Expanding The Definition Of “Accredited Investor”

Being both smart and rich is every investor’s dream.

Some people assume that one needs to be smart to become wealthy. Others argue the wealthy have more opportunities to become smart – perhaps it’s because they’re able to purchase a better or higher education for themselves or their children, or that money gives them access to educated circles where knowledge and insight rub off on them.

Whatever your opinion, the connection between wealth and intelligence was recently addressed by the U.S. House of Representatives as it pertains to investing – or, more specifically, how the U.S. government defines what it means to be an accredited investor.

You see, qualifying as an accredited investor is significant because accredited investors may, under Commission rules, participate in a whole host of investment opportunities that aren’t registered with the U.S. Securities and Exchange Commission (SEC) and generally aren’t available to non-accredited investors.

This includes investing in private companies and offerings by hedge funds, private equity funds, and venture capital funds.

What Being an Accredited Investor Means

Until recently, all it took to be qualified as an accredited investor was having or making the big bucks.

In order to be considered an accredited investor, as defined by the SEC’s Rule 501(a) of Regulation D, an investor had to qualify under at least one of the following:

As an individual, have an annual income and net worth of $200,000.

With a spouse, have an annual income and net worth of $300,000 in each of the two most recent years, with an expectation of reaching the same income level in the current year.

Either individually or jointly with a spouse, have a net worth of $1 million, excluding the positive equity in such person’s primary residence.

Be a general partner, executive officer, director, or a related combination thereof for the issuer of a security being offered.