4 mins.
April 18, 2022

What is an Accredited Investor and Why Does it Matter?

What is an Accredited Investor and Why Does it Matter?

If you’re interested in becoming a first-time accredited investor, here’s what you need to know.

Accredited Investors have unique opportunities to increase their wealth with private investments and other opportunities that aren’t available to the general public. 

But because there’s no formal application process, many people who qualify as accredited investors don’t realize the opportunities available to them, especially if they’re the first generation in their family to have this status. 

If you think you might meet the requirements to become an accredited investor, or you know you qualify but aren’t sure how to get started, here’s an overview of what it means to be an accredited investor, how to invest, and the advantages and risks it involves. 

Who Qualifies as an Accredited Investor?

The requirements for becoming an accredited investor vary across different countries and jurisdictions, but in general, an accredited investor is any person or entity who can trade securities that are not registered with financial authorities. 

In the U.S., individuals must meet at least one of the following requirements in order to qualify as an accredited investor under the Securities and Exchange Commission:

  • Income: A person with an annual income greater than $200,000, or a $300,000 joint annual income, for the last two years. They must also have the expectation that they will earn the same or more in the current year. 
  • Net Worth: A person whose net worth exceeds $1 million, either individually or jointly with a spouse (Note: this does not include the value of your primary residence).
  • Company Involvement: General partners, executive officers, and directors for a private company qualify as accredited investors for that company.
  • Expertise: A person who holds one or more certifications, designations, or credentials from an educational institution that is approved by the SEC
  • In 2020, the definition was expanded to include “knowledgeable employees” of a private fund and SEC and state-registered brokers and investment advisors. 

Business entities can also qualify as accredited investors if they meet one of the following criteria:

  • A private business development company or organization with more than $5 million in assets or investments
  • If all of an entity’s equity owners are accredited investors, the entity qualifies as well 

Risks and Rewards for Accredited Investors 

Accredited Investors are the only people and entities that can invest in private securities that are not registered through the SEC. 

Additionally, Accredited Investors can invest in hedge funds, private equity funds, venture capital, equity crowdfunding, angel investments, and other exclusive opportunities that aren’t available to most investors. 

If a person meets the requirements to become an accredited investor, that means they are considered more financially literate than the average investor, or that they have enough wealth to withstand higher levels of risk.

How to Get Started as a First-Time Accredited Investor

Becoming an Accredited Investor doesn’t require a formal application process, but when you make an investment, the seller is required to verify that you meet the requirements.

When you find an investment you’re interested in, the company issuing the securities will have you fill out some form of questionnaire and provide documentation that proves your status. This could include account information, financial statements, balance sheets, tax returns, W-2s, credit reports, and letters from your CPA, tax attorney, investment broker or advisor, depending on the specific criteria you meet. 

There’s no one rule about how much an accredited investor can invest, but each deal or fund will most likely have limits on the amount of investment they can accept from one person. 

Find the Right Partner to Help You Build Wealth as an Accredited Investor

Because Accredited Investors can access these unique investment opportunities, it’s important to find partners you trust to help you assess potential opportunities and build your wealth strategically. 

At FGCP™️, we work closely with our clients to help you choose investments that offer significant tax benefits, support your retirement planning, and help you take control of your wealth without working harder. We also have access to exclusive investment opportunities for accredited investors looking for strategic direct investments. 

If you’re interested in learning more about the advantages we can provide you, contact us today to get started.

April 18, 2022
Billy Keels