

So, again, why wouldn’t you want to put some of your money over there to these projects that are, again, still have probably 3, 5, 10 years to go until we see the long run performance really take effect there, as one example, private venture.

So, these little baby companies out there that really are just more kind of not idealistic per se, but they’re getting started with their funding. Again, before they become really, really big unicorns in this billion-dollar valuation range, you have opportunities to get in on the ground floor, but also within a diversified portfolio.

So, you’re not taking all the risk of one company going boom or bust, you have many, many options in that portfolio, again, for the potential to have outside returns of the market over the long term as well. So again, getting on the ground floor, like a lot of these other Silicon Valley companies and individuals that get the benefits of being able to be there from day one.

And of course, private markets as well are a great opportunity for us, for our clients just the same. Again, the key is that you open up and you broaden your selection and your range of opportunities within companies that generally have not been made available until very recently.

Bruce Hosler (11:06):

That’s great, Alex. And certainly, folks, venture capital, if you think of a venture capitalist or an angel investor, they may be an early investor on a really smart company, a better mousetrap, and they can see it coming, and you can invest right alongside them. That’s very exciting.

And then, of course, we hear of private equity all over the place right now, is buying companies, investing in companies, and you can be right there beside the private equity as a partner, participating in these private companies that come in and buy up a company, fix the marketing, give the management some support, and help the company grow very rapidly, and you get the opportunity to participate in that through these funds.

Now, not everything’s a bed of roses, Jason, there are some potential negatives to these private investments. Let’s talk about what those are.

Jason Hosler (11:56):

Well, you definitely want to think about the pros and cons of any investment. So, there’s two very clear cons for private equity. Number one, because there is less information on private markets, because it takes work to put the deals together, because these investments are non-liquid, so you have to market them, you have to do all this work around it.

The management of these funds comes with higher management fees, so they are more expensive investments by far. If you look at index funds, they become almost free to invest in, just a couple of basis points. You’re going to be paying over 1%, and probably two or more in a lot of cases, for private investment exposure. That’s just the range that you see with these. Number two-

Bruce Hosler (12:43):

Well, hold on just a second. Some of the funds we’re recommending the client, the fee is only 1.42%, just to put that out there in context, but that’s way more expensive than maybe a Vanguard fund at 10 or 18 basis points or something like that.

Jason Hosler (12:58):

But also, we see the continued history of costs coming down because just 10 years ago, that was a pretty normal mutual fund fee that you would be paying about 1.4 to 1.5% was not uncommon. So, to be able to pay that while getting access to private markets, I think is a good deal.

Now, number two, of course, we’ve talked about how these investments are not liquid. That, of course, is a drawback. So, with any type of portfolio when you’re constructing it, that liquidity, you only want to invest the portion of your portfolio in non-liquid assets that you know you’re not going to need access to in shorter timeframes.

Generally, 5 or 10 years when you’re putting your plan together, you want to make sure you’re considering that lack of liquidity.

Bruce Hosler (13:47):

Absolutely. So, Alex, how are we recommending that people invest in these private investments?

Alex Koury (13:54):

Yes. So, when we talk about, well, how much really should even belong in this bucket of your total portfolio, depending on your risk tolerance and again, your need for liquidity and your long-term outlook there, we recommend anything between 5% up to 20% of your total portfolio. Again, if you think about it in terms of just what do you need to spend on today for your retirement of your income needs for the next 10 years, do you have enough liquidity to cover those bases?

And then again, shifting the alternative bucket into your long-term category for the next 15 to 20 years or so, that should allow you to have that flexibility and freedom to be able to allocate potentially more to this asset class, knowing that there are these little liquidity features that should you need the money for any purposes, you can certainly allocate or request a liquidity distribution to get some or all of your shares back at any point in time.

Bruce Hosler (14:49):

Absolutely. So, just in closing, Jon, we think these investments are very important. We want to remind people that they are long-term investments. We’re not investing for the next quarter or the next six months; this is kind of a five-year expectation of a commitment that you’re going into these companies but these returns have been very satisfying to many of our clients.

And we think that it’s a good asset class to allocate a small portion of your portfolio to for a long-term hold and to get equity-like returns or better by participating in that. And it diversifies the portfolio outside of just stocks, bonds, and cash. Very excited about these and we’re glad to answer any questions.

So, the final question is should you be considering private investments in your portfolio? And we think every investor should be asking themselves that question.

Jon Gay (15:41):

A couple of points that we’ve hit on, on almost every podcast of the 90 that we’ve done so far: diversification, you just hit on that, Bruce. And then also the buckets and knowing short, medium, and long-term when you’re going to need that money.

So, to the point Jason made a couple minutes ago, this is money that you don’t need in the immediate future. This is money that you need to be okay with not putting away and not having access to for a while, having to be illiquid for a little bit and that’s okay.

It’s almost like if you go to the casino, whatever is in your pocket, you know what your max is to lose. Whatever you bring it to the casino, you got to be okay losing it. Not in this case, losing it, but not having access to it for a certain amount of time.

Bruce Hosler (16:19):

I don’t like the casino example because I like it more like a real estate example. Like-

Jon Gay (16:24):

Okay, better example.

Bruce Hosler (16:24):

If you buy a piece of real estate, you don’t expect that you’re going to be able to sell it tomorrow and cash out, it doesn’t happen like that. And it doesn’t mean that real estate’s a bad investment, it just means that it’s an illiquid investment.

So, these are similar to that. We’re buying private companies, but if SpaceX goes public and you invested in SpaceX, and it takes you five years to get your money out, but the thing goes parabolic in its value, you’ve made a good investment even though it wasn’t liquid to you.

Jon Gay (16:52):

You’re right, the real estate is a better analogy, and that’s why you do what you do and I’m just the podcast guy.

[Laughter]

On that note, if our listeners and viewers want to talk to the team at Hosler Wealth Management about private investment or anything related to their finances, how do they best reach you?

Bruce Hosler (17:07):

Jason, how do they get to you in Prescott?

Jason Hosler (17:09):

Yeah, give us a call, (928)-778-7666 in Prescott.

Bruce Hosler (17:14):

Alex in Scottsdale?

Alex Koury (17:15):

(480)-994-7342.

Bruce Hosler (17:19):

And folks, you can reach us on the web 24/7, hoslerwm.com. Click on the little box if you want an appointment or a callback, let us know. We’ll get in touch with you.

Jon Gay (17:29):

Be a little while before I go back to the casino. Thanks, guys. We’ll talk again soon.

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Bruce Hosler (17:32):

Thanks, Jon.

Jason Hosler (17:32):

Have a good one, Jon.

Alex Koury (17:33):

Thanks, Jon.

*Private Investment Disclosure:

Private investments involve significant risk, limited liquidity, higher fees, valuation uncertainty, and possible loss of principal. Redemptions may be restricted or unavailable, and past or projected performance is not guaranteed. Eligibility requirements may apply. This material is educational only and is not an offer, recommendation, or legal, tax, or investment advice.

Disclosure: 

Investment advisory services are offered through Mutual Advisors LLC, DBA Hosler Wealth Management, a SEC registered investment advisor. Securities are offered through Mutual Securities, Inc., a member FINRA/SIPC. Mutual Advisors, LLC and Mutual Securities, Inc. (collectively Mutual Group) are affiliated companies.

Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments, and any comments should be given directly to the office at the contact information specified.

Any tax advice contained in this communication, including any attachments, is not intended or written to be used and cannot be used for the purpose of 1) avoiding federal or state tax penalties; 2) promoting marketing or recommending to another party any transaction or matter addressed herein; and 3) tax preparation and accounting services are offered independently through Hosler Wealth Management Tax Services.

Any tax advice provided by tax professionals under Hosler Wealth Management Tax Services is separate and unrelated to any advisory or security services offered through Mutual Group. The accuracy, completeness, and timeliness of the information contained in this podcast cannot be guaranteed. Mutual Group does not provide tax or legal advice. You should consult a legal or tax professional regarding your individual situation.

Accordingly, Hosler Wealth Management does not warranty, guarantee or make any representations or assume any liability with regard to financial results based on the use of the information in this podcast.