Becoming An Accredited Investor Step By Step
“Spend money to make more money?” Well, accredited investors have more opportunities to make more money than non-accredited investors.
However, becoming an accredited investor is not as easy as you think.
The US government has put in place objectively higher financial barriers to qualify for the designation of an accredited investor – that cannot be met by the majority of Americans.
The barriers are meant to defend main street financiers from losing their hard-earned money in complex financial products they do not understand.
Such investments may include:
- venture capital
- hedge funds
- direct firms ownership
Every type can be associated with even more risks that are only witnessed in investments like bonds and stocks.
Similarly, these barriers also make it hard for accredited investors to access good deals that are readily available for them, while wealthy Americans do.
That said, accredited investment is a brilliant idea, but it also depends on your financial weight.
Before we look at how to become an accredited investor, let’s first define the phrase.
Who Is An Accredited Investor?
The US Securities and Exchange Commission (SEC) wants no new investors to risk their money.
The SEC protects the novice investors by setting a barrier to investments that put them at risk through an accredited designation law.
US law only allows accredited investors to take part in specific investment deals.
The mandate of an accredited investor is to make sure investors engaging in risky investments have the financial means to tolerate any substantial failures in the venture, and won’t become bankrupt by taking too many risks throughout their investment profile.
So, the following are the guidelines of the federal government for determining who should and shouldn’t be considered an accredited investor.
Going by the SEC, an accredited investor must meet these measures:
- Must have earned an income exceeding $200,000 or $300,000 with a spouse in the previous two years, and also rationally expecting the same in the current year.
- Must have a net worth of more than $1 million, whether by self or with a spouse.
This doesn’t include the value of a primary residence of the person in question.
- Must be a general partner, director, executive officer, or hold a related position therefore for the person issuing security offered.
Additionally, the federal government also allows American citizens who have trust valued at $5 million or more.
However, that which is not created explicitly to acquire subject securities and the purchaser is directed by a sophisticated individual.
A sophisticated individual in this context seems unclear at best and punitive at worst.
Relating to the SEC, it stands for a person who thoroughly understands financial markets and also has experience in terms of investment and business matters, being is a better position to fairly evaluate the opportunities and risks involved in complex investments.
Becoming An Accredited Investor
Many Americans citizens wonder if they are qualified to become accredited investors, but the key is in the first meeting the government set measure, which includes having a yearly income of more than $200,000 as an individual or $300,000 if you have a spouse.
Also, you can ensure you have a net worth of more than $1 million.
The first barrier is establishing the annual income of an individual, which is easy.
Collect the tax returns of the person in question for the previous two years and see whether the income is more than $200,000 or $300,000 as required.
Secondly, the nest barrier is having a net worth of more than $1 million.
Calculate your net worth to find out if you have the seven-figures. That means keeping track of all the things you own as well as those you owe, financially.
Becoming An Accredited Investor: Conclusion
Individuals who qualify as accredited investors have the breakthrough to invest in non-registered investments offered by companies such as venture capital firms, private equity funds, hedge funds, and others.
Nevertheless, the strict regulations and measured put in place by the SEC requires companies to observe several steps to help ascertain the investor’s status.
The above mentions measures, actions, and qualifications that must be met and observed to quality.
Now that you know the basics, it’s your turn to place yourself in the ring and make the most of your status.