Certain types of investment opportunities, such as those that involve crowdfunding, syndications, or group investments, require the investor to be accredited or sophisticated. Non-accredited investors are excluded from any of these opportunities. So, what is an accredited investor? What is a sophisticated investor? What is a non-accredited investor?
What is an Accredited Investor?
An investor is qualified to be an accredited investor through the guidelines established by the Securities and Exchange Commission (SEC). To be considered an accredited investor, the investor must meet one of the following qualifications:
- Net Worth individually or with a spouse must exceed $1 million USD (not including the value of the primary residence).
- Income must exceed $200,000 USD as an individual ($300,000 USD with a spouse) in each of the previous two years, with the expectation to be the same or greater in the current year.
Below are some of the proposed newly added categories:
- Someone investing on behalf of an investment company or business having over $5 million USD in assets and/or the entity’s equity owners are all accredited investors.
- Someone with certain professional certifications, designations
- Knowledgeable employees
- Family offices with at least $5 million USD in assets under management
- Certain limited liability companies, investment advisors, and rural business investment companies
Now that we know the answers to the question “What is an accredited investor?,” let us look at sophisticated and non-accredited investors.
What is a Sophisticated Investor?
Through the SEC, sophisticated investors must possess sufficient knowledge and experience in business matters to assess a particular investment’s merits and risks. The standards to qualify as an accredited investor are more stringent than a sophisticated investor. However, according to the SEC, sophisticated persons may lead accredited investors in cases involving entities such as a nonprofit, bank, or trust.
What is a Non-Accredited Investor?
Any individual who does not fill theSEC’s requirements for an accredited investor is a non-accredited investor, sometimes referred to as a retail investor.
Most individuals who invest in the market are non-accredited investors. These investors still have access to a vast number of opportunities, including real estate, bonds, and equities. Accredited investors simply have access to another group of opportunities that are often riskier.
