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What Exactly is an Accredited Investor?

Friday, July 07, 2023

If you are an investor in the United States, you must have heard about the term ‘accredited investor.’ Have you ever wondered what it means? Who qualifies to be one or why does it matter? If these questions have crossed your mind, then you are in the right place.
In this blog post, we’ll be discussing what an accredited investor is, the significance of being one, and the requirements you need to meet to be considered one.

How Does The SEC Determine If I’m An Accredited Investor?

An accredited investor is a person or entity that has met specific financial requirements set by the United States Securities and Exchange Commission (SEC). Being an accredited investor affords you certain privileges and investment opportunities such as being able to invest in private placements, hedge funds, venture capital, and private equity firms. Accredited investors have access to investment opportunities that are not necessarily available to the general public because of the risks involved.

How to Become an Accredited Investor

To become an accredited investor, an individual must meet one of the following requirements set by the SEC. Firstly, an individual must have:

  • ​A net worth of at least $1 million, excluding the value of their primary residence.
  • ​An individual must have an income of at least $200,000 per year or $300,000 per year for joint income with a spouse for the last two years, with a reasonable expectation of the same level of income in the current year.
  • ​You may also become an accredited investor by holding certain professional licenses or certifications, such as a Series 7 license or a Chartered Financial Analyst (CFA) designation.

Advantages of Being an Accredited Investor

Being an accredited investor comes with several benefits. One of the significant advantages is the ability to invest in a broader range of investment opportunities that are not available to non-accredited investors. Many hedge funds, private equity funds, and venture capital funds only accept investments from accredited investors. These investments may offer higher returns than traditional investments but come with higher risks. However, accredited investors may have access to information not available to the general public, which may help them make better investment decisions.

Another benefit of being an accredited investor is having the ability to participate in Regulation D offerings. Regulation D allows a company to raise capital without the need for SEC registration, but the offering can only be marketed to accredited investors. These offerings may provide investors with a range of securities that they could not otherwise access.

Additionally, being an accredited investor may give you access to investment opportunities with lower fees. Some investment opportunities may charge lower management fees, performance fees, or other fees to accredited investors, which can have a positive impact on the overall return on investment.

In conclusion, being an accredited investor can open up a world of investment opportunities that may not be available to non-accredited investors. However, it's important to remember that these investments come with a higher degree of risk and require a certain level of financial sophistication.

If you're interested in becoming an accredited investor, make sure to do your research and be prepared to assess each investment opportunity carefully before deciding to invest. Also, you should seek the advice of your CPA, Attorney or Financial Advisor.

If you're an accredited investor and you're looking to diversify your investments and get off the stock market roller coaster, contact us today to schedule a meeting with our Founder, Ed Mathews.


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