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, LLC, or family office with assets in excess of $5 million
- a spousal equivalent (spouses can pool their assets to qualify)
In addition to those criteria, you can be an accredited investor based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution. Currently, those with good standing of the Series 7, Series 65, and Series 82 licenses are considered accredited investors.
Finally, you can be an accredited investor if you're a "knowledgeable employee of the fund" - meaning if you work at a hedge fund or investment fund, and are considered a knowledgeable employee, you can be considered accredited.
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
For example, take Equitybee - it is the exchange where individuals who own privately held company shares, such as Discord, can sell their shares. All buyers must be accredited investors. However, these investors could potentially reap huge rewards if Discord 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.
Common Questions
What is an accredited investor?
An accredited investor is an individual or entity that meets specific financial or professional criteria defined by the U.S. Securities and Exchange Commission (SEC) under Rule 501 of Regulation D. Accredited investors are allowed to invest in certain private securities offerings that are not registered with the SEC.
What are the financial requirements to qualify as an accredited investor?
You need an income over $200,000 ($300,000 with a spouse) for the past two years or a net worth over $1 million, excluding your primary home.
Can someone qualify based on professional credentials instead of income or net worth?
Yes. The SEC expanded the definition in 2020 to include certain professional certifications and roles. Individuals holding Series 7, Series 65, or Series 82 licenses in good standing qualify, even if they do not meet the financial thresholds.
Do entities qualify as accredited investors?
Entities with over $5 million in assets or those in which all owners are accredited investors may qualify.
Why does accredited investor status matter?
It allows access to private investments like hedge funds and startup deals that aren’t open to the general public. The accredited investor designation is meant to ensure participants have the financial knowledge or resources to evaluate and withstand these risks.
Editor: Clint Proctor Reviewed by: Chris Muller
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.