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Why Invest in Private Equity with Your IRA

By: J.P. Dahdah

Private equity used to be the domain of the ultra-wealthy.

And the ultra-wealthy capitalized on the market, with 2000-2020 returns on private equity eclipsing the S&P500 and venture capital. Private investment in high-risk, high-return companies allowed a small pool of investors to diversify their portfolios and expand their wealth.

But why should they have all the access?

In recent years, there’s been a trend of private equity accessibility. And, when paired with a Self-Directed IRA investment vehicle can get you there, private equity can become part of your portfolio.

Let’s take a look at how it works.

Your Self-Directed IRA and Private Equity

It’s important to understand that private equity is an alternative investment option for IRA dollars. Using a Self-Directed IRA, you can put your money into a private company without using publicly traded stock exchanges.

Private equity investments allow smaller companies to scale, develop new products and services, and restructure as needed. Additionally, equity holders often have voting rights, which enable them to participate in major company decisions.

Investment assets include:
– Private stocks
– Private funds
– Private REITs
– ETFs

These vehicles range from hundreds to millions of dollars, giving investors flexibility on how much exposure they want in private investment. Which route you go, and how much you put in, will depend on your investment goals.

Some private equity requires you to hold accredited investor status. Which means you must have a certain net worth or cash reserves to be eligible to invest. Make sure you understand all the rules and restrictions before moving forward with your investment.

Consider: A couple in their 30s who work for Tech companies. They want to be aggressive with their savings goals while they’re younger and still have a long retirement runway. So, they balance their Traditional IRA investments with various stocks and their Self-Directed IRA across real estate and private equity. This diversification strategy offsets some of the risk associated with having only stock market-based investments in their portfolio, while giving them control over their IRA money.

If you’re working to diversify your IRA investments, it’s worth exploring the risks and returns of private equity. Let’s look at a few.

The Risks and Returns of Private Equity

Risk: There are risks associated with any revenue-generating investment. Because equity deals are more aggressive in their nature, there tends to be higher risk.

One question to consider is how long you want to stay invested in the company. The longer you wait for your investment to grow, the higher the risk. But the longer you wait, the higher the potential returns as well.

Returns: As noted earlier, the returns on private equity have been strong in the last twenty years. And the costs of breaking into the market have lowered. This means more opportunity if you select the right investment.

It’s worth noting, however, that recent data shows the gap may be shrinking between private equity and stock market returns. So you’ll want to factor this into your decision.

Keep in mind, equity investors share in both the profits and losses of a company. And the profits depend on the level and speed of growth.

How to Get Started

Many Vantage clients invest in private equity for all the returns listed above. If you are interested in the experiencing those kinds of returns for yourself, to get started, you can simply open an account.

Remember to familiarize yourself with the rules and restrictions regarding your investment choice. For example, if you are rolling your 401(k) over to an IRA, follow all the required steps before funding your investment. If you want to invest directly with your 401(k) dollars, make sure your plan allows it.

If you’re already a Vantage client, fill out a Buy Direction Letter providing the details of your investment choice. Vantage will take care of the rest.

If you want to know more about private equity investments, attend one of our free workshops. You can view our monthly events calendar here to find a time that works for you.

Happy investing!