We all have our internal “scripts” for why some people become rich. “It’s not what you know, it’s who you know.” Or “that person just got lucky investing in a single stock. If I was that lucky, I’d be rich too.” But the truth is, many investors increase their odds for success because they take a systematic approach to investing in one of the best opportunities possible: private company stock. Investing in Private Companies with a Self-Directed IRA can be one of the most lucrative ways to save for retirement…provided you do it right.
But what exactly is a Self-Directed IRA for Private Companies, and how do people use them? Let’s explore.
Learning the Basics of Private Company Investing with a Self-Directed IRA
Most of us are familiar with the traditional approach to stocks. You invest in a stock that’s listed on a public market and you hope it goes up. Or you invest in mutual funds, which own stocks on the public market, and hope the mutual fund goes up. But private company investing is another asset class entirely. Rather than looking for the right stocks to pick on the public companies, private investors want to get in on the ground floor when it comes to private investments.
When you imagine what a small investment in an early version of Google would yield, for example, you also see why this would be so appealing to people. Using a Self-Directed IRA to purchase private stocks or LLCs, limited liability companies, provides another incentive: it offers some tax protection. Combining a well-placed investment in a private stock with this kind of retirement account can be a tremendous way for investors to put aside money for retirement.
How Does Private Stock Investing Work?
We cannot tell you where to find businesses; we’re not a financial advisor and we do not tell people where to put their money. But we can tell you a bit about how the process works. If you were to identify a private company that you wanted to invest in with a Self-Directed IRA, you would then fill out a buy direction letter. This buy direction letter would tell our staff to purchase shares on behalf of our IRA. Once the appropriate documents have been read and signed for final approval, American IRA then moves to buy the shares as directed. That’s all it is think of American IRA as the administrator on your account, helping to make sure the paperwork goes through.
Why Do People Invest this Way?
One reason investors turn to a Self-Directed IRA for Private Companies is that it’s an easy way to make a lot of money if you have the requirements met. First, a company must go up in value—that’s true with any investment. And that comes down to your ability to identify the companies with a lot of market potential, as well as the connections to come across these companies as you do your research.
You’ll also need some amount of startup capital to get involved in the first place. Of course, it’s difficult to predict which companies will eventually pan out. And private stock is less “liquid” than public stock. However, a well-performing company can be a powerful way to put aside a massive amount of money for retirement with just a little start-up capital at the beginning.