There are a lot of retirement investors out there who do not want to turn to public stocks for 100% of their net worth, or 100% of the confidence they place in retirement. For those people, however, there may be an alternative. Investing in private companies can offer many of the same benefits as investing in the stock market—with some obvious exceptions. If you are a retirement investor who wants to diversify beyond the public stock market and build a wide portfolio, then investing in private companies with a Self-Directed IRA might be the right choice for you.
But how does it work? In addition to our page on holding private companies within a Self-Directed IRA, we’ve put together this post full of useful things to know.
How to Invest in Private Companies with a Self-Directed IRA
Perhaps the most common question here is also the simplest: how? How can investors put together a private company portfolio, or even just invest in one simple private company using retirement assets? Is it like going to the broker and asking for a stock?
As we outline at our private company’s page, the process can actually be very simple. When you work with a Self-Directed IRA, you can approach them with a letter directing the Self-Directed IRA administration firm to buy shares of the private company on behalf of the IRA. You will have to sign some documents to make sure that everything is read and approved. And that is it!
Why Invest in Private Companies in a Self-Directed IRA?
Once you know how, then the most pertinent question is why. Why buy private companies when there are plenty of great public companies to choose from?
For starters, many public companies are indeed great investments. But putting all of your eggs in one basket isn’t always the strategy you want to choose. For Self-Directed IRA investors, they want something more. They want to be able to cast a wider net. When you invest in a private company, it can be one of the best ways to enjoy a stock investment that does not have a direct correlation to the stock market at large. Even if the market is down one day, it is possible that the value of the private stock in your possession increases.
This is not a guarantee. Like any other investment, private company investing is full of risks. But it can be a powerful way to diversify out of one asset class.
It can also be a powerful way to grow a retirement account in a hurry. As long as the value of the underlying asset increases quickly, it’s possible for the value of the Self-Directed IRA to increase quickly. The net result is that you do not even have to put in high contributions or require high contribution limits in the account. If the stock itself grows tremendously in value, it can be a powerful way to build for retirement.
Perhaps most obvious? Stocks held within a Self-Directed IRA enjoy retirement protections.
Is Now the Time to Invest in Private Companies?
A Self-Directed IRA administration firm like American IRA is not an investment advisor. When you have a Self-Directed IRA, you are the one in the driver’s seat. But we can tell you all about using a Self-Directed IRA for private companies and how the process works.
And since it is such a simple process—directing your Self-Directed IRA administration firm to make the purchase and then signing the appropriate materials—it can be a powerful way for people to invest.