Is Buying Stock in Start-Up Companies a Reliable Way to Save for Retirement?

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It’s open knowledge at this point that retirement is less stable than it once was. Retirement ages are being pushed back, social security is looking in doubt for future generations, and even a 401(k) doesn’t have workers feeling as financially secure.

Per the New York Times, this has prompted some to think outside the box with their retirement plan. One strategy modern employees are utilizing is switching to working in start-up companies where they are offered generous options for buying low-cost stock in the company. However, experts warn that this is an extremely risky gamble.

The thought process behind buying start-up stocks is that their stock prices will initially be super low due to the business not having generated much value yet. But if the company takes off and you hold a lot of their stock, now you can resell it for a huge turnaround. In fact, some are projecting they can make more using this method than what they would see out of their 401(k).

The only problem is, that all of that only pays out for you if the start-up actually becomes a big success. If the once promising business suddenly fizzles out, now all you’ve done is buy a bunch of worthless stock in a dead company. And yet, a growing number of people are willing to take that chance.

Rising inflation costs could also be a contributing factor to people feeling they need to try something new. Some are now wondering if the savings they were originally projecting to have will actually tide them over. Whereas some who bought equity in start-ups have seen payouts in the seven-figure region, enabling them to retire almost a decade ahead of schedule. That can certainly be alluring.

Experts advise that the key to considering how to handle your retirement funds is to not put all your eggs in one basket. Even if you are considering the route of buying stock in start-ups, don’t go all in on that strategy. There’s nothing saying you can’t also put money into your 401(k) as a safety net. That way if one method doesn’t pan out, you are not left totally unprepared.

Some have compared buying start-up stock to buying lottery tickets. While dreams of a big payoff might entice you, just remember the lottery has far more losers than success stories.

Fred Hubler, Chief Wealth Strategist for Creative Capital Wealth Management Group which offers retainer-based advice and access to accredited investments told MONTCO Today, “Diversification is important in this approach.”

“While the startup stock is high risk/high reward,” Hubler continued, “the risk can be balanced with diversification into more traditional investments in your 401k and a mix of stocks, bonds, and alternative investments.”

If you are interested in learning more about the pros and cons of buying stock in start-ups, check out the New York Times piece here.


Want to know if you’re on the right path financially? CCWMG’S Second Opinion Service (SOS) is a no-obligation review with one of  Creative Capital Wealth Management Group‘s Wealth Strategists. 

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