Accredited investors meet certain income, net worth or professional requirements that allow them to invest in private offerings like hedge funds and real estate deals. The SEC sets these criteria to ensure participants can handle the higher risks involved. If you qualify, you may gain access to exclusive investments beyond traditional stocks and bonds.
- The SEC defines an accredited investor as someone with high income, substantial net worth or specific professional credentials, enabling access to riskier investments.
- To qualify as an accredited investor, you must meet either a financial threshold (such as $1 million in net worth or $200,000+ in income) or meet certain professional requirements.1
- Accredited investor status gives you access to private market opportunities like hedge funds, private equity, real estate funds and startup investments that are typically unavailable to the general public.
- Verification of accredited investor status is usually handled by third parties and may involve reviewing financial documents or confirming professional licenses.
What is an accredited investor?
According to SEC guidelines, an accredited investor has enough financial resources or professional experience to make riskier financial decisions. The SEC uses specific wealth, income or professional criteria to decide whether an individual qualifies.
- Financial criteria: Accredited investors must have a minimum net worth or annual income.
- Professional criteria: Professional criteria focus on investment licenses, leadership positions in an investment-focused company, investing for a family office or knowledgeable employees of an investment fund.
Certain business entities may also qualify, typically based on the total assets held by the entity if they’re included in a list provided by the SEC.
If you’re an accredited investor, you’re allowed to invest in a broader range of offerings, including certain private investment funds, real estate funds and other holdings. You can check with the specific investment provider to determine if they require accredited investment status.
SEC-accredited investor requirements
Here’s a look at the primary requirements to become an accredited investor in the United States. You only need to meet one of these requirements to be considered an accredited investor.
Financial criteria
- Net worth: If you have a net worth of at least $1 million, excluding your primary residence, you’re an accredited investor. Your net worth can be individually or with a spouse. For example, you're an accredited investor if your bank and investment accounts total $1 million or higher.
- Income: If you earned $200,000 last year individually or $300,000 as a household with your spouse or partner and reasonably expect the same for this year, you’re an accredited investor.2
Professional criteria
- Investment professionals: Investment professionals with a Series 7, Series 65 or Series 82 license automatically become an accredited investor regardless of their income or net worth.
- Securities offering leadership: If you are a director, executive, or general partner of a company offering an investment, you qualify as accredited specifically for the securities your company offers. For example, a hedge fund director is considered an accredited investor for that specific hedge fund even if they don’t meet income or net worth criteria.
- Family offices: If you’re investing as a family office client, you can invest as accredited as long as the family office otherwise qualifies.
- Knowledgable employees: If you’re an employee of the operator of a private fund and you’re considered a “knowledgeable employee,” you can invest in your company’s fund.3
Pros and cons of becoming an accredited investor
If you’re wondering about the pros and cons of the accredited investor system, consider these benefits and drawbacks.
- Criteria to help investors avoid losses they can’t afford
- Enables investment professionals to invest regardless of their finances in some cases
- New investment opportunities outside of traditional stocks and bonds
- More control over investment mix and diversification
- Restricts some knowledgable investors based on their finances
- Allows some wealthy households to invest in riskier assets they may not understand
- Many requirements for accredited investors are less liquid
- Often higher minimum investment requirements
Why become an accredited investor?
Becoming an accredited investor opens up a new set of potential investments beyond what you can get from a traditional brokerage. You should consider becoming an accredited investor if you want more than stocks, bonds, mutual funds, ETFs and options.
With accredited investor status, you can buy into many potential investments not available in the public markets. While some are available to the general public, they’re not offered to everyone in the general public. Becoming an accredited investor unlocks a new world of investment opportunities.
What can you invest in as an accredited investor?
- Private equity funds. Private equity funds are given broad abilities to invest in sometimes risky investments seeking a significant payoff. Private equity often buys and sells other businesses, looking for synergies and opportunities to improve the company’s total value.
- Hedge funds. Hedge funds are another type of investment fund that can invest in non-traditional investments. Hedge funds often make large investments in other companies, pushing them to increase profitability.
- Private real estate funds. Private real estate funds buy groups of homes, apartments or commercial properties and manage them to earn cash flow and appreciation for investors.
- Private credit. Private credit allows investors to lend funds to businesses seeking interest payments for investment returns.
- Startup Investments. Investing in new companies is riskier than most public companies but offers a potentially higher return.
How are accredited investors verified?
Many investment companies rely on third parties to verify accredited investor status. These companies often review financial statements or connect to online accounts so they can retrieve balances electronically.
Once verified, they return your status to the investment company, and you can buy into the accredited investor funds or other assets.
How to become an accredited investor
For most individuals and families, becoming an accredited investor involves growing your income or net worth. You're on track for accredited investor status by saving up at least $1 million in cash and investments or growing your annual income to the $200,000+ range (or $300,000 with a spouse).
FAQs
Eric Rosenberg is a finance, travel and technology writer in Ventura, California. He is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online side hustle full time.
Latest Articles
Disclaimer
The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.
†Terms and Conditions apply.