What Is an Accredited Investor?
An accredited investor isn’t a type of investor, but rather a type of person. American Law defines an accredited investor as a wealthy individual who has the money to directly invest in not only unregistered businesses but also risky, speculative ventures.
Being an accredited investor comes with some pretty nice perks, including access to private equity deals that aren’t available to the general public. It also makes you eligible to participate in certain types of investment opportunities that are only available to accredited investors. But despite the perks, there are also some major risks associated with being an accredited investor.
So if you’re wondering, “What is an accredited investor?” or “Should I become an accredited investor?” you’ve come to the right place.
What Are the Requirements?
What Are the Best Opportunities for Accredited Investors?
There are two things worth keeping in mind when looking for investment opportunities. The first is that there is a growing number of excellent business opportunities, but there is also a large number of lousy ones. The second is that not all business opportunities will be available to you because some are not open to the general public. So what are some of the opportunities that you can pursue as an accredited investor?
Green Technology
Solar energy, wind energy, hydrogen energy, and bio-fuels are some of the highest growth sectors, and this is where most accredited investors prefer to invest. However, if you are not an accredited investor, all of them will be closed to you. But if you are an accredited investor, here are a few things you can do:
Look for technology products or services that revolve around the use of solar energy, wind energy, hydrogen energy, and bio-fuels. It is not necessary that these be products or services with the highest growth potential currently. What is important is that they are products and services that are viable over the long run, will gain mainstream acceptance, and will be largely used by the general public. You can also consider investing in companies that manufacture the power generation and distribution equipment.
What If You’re Not Accredited?
If you’re not considered accredited, that doesn’t mean you can’t invest. Anybody can put some money in a 401(k) or IRA, and these accounts will grow tax-deferred. Even though contributions are made post-tax, the money can grow over time and be withdrawn without having to pay any taxes on the gains.
That said, you might find the world of investing is largely closed to you if you’re not accredited. Large companies will rarely give you any opportunities to invest, whereas you might find some small businesses are willing to take you on as a limited partner. It’s also possible to find crowdfunding resources, where you can invest in exchange for a share of a company’s profits, although this approach is very risky.
You may also be able to join a private business investment group, which lets you pool your money with others to invest. You’re usually limited to investing in private companies, but some will offer opportunities to invest in public companies if you’ve got the extra money.
Conclusion
To determine whether or not you are an accredited investor, you will need to analyze your personal financial situation and determine whether you meet the minimum requirements. The accredited investor test will look at your net worth, your income for the most recent two years, and other factors. If you cannot meet these requirements, and you are interested in investing in startups, there is an alternative test that you can complete that may be more lenient. However, this test does not provide the same benefits as accreditation.