How to Become an Accredited Investor
Being an accredited investor, as determined by the Securities and Exchange Commission (SEC) comes with many perks for the financially savvy individual who is interested in building his or her net worth.
How, though, is this designation achieved? What are the steps involved and what are the benefits you can expect to receive? Here is some need-to-know information on this potentially wealth-building classification.
What Is It?
The SEC deems you an accredited investor if you, as an individual, meet the following financial measures:
- Net worth: Your minimum net worth is $1 million, either individually or including your spouse’s (excluding your home equity).
- Income: You must bring in at least $200,000 (or $300,000 jointly) in both of the immediately preceding years as well as expect to earn this as a minimum in the current year, OR
- Have a trust: This trust must include at least $5 million in assets.
With these standards in mind, accredited investors include banks, insurance companies, trusts, individuals, and more.
Why Would You Want This?
If you attain this status, you have access to ventures that are out of reach of the average shareholder. In addition to the mainstream investment opportunities available to the general public, you can also choose to put money towards investments that are higher risk, and therefore have a higher reward potential.
These include hedge funds, crowdfunding, and angel investments. You can choose to buy into businesses that are excluded from being registered by the SEC, which are typically newer with potential for expansive growth.
So…How Do You Join the Club?
Becoming an accredited investor is not a process, it is a status that is completely determined to financial measures. As such, it can change from year to year, as it is essentially settled case-by-case. If you are interested in a given investment, the company doling out the securities will generally give you a questionnaire requesting information to prove that you meet the criteria.
The issuer will generally take your word as bond, and not do any outside research, and they ultimately will be responsible if there are securities laws’ infractions. Even if you meet the SEC standards, it doesn’t mean you have the know-how to put money into these more advanced stocks and bonds. Make sure you do your own research and/or hire someone who can help you manage this process.
There may be forthcoming changes to the metrics used to confer this status. The SEC has been discussing the conceivable benefits and shortcomings of more rigorous guidelines, as well as whether there should be non-financial measures such as professional history or education. It’s important for those interested to stay current on the qualifications.
Accredited Investor
Becoming an accredited investor has definitive perks for high net worth individuals who are looking to build their portfolios in new ways. If you meet the SEC measures, you’re well on your way to some exciting new financial opportunities.
Category: Investing
