For many retirement investors, the stock market isn’t the only game in town. Putting some of your hard-earned money into privately held companies can be a great way to diversify your portfolio and potentially boost your returns. And if you do it through a Self-Directed IRA, you can enjoy all the tax benefits that come with traditional IRAs. Here’s everything you need to know about investing in privately held companies through a Self-Directed IRA.
Why Privately Held Companies in a Self-Directed IRA?
There are a few reasons why investing in privately held companies can be attractive for retirement investors. These companies are often not as well-known as publicly traded companies, which means they may be overlooked by the markets and even potentially undervalued as a result. Because there is often less information available about these companies, there can be more room for upside potential. Of course, there are also risks associated with investing in Private Companies, but we’ll get to that later. First, let’s review the potential benefits of holding private company stock in a Self-Directed IRA:
- Potentially Higher Returns – One of the major benefits of investing in Private Companies through a Self-Directed IRA is the potential for higher returns. When you invest in a company that is not publicly traded, you are investing early in the company’s development. This means that there is more potential for growth, and therefore, higher returns on your investment.
- More Control Over Your Investment – Another benefit of investing in Private Companies through a Self-Directed IRA is that you have more control over your investment. With a traditional IRA, you are often at the mercy of the stock market. However, with a Self-Directed IRA, you can choose to invest in companies that you are confident in and that you believe will be successful.
- Diversify Your Retirement Portfolio – A third benefit of investing in Private Companies through a Self-Directed IRA is that it can help you diversify your retirement portfolio. By investing in a variety of assets, you can reduce your overall risk and potentially increase your portfolio’s stability.
- Get In on the Ground Floor – Finally, one of the best benefits of investing in Private Companies through a Self-Directed IRA is that you have the opportunity to get in on the ground floor. When you invest early in a company’s development, you have the chance to make significantly more money than if you waited until the company was publicly traded.
How to Invest in Privately Held Companies Through a Self-Directed IRA
If you’re interested in investing in privately held companies through your IRA, there are a few things you need to know. First, you’ll need to set up a Self-Directed IRA with a custodian or administrator who specializes in these types of investments. (We can help you with that.) Once your account is set up, you’ll be able to direct your custodian to make investments on your behalf into any number of privately held companies.
It’s important to note that while you can invest in pretty much any type of privately-held company through a Self-Directed IRA—including start-ups, limited liability partnerships, and family businesses—there are some restrictions on what types of businesses you can invest in. For instance, you cannot use your Self-Directed IRA to invest in collectibles or life insurance policies.
Investing in privately held companies can offer retirement investors some attractive benefits—including the potential for higher returns—but it’s important to understand the risks before making any kind of investment. If you’re thinking about investing in privately held companies through your IRA, we can help!