How to Become a Certified Investor – The Requirements Explained
Only a certain class of investors is able to take advantage of investments that are deemed higher risk, but present greater rewards. These investments include hedge funds and private equity arrangements or angel investing and certain forms of crowdfunding. The average investor typically does not have access to these types of investments due to regulations imposed by the Securities and Exchange Commission (SEC). If you want to know how to become a certified investor and have access to these investment opportunities, take note of the information provided below.
Defining an Accredited Investor
There is no official certification, per se, of an accredited investor. In other words, there is no test to take or exam to pass that qualifies you for this designation. However, an individual’s ability to invest money in private equity and hedge fund platforms online require the verification of financial statements that indicate the financial capabilities of a prospective investor.
A general definition of an accredited investor is as follows:
* “Investors who are financially sophisticated and have a reduced need for the protection provided by certain government filings. Accredited investors include individuals, banks, insurance companies, employee benefit plans, and trusts.”
To meet the financial criteria of how to become a certified investor, one or more of the following must be true (although there are other categories through which one can qualify):
You must have a net worth of $1 million minimum, either individually or jointly with your spouse. You may not include your home equity for the calculation of net worth.
Your income must be $200,000 minimum, or $300,000 with your spouse in both of the previous two years. As well, you must have the expectation of earning at least the same amount in the current year, OR
The assets of your trust must be in excess of $5 million. The SEC also states that the trust cannot be “formed in order to acquire the securities offered”.”
In understanding how to become a certified investor, you can see that the process is based on a person’s financial status. As an accredited investor with greater financial means than many, it is important, as always, to understand the benefits as well as the potential risks associated with any type of investment.