Certain investors simply have an advantage over others in terms of the financial benefits available to them in particular opportunities they can access. .Many high- income individuals, such as physicians, attorneys, and others simply follow the conventional route of achieving financial security. They work hard at what they do, pay down their debt, save an adequate amount (more than they spend), and invest in various public securities (i.e., stocks, bonds, etc.). In certain cases, a savvier investor may own one or more rental properties and take advantage of other low-risk investments. Through these methods, many people secure for themselves a comfortable retirement. What they might not realize is that their higher income and net worth could qualify them as accredited investors, and expand their investment opportunities.
Higher Rates of Return and Diversification
Qualifying as an accredited investor can confer some particular advantages over the conventional wealth-building methods mentioned above. Investing in private placements can often yield higher rates of return and give access to more varied types of investments. These benefits can lead to a faster generation of wealth (via higher rates of return) and help insulate the investor from the volatility of the market (via diversification).
How does an individual become an accredited investor? There are simply specific income and net worth standards to be met which are defined in Rule 501 of Regulation D. Qualifying under these criteria allows investors to invest in private offerings which are offered under Rule 506(b) and Rule 506(c), both of which have the advantage of being exempted from certain SEC registration requirements. These exemptions are allowed with the understanding that accredited investors will have sufficient financial knowledge, capabilities, and assets to adequately protect their financial interests and withstand financial losses if necessary.
Investment Opportunities
Many profitable investment opportunities are offered by skilled and trustworthy sponsors that can produce high risk-adjusted returns. You have increased access to these opportunities as an accredited investor. Some examples of these opportunities include commercial real estate, late stage pre-IPO companies, hedge funds, hard money loans, crypto funds, and angel investing. There is a particular level of risk associated with these opportunities since they are not regulated by the SEC to the same extent as conventional securities. Therefore, the investor must apply proper diligence to determine if an investment is appropriate for his or her portfolio.
