Here are 5 mistakes to steer clear of when investing in the private capital market

If you have recently decided to upgrade your investment portfolio by entering the private capital markets, it is only natural to be confused and filled with a lot of doubts. Every professional started out as a beginner and only by making mistakes does everyone learn. However, making a certain set of decisional errors when starting out in the private capital market can prove to be quite dangerous for your precious capital.

To help you venture out on a successful investment journey, here are 5 mistakes that you should definitely steer clear of when starting out in the private capital market -

• Not maintaining a heterogeneous portfolio

If you are involved in the public capital markets, you might have come across the saying ‘do not put your eggs in one basket’ plenty of times. This astonishingly is even applicable when maintaining an investment portfolio of private market investments. By increasing diversity in your investment portfolio, you can easily decrease the risk of a loss and exponentially increase the return percentage. The Private Markets are not regulated like their public counterparts and, thus, one needs to pay more heed to various factors, like risk tolerance and interests when making an investment.

• Ignoring the risk to reward ratio of an investment

If you want to be successful in the private market, pay close attention to the risk involved with the investment. As a rule of thumb, you should also understand the maximum reward potential of that asset. To give you more clarity, investing in a newly established company might look very rewarding if the organization has entered the market with a brand-new product. However, it is also equally dangerous as the chances of failure in capturing the market are equally high. Gauge the various types of risks and rewards involved when making the investment decision and choose the asset that does not cross your risk tolerance limit.

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