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While the options for investments in a self-directed retirement account are nearly endless, there is one asset class that some Equity Trust clients prefer because it can be passive and offers an added diversification to their overall investment strategy. Promissory notes, or private debt investing, can offer investors a low-maintenance way to grow their wealth.
Here we answer the question, “How do promissory notes work?” and provide examples of how investors use them to grow their retirement accounts.
Promissory note: defined
A promissory note is simply a financial document containing a written promise to repay a specified sum borrowed, as well as the terms of repayment, any collateral, etc.
The term promissory note is a catch-all that could refer to a variety of different types of notes, including:
- Mortgage notes/deeds of trust
- Private loans
- Corporate debt