Am I An Accredited Investor?

Private alternative investments that were once exclusive to rich and elite investors are gaining momentum and going mainstream.

What’s the appeal of alternative investments?

Because certain alternative investments offer the potential for higher returns at lower levels of volatility – alternative investments like private equity and passive income real estate funds.

Unlike the stock market, the private markets aren’t open to everyone.

To protect investors looking to invest in the private markets, most private investments are restricted to Accredited Investors who the SEC deems sufficiently sophisticated in investment and financial matters to understand risk and to absorb a loss of their investment.

How do I know if I’m an Accredited Investor?

Up until recently, if you fall within one of the following categories, you would meet the definition of an Accredited Investor:

  • Having a net worth exceeding $1 million individually or combined with a spouse (excluding the value of the primary residence).
  • Have earned income exceeding $200,000 ($300,000 if combined with a spouse) during each of the last two calendar years, with a reasonable expectation of maintaining these income thresholds during the current year.

For those who don’t meet the net worth or income requirements, you may still qualify as an accredited investor.

Did you know the SEC is about to expand the definition of an Accredited Investor?

Effective December 8th, an amendment to the definition will allow investors to qualify as Accredited Investors based on defined measures of professional knowledge, experience, or certifications in addition to the existing income and net worth tests.

These include persons holding Series 7, Series 65, and Series 82 securities licenses as well as persons with certain professional certifications such as doctors and lawyers. This doesn’t completely open the floodgates but it’s a step in the right direction.

Why is the SEC expanding the definition of an Accredited Investor?

It wants to open access to private markets. Based on its research, the SEC recently issued a report on private placements and found that in the hands of the right managers, private had the potential to outperform public equities by a wide margin at less risk.

One of the SEC’s directors, Dalia Blass, the Director of the Division of Investment Management at the SEC recently made a stunning suggestion: Main Street investors need more access to private markets.  

Why are private markets a big deal? According to Ms. Blass:

“Private investments have the potential to provide stronger returns and diversification for investors, but come with both performance and liquidity risks.”

What’s the big deal about private investments?

Anyone can buy stocks. As I’ve evolved in my investing career, I’ve realized that I don’t want to invest in something that’s in abundant supply that everyone can access.

To me, assets like stocks are in abundant supply and don’t offer the type of returns or security I seek in my investments. There are thousands of stocks out there and I don’t want to invest in something that people can go in and out of at the drop of a hat and drag my portfolio down with them.

I want to invest in something with limited supply, with limited access, and with investors with similar objectives. That’s why I target assets like real estate that’s in short supply in the private markets that are restricted to sophisticated investors that take their investments seriously.

That’s why being an accredited investor is a big deal.

Being an Accredited Investor opens up many more opportunities to invest in scarce alternative asset classes that deliver above-market returns at lower risk – providing cash flow and appreciation essential for building generational wealth.

There’s a whole universe of alternative assets available to Accredited Investors including:

  • Hedge funds.
  • Venture capital funds.
  • Private equity deals.
  • Equity crowdfunding.
  • Angel investing.
  • Other private placements.

Alternative assets like real estate have proven to provide better risk-adjusted annual returns over time than the S&P 500. That’s why qualifying as an Accredited Investor is a big deal.

Being an Accredited Investor not only opens up more investment opportunities but also higher-quality investments, particularly in the alternative investment class.

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