As with any investment, it’s important to consider how returns will be taxed. A crowdfunding IRA is one option to consider, as investments can be tax advantaged.
Where IRAs and equity crowdfunding are concerned, investors will want assurance that their custodian can handle such alternative assets. According to Jeffrey Kelley, Senior Vice President for Equity Institutional in Westlake, Ohio, “We’ve been helping financial professionals and their clients maintain the tax-qualified status of alternative investments for 40 years. While we do not offer investment advice, evaluate investments, perform due diligence, or sponsor products, we can facilitate the investment of equity crowdfunding alternatives in IRAs.”
It is also important that investors have reasonable expectations. “The Crowdfunding Curriculum” suggests that advisors may:
• Encourage investors to limit their initial investment: Investors should never commit assets they cannot afford to lose.
• Diversify, diversify, diversify: Its likely most investments will not be profitable, so select carefully. Investors may be better served by spreading $100,000 across 10 different investments, than by investing $100,000 in one crowdfund.
• Avoid opportunities that make false promises: Advise clients to avoid investments that promise excessive rates of return, lack adequate documentation or claim that the assets are safe.
According to a Legg Mason survey of millionaires , when they were asked to tell future generations the decisions they made that had the most positive impact on investing success, the top three responses were: developed a financial plan, engaged with a financial advisor and invested in products other than stocks and bonds.
For advisor and investors, equity crowdfunding offers another option that may have a positive impact on investing success.
John Drachman is the founder of AlphaSegment, a financial marketing firm. He can be reached at [email protected].
1. The National Law Review, “Equity Crowdfunding Rules: What You Need to Know.”
2. Wall Street Daily, “Crowdfunding Regulation A+”
3. Investment News, “How Millionaires Invest.”