Accredited Investor Opportunities to Consider
Accredited investors have access to exclusive investment opportunities that are not available to non-accredited investors, as they are believed to have a higher potential for returns. Over the past nine years, the number of accredited investor households in the US has increased, indicating significant potential for investors seeking alternative investments. Becoming an accredited investor can provide access to a range of investment options.
In this guide, we've explored the following:
- What an accredited investor is
- Top investment opportunities for accredited investors in 2023
- How to become an accredited investor
Want to learn more about the investment opportunities open to this group of investors? Read on.
What is An Accredited Investor
An accredited investor is an individual or entity that is allowed to invest in securities that are not registered with the Securities and Exchange Commission (SEC). Normally, companies offering equity need to register with the SEC, but accredited investors are exempt from this requirement.
The SEC typically requires "any company offering its equity to register such offerings with the SEC unless the company regards it as an exception." Securities not registered with the SEC usually cannot be sold to the public.
They are granted this privilege if they meet specific criteria related to their income, assets, net worth, professional experience, or governance standing. Accredited investors have access to a wider range of investment opportunities, such as stocks, bonds, commodities, or real estate.
Opportunities Worth Looking At
One of the advantages of being an accredited investor is having a financial edge over others, which gives them access to investment opportunities that non-accredited investors do not have. Here are seven investment options that are worth considering for accredited investors.
Venture Capital InvestingVenture capitalists are investors who provide capital or technical and managerial expertise for startups and small businesses with high growth potential. They usually do this in exchange for a stake in the company.Venture capital investing refers to the practice of investing in startup or early-stage companies with high growth potential that cannot secure funding through traditional methods. Venture capitalists provide capital to these companies in exchange for equity ownership or convertible debt, with the expectation of realising significant returns on their investment. Venture capital investors typically focus on companies in technology, healthcare, and other innovative industries that have the potential to disrupt established markets and generate significant profits in the long run. Venture capital investing involves a high level of risk but can also provide substantial rewards for successful investments.
Hedge Fund InvestingHedge funds are private investment fund pools and partnerships and are another popular alternative investment amongst accredited investors, especially institutional accredited investors. Hedge fund investing is a type of alternative investment strategy in which high net worth individuals and institutional investors pool their money into a fund that uses complex investment techniques to generate high returns. Hedge funds are managed by professional fund managers who aim to generate returns that are higher than those of traditional investments, such as stocks and bonds.These managers use a variety of strategies, such as long/short positions, leverage, derivatives, and other complex instruments, to take advantage of market opportunities and generate returns. Hedge funds are generally only available to accredited investors due to their high-risk nature and lack of regulatory oversight. While hedge fund investing can offer the potential for high returns, it also carries a high level of risk and requires significant financial resources and expertise.
Real Estate SyndicationsReal estate syndications are among the top options for accredited investors. The real estate investment field is vast, with several windows available to key into it. This investment is one way accredited investors can key into real estate. Some other options are investing through crowdsourced real estate platforms or investing through private equity or hedge funds specialising in real estate. One way for accredited investors to invest in real estate is through real estate syndication, especially in the multifamily sector. Crowdsourced real estate platforms or private equity and hedge funds specialising in real estate are also available investment options. Real estate syndication is a popular investment model where multiple investors pool their funds to purchase a large multifamily or single family property that would have been too expensive to purchase individually.
Real Estate Investment Trusts (REITs)Real Estate Investment Trusts, commonly referred to as REITs, are companies that own, manage, or finance income-generating real estate properties. REITs offer investors a way to invest in real estate without having to purchase or manage properties themselves. Instead, investors buy shares in a publicly-traded REIT, similar to buying shares in a stock. REITs are required to pay out at least 90% of their taxable income in dividends to shareholders, which can make them attractive to income-seeking investors. They also offer diversification benefits, as REITs can own a variety of properties, including office buildings, apartments, hotels, and shopping centres. REITs can be classified into two main categories: equity REITs and mortgage REITs. Equity REITs invest in and own physical properties and generate revenue through rent and property appreciation. Mortgage REITs invest in and own mortgages or mortgage-backed securities, generating revenue from the interest earned on these investments. REITs are subject to some unique risks, such as interest rate risk and property-specific risks, and may not always track with the broader stock market. However, they can provide a valuable way for investors to diversify their portfolio with exposure to real estate.
CryptocurrencyCryptocurrency investment involves purchasing and holding digital assets such as Bitcoin, Ethereum, and other cryptocurrencies as a form of investment. Cryptocurrencies are decentralised digital currencies that use encryption techniques to secure transactions and control the creation of new units. Investing in cryptocurrencies can be attractive to some investors due to their potential for high returns and diversification benefits. Cryptocurrencies are known for their volatile nature, which means that they can experience rapid price fluctuations in short periods. This volatility can provide opportunities for investors to profit from short-term trading strategies, although it also exposes investors to significant risks. One way to invest in cryptocurrencies is to purchase them on a cryptocurrency exchange. Once purchased, investors can store their digital assets in a cryptocurrency wallet. Another way to invest in cryptocurrencies is through a cryptocurrency fund or trust, which provides exposure to a basket of digital assets. Some investment vehicles, such as exchange-traded funds (ETFs), offer exposure to cryptocurrencies indirectly by investing in companies that hold cryptocurrencies or engage in cryptocurrency-related activities.
How to Become an Accredited Investor
In the U.S., under Rule 501 of Regulation D, the SEC uses the term "accredited investor" to describe financially secure individuals with little to no need for the protection offered by regulatory disclosure reports.
In essence, the SEC defines an accredited investor based on certain income and net worth benchmarks, including
- Has an individual income as a single earner of more than $200,000 over the previous two years (or joint income with spouse of over $300,000 for those years) and reasonably expects the same for the current year
- Has an individual net worth that exceeds $1 million (excluding the value of the primary residence), or joint net worth with spouse of $2 million
Once you meet these requirements, you can apply to be certified as an accredited investor through a third-party verification company. You can also qualify as a professional if you have an SEC Series 7, 65, or 82 licence. Submitting your information directly to investment platforms is another way to participate in accredited offerings.
Business entities, such as banks, brokerage houses, and trust funds, also qualify as accredited investors.
Bottom Line: No Risk, No Reward
Accredited investors can access a diverse range of unique and high-yield investment opportunities that are not available to the general public. It's essential to be aware that some of these investments carry higher risks compared to traditional securities. For those seeking aggressive investment strategies, alternative investments such as solar technologies, real estate, and fine wine offer potential for significant growth over time.
However, before investing, it's crucial to conduct thorough research, review past performance, and gather all the necessary information.
If you're interested in exploring alternative investment opportunities as an accredited investor, Republic Investment offers various investment opportunities. Contact us today to learn more.