If you have looked into various opportunities in the investment world, you may have come across certain opportunities that require the investor to have accredited investor status. The SEC defines an accredited investor as an individual who has obtained certain levels of wealth and sophistication. Certain entities may also obtain accredited investor status. The standards established by the SEC in defining an accredited investor are for the purpose of protecting investors from potential fraudulent or scam opportunities and ensuring investors can absorb the potential losses of riskier investments.
A non-accredited investor is anyone who does not fulfill the requirements set forth by the SEC for accredited investor status, whether net worth, income, or other qualifying avenues.
Comparing Accredited and Non-Accredited Investors
The major difference between accredited and non-accredited investors is the financial savviness and ability accredited investors possess to handle greater risk, often in large part due to their higher income or net worth.
Accredited Investors
An accredited investor is permitted to invest in certain types of securities offerings that are not available to the public at large. These include opportunities such as private equity, hedge funds, and venture capital. They are also able to invest in unregistered securities and are subject to different regulations and rules compared to non-accredited investors. They are not obligated to comply with various filing requirements commonly applicable to other types of investors, giving accredited investors greater opportunity and flexibility with their investing decisions.
Non-Accredited Investors
As opposed to accredited investors, non-accredited investors are typically committed to investing only in more standard investment options, such as bonds, stocks, and mutual funds. These types of investments are less volatile and risky than some of the opportunities open to accredited investors. The SEC restricts the investment opportunities open to non-accredited investors in order to protect them from taking on risks they may not be able to afford and also to facilitate a transparent and fair investment marketplace.
Although acquiring accredited investor status is not required in order to participate in various investment opportunities, it can be an advantageous status to obtain for purposes of building wealth. Since the opportunities available to accredited investors are generally more profitable, achieving this higher investor status may be a goal to consider if you are currently a non-accredited investor.
