Self-Directed IRA Investment Options: Beyond Stocks and Bonds
When most people think about retirement investing, traditional options like stocks, bonds, and mutual funds come to mind. These mainstream assets have long dominated the investment landscape due to their accessibility and the prevalence of employer-sponsored retirement plans. However, for investors seeking greater diversification and the potential for higher returns, self-directed IRA (SDIRA) investments offer a compelling alternative to access additional investment opportunities beyond traditional investing.
Among the growing universe of SDIRA asset types, investing in private companies has become a strategic move for savvy investors aiming to expand their retirement portfolio beyond the public market. At Forge Trust, we help investors tap into the potential of alternative IRA investments—with private company opportunities taking center stage.
What is a self-directed IRA?
A self-directed IRA (SDIRA) is a retirement account that provides the account holder with the ability to invest in a broader array of assets beyond what’s typically allowed in traditional IRAs. While standard IRAs limit investors to publicly traded securities, a SDIRA opens the door to alternative IRA investments such as:
These expanded SDIRA asset types empower investors to build a more diversified portfolio and take advantage of opportunities that may not correlate directly with the public market.
Why invest in private companies with a self-directed IRA?
There are several reasons why one should consider investing in a self-directed IRA:
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The potential for higher returns
Investing in early-stage or growth-stage private companies offers the possibility of outsized returns—especially compared to traditional asset classes. While higher risk is a factor, the long-term nature of retirement investing makes an SDIRA suited for holding private company equity.
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Portfolio diversification
Markets fluctuate. Diversifying into alternative IRA investments like private companies can help reduce exposure to volatility in public equities and bonds. A well-diversified SDIRA can help weather market downturns better than a portfolio reliant on a single asset class.
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Access to innovative markets
The private market often hosts some of the most innovative and disruptive companies, including attractive artificial intelligence (AI) companies, before they go public. Investing in them early through a self-directed IRA allows investors to participate in the growth of companies that could become tomorrow’s leaders.
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Tax advantages
As with other IRAs, SDIRAs come with tax-deferred or tax-free growth depending on the account type (Traditional vs. Roth). This can significantly enhance the long-term compounding potential of investments in private equity, venture capital, or other alternative investments.
How to invest in private companies through an SDIRA
At Forge Trust, we make it easy for individuals to gain exposure to self-directed IRA investments in private companies. Here's a step-by-step overview:
Step 1: Open an SDIRA with Forge Trust
Choose between a traditional, Roth, SEP, or SIMPLE IRA structure. Once your account is open and funded, you’ll have the ability to direct your investments.
Step 2: Identify a private investment opportunity
This could be a private placement offering or shares in a privately held firm. Conduct your own due diligence or work with trusted partners that specialize in private investments.
Step 3: Submit investment instructions
Forge Trust facilitates the administrative and custodial processes for your SDIRA. We handle the paperwork, administrative feasibility review and asset custody so you can focus on your investment strategy.
Step 4: Monitor and manage your investment
Our secure online platform allows you to view your holdings, track performance and manage distributions or exit events—such as an acquisition or IPO.
Important considerations and risks
While the benefits of investing in private companies are significant, it’s important to understand the associated risks:
- Limited liquidity: Private investments are not as easily bought or sold as public market securities and may require holding periods of several years.
- Valuation limits: Without a public market, determining the fair value of a private investment can sometimes be complex.
- Due diligence: It’s the investor’s responsibility to evaluate the opportunity, as SDIRA custodians like Forge Trust do not offer financial advice.
That said, investors who are comfortable with these dynamics often find that self-directed IRA investments in private companies can enhance their retirement strategy.
Why Forge Trust?
Forge Trust is a trusted custodian for self-directed IRAs, with over $16 billion in assets under custody and a strong focus on alternative IRA investments. Our streamlined platform, responsive client service, and deep expertise make us a preferred partner for individuals seeking exposure to non-traditional asset classes.
Final thoughts
In today’s rapidly evolving investment landscape, relying solely on traditional assets like stocks and bonds may not be enough to meet your retirement goals. A self-directed IRA helps you to break free from conventional boundaries and explore alternative IRA investments that align with your interests and long-term objectives.
By investing in private companies through an SDIRA, you not only diversify your portfolio, but also gain access to growth opportunities that can potentially deliver meaningful retirement outcomes. With Forge Trust as your custodian, become empowered to build a retirement future that reflects your vision—and goes far beyond the limits of the public market.
Zander is a seasoned product leader with a 12-year history in financial technology, specializing in private market investments. His tenure includes roles at LTSE, Alto, and IHS Markit, where he focused on product management and strategy. Zander holds an MBA from Vanderbilt University, focusing on International Business, and a B.A. in Economics from Colby College.