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How to Become an Accredited Investor

Have you ever wondered why the rich keep getting richer and the not-so-fortunate keep struggling to meet up? Some of the reasons are because the rich have access to some of the money making opportunities that other classes of people may not have access to.

Such money making strategies offer greater profits but are generally more risky and investors may lose their money hence, the reason why these investments are exclusive to a select few who are high net worth individuals and less likely to feel the impact of these losses if and when they happen. One of such money-making opportunities is becoming an accredited investor.

Don’t let the name fool you though; becoming an accredited investor doesn’t mean that there are any regulatory bodies to be consulted or any qualifying examinations to be written. It also doesn’t mean that you need a license. In fact, the requirements for being an accredited investor may differ from project to project. However, an accredited investor according to the Security and Exchange Commission is someone who can fulfill the following financial criteria-:

5 Requirements Needed to Become an Accredited Investor

  • Net worth of $1 million

An accredited investor must have a financial net worth of $1,000,000 owned solely or jointly with a spouse, home equity exclusive.

  • Minimum Income of $200,000

Also, to qualify as an accredited investor, you must be able to show that your annual income is at least $200,000 or joint income with your spouse totals a minimum of $300,000 and you must have been earning this amount for at least two years.

  • Trust assets of more than $5,000,000

If you own a trust with assets worth more than 5million, you are also qualified to become an accredited Investor according to the Security and Exchange Commission (SEC).

  • A charity organization worth more than $5million in assets.
  • A company with a minimum networth of $5,000,000

There are also a number of criteria spelled out in the SEC Act of 1993 so, you may want to grab a copy to check it out because it would be too voluminous to fit in here.

What Do Accredited Investors Stand to Gain?

I guess you are already wondering why being an accredited investor has to be so exclusive and these people stand to gain. Well, here are a few benefits of becoming an accredited investor-:

  • You have access to investing opportunities that are not available to the general public or the average investor.
  • You have access to investments with higher rewards.
  • You are able to participate in businesses that are not registered under the Securities and Exchange Commission.

Kinds of Investment

Accredited Investors generally have access to these kinds of investments-:

  • Angel investment

Angel investors generally help start-up companies by providing funds needed to run the business in exchange for equity in the business or high interest rates. Their interest rates are usually higher because of the risks involved in angel investments; sometimes, the start-ups may fail and then the angel would lose all his investments. Sometimes, an angel investor may not even invest his money but his knowledge and expertise.

  • Crowdfunding

Accredited investors can also invest through Crowdfunding. Crowdfunding involves a number of people coming together to invest in a business.

  • Hedge funds

Accredited investors are also allowed to participate in hedge funds.

If you want to become an accredited investor, here are the steps you should take:

5 Steps to Becoming an Accredited Investor

1. Build your financial worth

I already mentioned that you would need to have a net worth of $1million, so the first step is to build your assets to be worth $1million. You can also combine your assets and that of your spouse.

2. Increase your income

You also have to proof that you and your spouse have jointly earned $200,000 in gross income for the past two years or that you have solely earned $300,000 within same period.

3. Calculate your networth

Well, calculating your net worth is really simple. It is basically an addition of all your assets and deduction of your liabilities. However, the worth of your primary residence and any mortgages due (up to the fair market value) are excluded from this calculation.

4. File your applications

The next step is to file an application. To do this, you have to visit the website of SEC and download an application form which you would fill and send to your issuer for verification with the following supporting documents-:

  • Evidence of tax filings in the past two years to justify your income
  • Bank statements
  • Certificates of deposits
  • Tax assessments and appraisal reports
  • Statements of Security holdings
  • Credit reports
  • A written statement that all liabilities that may affect net worth have been disclosed

Also, the Security and Exchange Commission provides guidelines on how issuers (the person whose business the funds are invested in) can verify purchasers (the accredited investor).

5. Link your Accredited Investors Account to your Bank Account

An accredited investor’s bank account would be opened for you and you would be required to link your bank account with this account. Well, this write-up wouldn’t be complete without giving you some tips on how to build your networth so that you can qualify to become an accredited investor too. Here are seven tips for you-:

How to Build or Increase your Networth

a. Start paying off your debts

The first step to take to increase your financial net worth is to start paying off all the debts and loans you owe. To start with, you should target the high interest debts and pay them off. You can also consider taking up low interest loans to pay off all your high interest loans.

b. Take your retirement contributions more seriously to fight the net worth sucking demon called taxes.

c. Reduce your expenses

Need I say more? It’s always a great temptation to use the latest gadgets and visit the newest restaurant in town but not at the expense of building your assets and increasing your net worth. A budget would help you out in this area.

d. Build your savings habit

You should develop a strong saving habit and keep it in a place where it can grow. Send your savings out to work for you.

e. Hire a professional to advise you and manage your finances for you.