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How to Become an Accredited Investor in 5 Quick Steps

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Being an investor in today’s market is a big deal, but being an accredited investor? Now that’s a whole other story!

Being an accredited investor opens various opportunities you may not otherwise have access to.

For instance, what you can invest in, how you’re treated by the Securities and Exchange Commission (SEC), and what companies expect from you.

All of this made accredited investors that much more desirable—and that much harder to become!

That’s why, today, we’ll share with you how to become an accredited investor and all the perks that come with it. Keep your eyes peeled, though; this is a long one!

An Overview of Accredited Investors: A Primer

An accredited investor is a person or business entity with the ability to invest in specific securities outside the SEC registration. 

Now, you’re probably thinking: What does that mean, exactly? Allow us to break it down for you. 

For starters, don’t let the word securities confuse you. It only refers to financial instruments that have some sort of monetary value. This includes stocks, preferred shares, bonds, and exchange-traded funds (ETFs).

What makes an accredited investor different, though, is that he deals with private securities that aren’t registered with the SEC. These can include a capital venture, hedge fund, private equity fund, angel investment, and specialty fund.

The SEC put down several rules because the above-mentioned securities are typically riskier and require specific skills. The SEC defines an accredited investor under Regulation D as someone that meets one of the following conditions:

  1. Earns an income of $200,000 alone or $300,000 with their spouse
  2. Owns a net worth of over $1 million either on their own or with their spouse 
  3. Is a knowledgeable investor and holds valid a Series 7,65, or 82 license.

By doing this, the SEC guarantees that accredited investors can handle the risks of any private investment opportunity and protects them from savvy sharks.

How Much Do Accredited Investors Make?

Being an accredited investor isn’t a particular job with a set salary that we can share with you. Instead, the label “accredited investor” only refers to an individual or an entity that meets the requirements set forth by the SEC.

Remember, though, there’s one condition by the SEC that can give a general idea of what accredited investors have or earn. It states that an accredited investor must have an income of $200,000 on his own or $300,000 with a spouse.

A male accredited investor in a meeting with his team

Put simply, if you’re an accredited investor, there’s a chance you make $200,000 annually or even more.

What You’ll Need to Become an Accredited Investor [& Associated Costs]

Being an accredited investor doesn’t come with certain financial costs but rather financial benchmarks.

At the risk of sounding redundant, you need about $1 million in assets or an annual income exceeding $200,000 to become one.

Another point to note is that if you’re a private entity, you’ll need at least $5 million in assets to qualify as an entity-accredited investor. 

Still, you could face some potential costs, such as the following:

1. Education and Career Development

One of the easiest ways to stand out from the crowds is through knowledge. Earning a degree, like a Master, to further develop your career can give you an edge in the market. Unfortunately, such degrees usually cost somewhere between $44,000—$60,000.

2. Professional Certification

If you don’t have the time to enroll in a college program, you can always go with courses and training. These take less time, are more specialized, and are more affordable. For instance, a chartered financial analyst certificate could cost $350–$1500.

3. License

According to the SEC, you can still become an accredited investor with just a permit! No need for the assets or income, a Series 7, 65,82 license should be fine. Thankfully, obtaining one isn’t that hard; it only costs $50—$300.

4. Investment Services

As an accredited investor, you’ll need to join various platforms to help make your job easier. There are software that help with market data and provide analysis tools.

You’ll also find apps for investing in general, cryptocurrency, and digital real estate investing. Joining one of them can cost you around $5–$50 monthly.

How Much Does it Cost to Become an Accredited Investor?

If you already have $1 million in assets, then becoming an accredited investor shouldn’t cost you anything at all. Most previous costs are optional, and the necessary ones don’t come up to $3,000.

Is it Hard to Become an Accredited Investor?

Trying to become an accredited investor can be challenging if you’re unsure of the process or don’t have the necessary assets.

For starters, you’ll need an annual income exceeding $200,000, $1 million in assets, or a specific license. Since the median household income in the U.S. is around $71,000, accomplishing the first criterion might prove tricky.

The second issue here is with the 1$ million in assets. Getting to that number can take time and loads of effort. You’ll need significant savings, successful investments, or a profitable business to help you get to that number.

Of course, this requires certain levels of discipline and understanding to pull off!

Finally, being an accredited investor means taking significant risks. This is because you’ll be dealing with unregistered securities and private equities, which can be quite volatile.

How Long Does it Take to Become an Accredited Investor?

The time it takes for an individual or an entity to turn into an accredited investor is solely based on their personal circumstance. 

It depends on factors such as financial standing, career progression, investment returns, and personal saving habits.

All of these little tidbits affect the time it takes to become one. One fact we know for sure, though, is that it takes a bit of time and a lot of effort.

How to Become an Accredited Investor in 5 Simple Steps

An accredited investor working on laptop in his office

Despite the challenges the SEC placed upon investors, it’s still possible to become one. Here’s an outline of the steps you need to take to become an accredited investor:

Step 1: Focus on Education and Career Growth

Some people view education and career as two faces of the same coin. Though this changed with the rapid changes in the world, it’s still true a formal degree can help specific career paths.

Being an accredited investor is undoubtedly one of those careers. You can aim for a bachelor’s degree in economics, finance, or business. These qualifications can help you understand the industry more and propel your career forward.

Step 2: Implement a Strong Savings and Investment Plan

The problem with becoming an accredited investor is that there are already a couple of rules in place. Unfortunately, two of these rules include conditions about your financial status.

This leads us to an important question: How can you meet at least one of these conditions?

Well, if you follow the first step, you should meet the first condition after a few years of work. To shorten those years, you can also invest in high-growth assets. 

For instance, you can invest in real estate, infrastructure, commodities, etc. Once you’ve built a steady income stream, you can start a rigorous saving plan.

Step 3: Boost your Net Worth

Did you know that your home doesn’t count towards the $1 million in the conditions? It’s true! This is why you need to ensure that the total value of your assets can reach this number without your resident.

To do that, you can start by paying off any debts you own and cutting down on credit card usage. Do be careful, though; some debts come with early payment penalties on mortgages. 

Another way that can help increase your net worth is to cut any unnecessary expenses. This can be a little tough to accomplish, yet, it’s still possible with a bit of planning.

Step 4: Diversify your Income Stream and Obtain Licenses

A trap that many individuals fall for is relying on just one income source to support themselves. But that leaves us wondering: What happens when that income stream stops

Your source of income helps you fulfill two of the conditions set down by the SEC. Hence, once it stops, you lose everything! 

You need to put your money in various investment spots to avoid this. You can go with real estate, commodities, stocks, and bonds simultaneously!

Once you’ve secured your income source, you can find ways to obtain the Series 7, 65, or 82 licenses. By following the previous steps, you guarantee to pass all the conditions set by the SEC.

Step 5: Consult with Financial Advisors

Finally, you can’t jump into the investing market too quickly as a beginner. This is mainly because formal education could never really give you the same experience as work.

That’s why financial professionals can help you understand the risks and benefits of every step as well as what you’re supposed to do. 

Such advisors have years of experience, and by now, they know the ins and outs of the market. They’ll help you find the best investments and secure your finances to the best of their abilities.

Reasons to Consider Becoming an Accredited Investor

Close-up of an accredited investment mentor guiding one of his team

There are many benefits to becoming an accredited investor, including: 

  • Access to private investment opportunities: Accredited investors have the privilege of dealing with securities beyond the general public’s scope. This can give you a significant edge in the market.
  • Higher potential returns: The various private equity opportunities available to accredited investors can be incredibly lucrative. It’s a great way to make more money and increase your net worth over time.
  • Diverse portfolio: Because of the many doors the accredited investor status opens, it’s possible to diversify your portfolio as much as you like. You can go for real estate, fine art, or even crypto!
  • Networking: Being an accredited investor is like joining an exclusive club. You’ll meet new people and build relationships that can help you gain new information and develop your career.

Frequently Asked Questions

Now that you know everything there is about becoming an accredited investor, here are some of the most asked questions:

Does a CFA Make You an Accredited Investor?

According to Entrepreneur, the SEC contemplated adding CFA and CFP to the list of licenses that’ll make an accredited investor.

However, it seems that they settled on Series 7, 65, and 82 licenses. So far, CFA and CFP don’t make you a qualified investor here.

Can a Foreign Person Become an Accredited Investor?

Yes, if you’re not an American citizen, you can still become an accredited investor.

All you’ll need is to fulfill one of the conditions mentioned before, including having an annual income exceeding $200,000 or owning $1 million in assets.

Similar Gigs to Check Out

Did you not like the idea of becoming an appreciated investor? It’s alright; there are various options available, including the following:

  • How to Become a Financial Advisor: Interested in finance and helping others? Our guide here can help you start your journey as a financial advisor!
  • How to Become a Day Trader: How do you feel about the fast-paced world of financial markets and managing risks? Well, allow us to give you a quick tour of what it takes to become a day trader.
  • How to Become a Landlord: Investing in real estate is one of the most lucrative ways to make money, but it’s also a bit tricky. That’s why we’ve put this guide together to help you become a landlord.

Wrapping Up

Are you still wondering: how to become an accredited investor? We sure hope not!

To become one, you need to follow one of the three main rules the SCE sets. You’ll need either an annual salary that exceeds $200,000, $1 million in assets, or a Series 7, 65, or 82 license.

If you fail to meet any of these conditions, then you won’t be qualified for an accredited investor position.

We know this guide has been a little challenging, so if you have any questions, please share them with us in the comments below!

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