The United States Government has put high financial barriers in place so as to protect Americans from losing their money by investing in financial products they might not understand. Hedge funds, venture capital, direct ownership of firms, and private equity investments are all types of investments that the U.S. government tries to protect its citizens from. This is because these investments have more risks involved when compared to regular investments such as bonds and stocks.
What is an Accredited Investor?
The U.S. Securities and Exchange Commission had put barriers in place to protect U.S. citizens from investments that are riskier in nature. The U.S. law states that only accredited investors can be involved in certain types of deals. This law behind accredited investors ensures that these types of investors have the financial resources to protect themselves if their investments go sour.
How can you become an accredited investor?
The SEC has clear requirements for people who’d like to become accredited investors.
- A certain income level – One of the requirements for being an accredited investor is earning an excess of $200,000 in the prior two years each. In addition to this, you must have reason to believe that you’ll make the same in the current year. This number is increased to $300,000 when you bring a spouse’s income into the picture.
- A certain net worth level – You must have a net worth of over $1 million. The amount can be your own or yours with a spouse’s and must exclude the value of your primary residence.
- A certain position – You must be a general partner, executive officer, director, or a related combination.
In addition to the above, a person can become an accredited investor if they have a trust which is valued at over $5 million or more. However, the trust shouldn’t be formed specifically to purchase subject securities.
If you meet all of these conditions, you will be allowed to become an accredited investor.