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?