Private Placements & Private Stock
Acquiring private funding is one way that LLCs, C corporations, limited partnerships and a few other entities gain capital to grow their businesses.
By offering investments of this type, organizations are able to maintain a reasonable amount of control over their business – with private status – while still enjoying many of the financial benefits available to public corporations.
You can use funds from your self-directed IRA to invest in private placements, and this is a great way to diversify your portfolio. Private placements are often exempt from Securities and Exchange Commission (SEC) registration and reporting requirements, but you must be aware that these types of investments pose several tax and structuring challenges. For this reason, the SEC mandates that private placements be made only to experienced investors who are able to assess the risks and merits within. Private placements are not offered on the open market, and thus are not available through most typical IRA accounts. Investment opportunities are reserved for a select group of individual investors who hold a similar vision of the company seeking funding, or for those who have relevant industry expertise.
Private placements could be stock in your local community bank, a venture capital investment in a startup tech or medical firm, a hedge fund or even a group of private investors pooling capital in an LLC to make a larger real estate purchase. There are many other options available if you decide private placements are the right type of investment for you.
Hedge funds, also preferred by some experienced and accredited investors and institutions, may be used to provide a worthwhile barrier – or hedge – against highly volatile and bear markets. Hedge funds are often structured as limited partnerships and provide investors with a means to sell instruments that might drop in value. Risk is frequently avoided through the use of derivatives or by short-selling.
Advanta IRA is a retirement account administrator that specializes in empowering you to take control of your retirement using self-directed IRAs. We offer no investment, financial or legal advice. You are required to perform your own due diligence pertaining to each and every aspect of all investments you choose to make. We operate as your support in areas of placing investments you instruct us to make on your behalf, and it is important that you are fully aware of the legal, tax and regulatory requirements for the investments you make.
As with any investment, be aware of the potential of becoming a victim of fraud. Investor Alert: Self-Directed IRAs and the Risk of Fraud is an article written by the SEC that provides helpful advice regarding how to avoid fraud, along with descriptions by the government of popular fraudulent activity regarding self-directed IRAs.