Essentially, you are considered an accredited investor if you earn at least $200,000 USD per year as an individual or $300,000 USD as a spouses or spousal equavalents. After you qualify as having accredited investor status, you may make certain types of investments that non-accredited investors are not permitted to make.
Higher Risk, Higher Reward Investments
Usually, investments for accredited investors are of elevated risk but provide greater reward. When an investor selects these investments as part of a diversified portfolio, the risk can be moderated. However, it is possible with the higher risk to lose much or even all of an investment compared to investing in index funds or ETFs.
Below are some of the types of investments available only to those with accredited investor status:
Crowdfunded Real Estate
If you want to invest in real estate but are not too keen on owning property, you can now own partial stakes in deals involving commercial real estate, or you can invest in funds involving commercial real estate deals.
Equity Crowdfunding
Due to the JOBS Act, you can acquire part ownership in private companies by investing in their securities. This enables you to invest and participate in the success or failure of an enterprise.
Private Equity Funds and Venture Capital
Private equity funds and venture capital target creating returns through investments in enterprises and fostering the growth of their valuation. Money is typically made in these investments when a company goes public with an initial public offering (IPO) or is sold. The critical distinction between private equity and venture capital is when the money is invested and the work performed by the fund to raise the value of the company. Private equity funds often involved later-stage companies. Venture capital tech funds often focus on early-stage tech enterprises.
Hedge Funds
Hedge funds are managed professionally, similar to mutual funds or ETFs, but encounter much less regulation in the way they invest capital. This allows for more complicated asset classes or deals compared to other types of funds.
Specialty Investment Funds
Because working with accredited investors gives managers of funds the freedom to minimize costs and try different things, there are various funds in operation that are investing in alternative assets or those outside the standard definition of private equity, venture capital, or hedge. For example, crypto funds, which is a new addition to the investment world, allows you to invest in various crypto assets and cryptocurrencies.
As is obvious, those with accredited investor status have a number of investment opportunities available to them, which give the ability to earn high returns with the knowledge of the risks involved as well.
