Countless strong, innovative companies lie below the public radar, and many can be accessible investments through your self-directed IRA, 401(k), or Health Savings Account. By investing in privately held companies, your tax-advantaged plan can benefit from diversification and enhanced returns as part of a balanced portfolio.
Ready to learn more about private equity? Click here to download our Private Equity Investing Guide.
Let’s take a look at three ways your account can invest in private equity:
Just like their public counterparts, private companies issue shares to raise money and continue growing their business. In fact, most of the large, public companies with now-recognizable names, like Apple, Facebook, and Amazon, grew through private capital raises.
When you find a private business you’d like to invest in, your self-directed account can obtain stock certificates, complete a subscription agreement, or engage in another approach offered by the private company. Also called private equity investing, investing in private companies with your self-directed plan is, in many cases, simply a matter of appropriate paperwork.
Some of the hottest companies in the investment space today wait just below the surface of Wall Street and are on the verge of a public listing. Your self-directed account can invest in pre-initial public offering (pre-IPO) companies through online marketplaces. Some such marketplaces may only accept accredited investors, but thanks to a December 2020 decision by the SEC, just about anyone can become an accredited investor. If you’re an accredited investor, your self-directed account is equally accredited.
In many cases, shares debut on public markets at far higher prices than private investors paid, but lock-up periods may apply (i.e., shareholders may have to wait a certain length of time after an IPO before they’re able to sell). As with any self-directed endeavor, due diligence can help you determine whether a pre-IPO investment is appropriate.
Similar to pre-IPO marketplaces, equity crowdfunding platforms allow investors to join others in purchasing a percentage of a business. Rather than buying shares directly, you can allocate a sum of money toward a company and enjoy returns in accordance with the percentage that was purchased. The investors benefit proportionally as the company grows.
Once you’ve identified a suitable private equity opportunity, the process is straightforward:
Ready to learn more about how to invest in private equity? Click here to register for our Private Equity with Your IRA webinar on Tuesday, January 19 at noon, Mountain Time.
You can also contact our staff at 877-742-1270 or by submitting a message through your client portal at portal.ndtco.com.