All Financial Wisdom

Accredited Investor Definition

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If you are like me, you are exploring and reading about all kinds of investments, investment strategies, or investment opportunities.  Sometimes, I come across investments that only "accredited investors" can invest in.  I am constantly reminded of this while listening to the Bigger Pockets Podcasts and RealtyShares.com sponsors their show.

What is an Accredited Investor?

First, a person can be an accredited Investor by:

  1. Having a net worth more than $1 million ($1,000,000) when not including their primary residence.
  2. Having earned an income of more than $200,000 in the last two years.
  3. Having earned an income of more than $300,000 in the last two years when together with a spouse.

Second, an entity (corporations, firms, banks, trusts, etc.) can be be considered accredited investor by:

  1. Being an entity that all equity investors are accredited.
  2. Having a total assets worth more than $5 million ($500,000) and led by a "sophisticated person."

This "sophisticated person" is someone that can be defended as having the background and understanding of what they are doing.  I would think having related experience, background, or possibly a very active accredited investor themselves.

Why does someone have to be an Accredited Investor?

This whole thing started after the 1929 stock market crash when the SEC determined that the general public should be protected from the scam artists, sleazy businessmen, and phony sales pitches.  They determined that when you have money to lose, you understand money.  It is to protect the general public from bad deals, which I think it does very well.  Some might say, "it takes money to make money," but at the same time, you also have money and you can just as easily double the money that you have with the same amount of effort a millionaire can.

References:

SEC educational bulletin: http://www.sec.gov/investor/alerts/ib_accreditedinvestors.pdf

2 Comments

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