How to Become an Accredited Investor



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Hey business warriors, now you may have heard of something called an accredited investor, this means that you can invest in securities not offered to the general public such as private equity, hedgefunds, venture capital etc… basically you could be an angel investor for some silicon valley start up and maybe get a 10,000% return on your investment if it all goes well.

So how do you become an accredited investor? Well here is my certificate from the securities and exchange commission that I got after I took the exam. Hahaha just kidding, there is no exam, no certificate and no organization that will say, right, you sir are now an accredited investor. But there are requirements you need to fulfill, basically it’s all about the money.

So in this video we are going to take a look at how rich you have to be to become an accredited investor.

So here is what the securities act of 1933 says about who is an accredited investor:

A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

A natural person who has an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person.2

Now in the past the primary residence was included in that calculation, but after the Dodd Frank act in 2010, the primary residence was excluded. I think this probably excluded a lot of people because many people store the majority of their net worth in their primary residence.

In addition to these requirements if you work for some private fund, so called “knowledgeable employees” of that fund will be considered accredited investors in relation to that fund.

So if you qualify, how do you prove that you are indeed an accredited investor? Because like we mentioned there is no governing body that will issue you a certificate or accredited investor badge.

Well what happens is that when you inquire to a particular fund or company about investing in them, they have to give you a questionnaire which you fill out to confirm your accredited status, and you will probably have to back that up by attaching copies of financial statements, W2 if you based your status off annual income, and they may also check your credit reports to see your level of debt.

So basically the status of accredited investor is available to people who have a lot of money. With the goal of protecting people who don’t have money to lose from risky investments, because remember these kinds of investments, especially investing in start ups are very risky, 9 out of 10 start ups fail. People who do this kind investing will spread their risk they might give money to 10 companies and only one takes off, but they get a 10,000% return or more. So y until that happens, you have to be ready to lose money.

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