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Have you heard of the term accredited investor before? I’ve heard about it in passing, but I decided to do some research into it. The reason? If you are an accredited investor, investing doors open for you.
Accredited investors have access to unique investment opportunities that regular investors and the general public aren’t privy to. Yes, there is actually a class of individuals that gets the “elite” investments.
Do you think it is worth it? Keep reading!
What Is An Accredited Investor?
An accredited investor is determined by the Securities and Exchange Commission (SEC) in the United States, and is defined as an investor meeting the following criteria:
- a bank, insurance company, investment company
- an employee benefit plan
- a charitable organization, corporation, or partnership with assets in excess of $5 million
- a business in which all owners are accredited investors
- a person with a net worth over $1 million, excluding the value of the primary property
- a person with income exceeding $200,000 for the past two years, and a reasonable expectation of making that again this year
- a trust with assets in excess of $5 million
Canada has very similar requirements, except that an individual must have both the income and net worth requirements.
What Does Being An Accredited Investor Allow?
So, is being an accredited investor worth it (get the joke…)? If you are an accredited investor, you get to have access to some potentially very rewarding, yet potentially risky investments that regular investors just aren’t privy to:
- Seed Money
- Limited Partnerships
- Hedge Funds
- Private Placements
- Angel Investor Networks
Just think about Second Market – it is the exchange where individuals who own privately held company shares, such as Facebook, can sell their shares. All buyers must be accredited investors. However, these investors could potentially reap huge rewards if Facebook really does go public.
Why The Definition?
What has always puzzled me is why there even needs to be “accredited investors” as a defined class. I mean, making over $200,000 per year is not that rare any longer, and neither is having a net worth over $1 million. These laws were created in 1933, and I question how relevant they still are. I mean, whether you are an accredited investor or not, it is still essential to do due diligence and research on any investments you make, regardless.
Readers, what are your thoughts on accredited investors?
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{ 7 comments… read them below or add one }
If I understood right, supposedly those requirements were put in place to prevent people who couldn’t afford to lose the money from making unwise investments. However, I think they just prevent people from making exceptionally large unwise investments, and keep the playing field uneven. I’d like to see them go away, personally.
I agree that probably should be updated, however even with the 1933 criteria, I’m pretty far off.
It’s not about what you have, but what you can’t have – such as access to certain investments.
i dont really see the advantages they are given actually..i just dont see the point of it n i think these laws were put to the advanateges of the country and not the investors ( even know in same cases i may appear to be the other way around)
Honestly, heard it over here for the first time. Glad to know such a thing exists. Personal opinion, no, I am happy the investor I am now, don’t want to upgrade.
You don’t wish you could buy some Facebook shares right now? I think there are some things that shouldn’t exclude others…
Never really heard of it before but maybe it is still for the best that they have a certain standard (which probably would benefit in some updating) due to people using money so carelessly often.
-Ashley Morrissey
ashleymorrissey90(at)yahoo(dot)com