There are a lot of things you can invest in as an accredited investor, but it can be tough to know where to start. The SEC offers a number of investment opportunities for accredited investors. These investments are usually more complicated than simply buying a mutual fund or opening an IRA, but they also have higher potential returns and fewer restrictions on investment.
Accredited Investor Definition
Accredited investors are individuals who meet certain income or net worth thresholds set by the Securities and Exchange Commission. An accredited investor is a person who:
- Has an individual net worth of at least $1 million (excluding primary residence), or joint net worth with spouse of $2 million;
- Has an individual income of at least $200,000 each year for the last two years (or joint income with spouse of $300,000 each year), and reasonably expects the same for the current year; or
- Has earned income exceeding $300,000 (or joint income with spouse exceeding $600,000) in each of the prior two years and reasonably expects to match or exceed that income level in the current year.
How Much Can an Accredited Investor Invest?
The amount of money that you can invest depends on your individual circumstances. The SEC sets a minimum amount of income that qualifies as accredited investor status, which is $200,000 in annual income (or $300,000 with a spouse) for at least two years. If you qualify as an accredited investor based on your income alone, then you can invest up to $1 million in any single private offering.
If your income doesn’t meet the minimum requirement, then the total value of your assets must also be high enough to qualify as an accredited investor. The current limit is $1 million in either assets alone or combined assets and income.
You can also qualify for accredited investor status if you have a net worth of over $1 million.
Types of Investments for Accredited Investors?
There are many types of investments that accredited investors can make. These include:
Private equity/venture capital: Private equity and venture capital funds are pools of money that allow investors to pool their money together to purchase interests in companies. The investors receive a percentage of the profits made by the fund, usually in the form of interest payments. These types of funds are popular with many accredited investors because they have access to the best opportunities and can have an influence on how their money is invested. For example, if you have $1 million dollars to invest, you might be able to make suggestions as to how your money should be allocated among different companies or industries.
Hedge funds: Hedge funds are pools of money that are professionally managed and typically invest in a variety of assets such as stocks, bonds, commodities and real estate. Hedge funds can be an attractive investment opportunity for high-net-worth individuals because they generally have low fees, have no minimum investment requirements, and offer investors the ability to participate in some of the highest returns available in the financial markets.
Venture Capital: If you’re looking for long-term growth potential, venture capital is an option. Venture capitalists invest in early-stage companies with the hopes of making a significant return when those companies go public or get acquired by another company. The average time it takes to see returns on this type of investment varies widely, but it’s generally longer than other types of investments.
Real Estate Investment Trusts (REITs): Real estate is another popular asset class for accredited investors interested in alternative investments because it offers diversification, steady income and growth potential over time. REITs invest in commercial real estate such as office buildings or apartment complexes, while mortgage REITs invest in residential mortgages like adjustable-rate mortgages (ARMs) or fixed-rate mortgages (FRMs).
Real Estate Syndication: Real estate syndication is one of the most popular ways for accredited investors to invest in real estate. It allows an investor to pool their money with other people in order to buy a property. In this way, they can leverage their investment power and purchase properties that they wouldn’t be able to afford otherwise.
The Bottom Line
All investors should be aware of the various types of investment opportunities available if they want to diversify their portfolio and have a chance for long-term growth for their money.
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