An accredited investor is allowed by the SEC to trade investment products that are not available to the general public.
An accredited investor is an individual or institution that’s earned special status to invest in unregulated securities such as hedge funds. To qualify as an accredited investor, you must meet certain qualifications, such as being a high earner or having a net worth of $1 million. Unregistered securities are inherently risky but often offer higher rates of return, allowing accredited investors to build wealth quickly.
If you’ve ever come across an investment available only to so-called accredited investors, you’ve likely wondered what the term meant.
The label can apply to entities ranging from massive banking institutions and wealthy Fortune 500 companies, all the way down to high-earning households and even individuals. What they all have in common is a combination of access and risk. Access to exclusive investment products like hedge and venture capital funds, and risk in the form of fewer investor protections.
It also happens to be a pool that’s rapidly expanding. So whether you’re hoping to join the rarefied group yourself, or simply interested in the importance of accreditation, read on for everything you need to know about accredited investors.
What is an accredited investor?
An accredited investor is an institution or an individual considered sophisticated enough to purchase unregistered securities and operate outside the regulations that protect the average investor.
Under current finance law, any company that wishes to offer up its securities has two options. It can either register with the Securities and Exchange Commission (SEC), operating as a publicly traded entity with a required quarterly earnings report to be made available to both shareholders and the public. Or it can bypass those regulations, remaining privately owned but continuing to trade by through an exemption.
Selling to accredited investors is just one of those exemptions, covered by SEC Rule 501 under Regulation