Whether you are new to investing or have been involved in making investments for years, the term accredited investor might be unfamiliar to you. That’s perfectly normal, as being an accredited investor is privileged and most people actually might never be eligible to become one. But maybe you are curious if you do fall into that group.
Writing for Investopedia, Adam Hayes breaks it down in simple terms. Essentially, being an accredited investor means you have permission to make deal with non-registered financial authorities.
The accredited investor designation can also allow you to invest in hedge funds, startups, and venture capital. It is often businesses that have this ability, such as banks or insurance groups.
However, individuals can be accredited investors too if they meet certain criteria.
Frederick Hubler, chief wealth strategist of creative capital wealth management group focuses on accredited investors in his practice. According to Hubler, “I didn’t want to look like every other financial advisor so I researched how institutions and foundations like Harvard and Yale invested. I was surprised to see how little they actually had in the stock market and was curious how I could model their portfolio for individual clients. That led me to accredited investments and we’ve been doing it for 18 years.“
To put it plainly, to qualify as an accredited investor you need a high income. Over $200,000 a year, to be exact ($300,000 if you share a joint income). And if you aren’t making that much, you can still be considered an accredited investor if your net worth, not including your primary residents, exceeds $1 million.
You might wonder why you need to meet such a high threshold to access these investments. It is a regulation put in place by the Securities and Exchange Commission (SEC) to protect “unsophisticated” investors. The thought process is that these types of investments pose a larger risk despite their potential to yield great returns.
Therefore, the status of an accredited investor has remained limited to people with tangible wealth because it is believed investors at that wealth and income level know how to make responsible decisions with their money.
Basically, the SEC doesn’t want these unregistered financial groups becoming predatory towards naïve investors. Limiting these opportunities to people considered knowledgeable with assets keeps people from being taken advantage of.
That being said, many make great deals this way by simply being smart with their choices. If you meet the financial prerequisites to be classified as an accredited investor, you should absolutely look into becoming an accredited investor.
Speak with an accountant or financial advisor to learn if being certified as an accredited investor could be right for your assets and to receive guidance on good places to start.
If you are looking for further clarification on what being an accredited investor means, be sure to read Investopedia’s article by clicking here.
Want to know if you’re on the right path financially? Fred Hubler’s Second Opinion Service (SOS) is a no-obligation review with Creative Capital Wealth Management Group‘s Chief Wealth Strategist.
It’s simply not possible to get a reliable second opinion from the same person who gave you the first one. Click here to schedule an SOS meeting with Fred and his team.