I’m in my 20s with $350k mostly invested in passive index funds – should I diversify into private equity?

If you’re in a position where you have to strongly consider where to invest funds to continue growing your net worth, this is a good place to be. Everyone, from millionaires down, is looking for any edge to enjoy a good retirement without financial constraints. 

This is the exact case with one Redditor posting in r/fatFIRE. He and his partner work for private equity firms and hope to scale their income considerably in the next few years. However, they must decide now whether to take advantage of co-investment opportunities with their firms. 

It’s exciting to see Reddit posts from people contemplating essentially going all-in on their job in multiple ways and how this is both nerve-racking with a significant potential upside. 

The Current Scenario 

The Redditor, using a throwaway account to protect their anonymity, and his partner, both in their early 20s, have a current net worth of $350,000. The couple currently makes a combined income of $450,000 working in a junior investment role, so there is every expectation that as they are promoted, this income will increase, perhaps significantly. 

The couple’s current financial position is to be primarily invested in passive index funds, though we don’t know their level of risk. However, the couple is now faced with a significant decision as private equity firms allow employees to co-invest (separately) without any necessary fees. 

We learn from the Redditor that both funds have seen some pretty good upsizing with every new raise. This leads to the question the Redditor is asking and looking for guidance from other Redditors on whether they should commit a large part of their current net worth to these funds. 

The Big Opportunity 

So, there are two big decisions to be made here. The first is whether or not they want to invest in the funds at all. Most Reddit comments start with the same simple question: whether or not the Redditor and his partner see themselves sticking around their respective companies long-term. 

If yes, this argument becomes much easier, especially if they hope to be promoted to Managing Director or above. It’s also worth noting that a few Redditors point out the obvious in that assessing risk and making investment decisions is quite literally what these Redditors do for work. 

In other words, they should already know the answer to their question, but it’s okay for Redditors to seek advice. The caveat is that if the fund tanks, they are out of both their jobs and investments but in their early 20s. I agree with some of the sentiment that this is the time and age to take a risk. If something goes wrong, they have the work background and skills to build themselves back up. 

If you can make an investment here with a big potential upside and you’re already part of the decision-making process that can help the fund perform well, go for it. This move would eat into the couple’s liquidity, so if this is a concern, make a less significant investment. 

It’s All About Confidence

Ultimately, the big decision here comes down to one thing: how confident both of these individuals feel about their private equity firms and their future. If they have confidence, they hopefully believe they have some measure of job security, and secondly, they should make the investment. 

Based on historical performance, there is no question there is an upside, and there is every reason to believe this kind of performance can continue. Most of the confidence comes from their age and the understanding that they have time to make extra money should something terrible happen. 

On the other hand, the answer to this Redditor’s question might be very different if we knew they were in their early or late 50s, didn’t have an extra 30 years to work and put away money if this investment performed poorly. Based on what we know to be accurate, I’d say, along with most of the Reddito comments, that they should move ahead with the investment and hope and work toward the best.