Chris O'Shea
If you want to invest in certain securities, you must be an accredited investor. But what does that mean, and why would you want to do this? Here’s what you should know.
The Basics
An accredited investor is a person or company that is allowed to buy and sell securities that aren’t registered with financial authorities, like the SEC. These investments may carry additional risk and may net bigger returns or losses.
Defining Accredited Investor
According to the SEC, an “accredited investor” is someone who fits the following criteria:
- A person or company that has earned more than $200,000 (or $300,000 together with a spouse) for two consecutive years.
- A person or company with a net worth of more than $1 million, not including primary residence.
- An employee of a private fund.
- A person who has Series 7, Series 65, or Series 82 financial securities licenses.
Investment Opportunities
Accredited investors have access to investment opportunities that are typically not available to the general public. These investments may carry higher risks but may also offer higher potential returns. Here’s a list of some of the investment options restricted to accredited investors:
Private Market Investments
- Venture Capital (VC) Funds. Investing in early-stage startups through venture capital firms.
- Private Equity (PE) Funds. Investing in privately held companies or buyouts.
- Hedge Funds. Actively managed investment funds that use complex strategies.
- Real Estate Private Equity. Investing in large-scale real estate projects or developments.
Alternative Investments
- Pre-IPO Shares. Buying shares in private companies before they go public.
- Cryptocurrency and Blockchain Funds. Exclusive funds for accredited investors in digital assets.
- Private Placements (Reg D Offerings). Investments in companies that do not register with the SEC.
- Oil & Gas Limited Partnerships. Investments in energy projects, drilling, and extraction.
Real Estate Investments
- Real Estate Syndications. Group investments in commercial real estate.
- Opportunity Zone Funds. Investments in designated tax-advantaged areas.
Bottom Line
The reason you might want to become an accredited investor is to get access to additional investment opportunities. If they perform well, you could make heaps of money. Likewise, they carry higher risk, so there’s a potential for larger losses as well.
Do One Thing: Like other investment options, carefully consider risk, time horizon, goals, and investment experience before pursuing any investment option.
