So, you’re interested in bolstering your investment portfolio, but you’re not an accredited investor. No problem! You’re like many other members of the United States’ general public. Especially during the current year, it’s important for business owners to consider setting up and managing their investment funds. It is time to act as your own investor.
Of course, it’s important to understand the difference between types of investments. Also, you must set a reasonable expectation for your returns. If you’re wondering how to boost your investment fund without being an accredited investor, here are a few things to keep in mind.
First, it’s a good idea to know exactly what an accredited investor is. In the US, an accredited investor has access to some investment opportunities that the general public does not.
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For instance, non-accredited individual investors can’t trade private companies and private funds unless the individual investor knows the founders of said companies. In order to act as your own investor with such companies, you must network with the company owners directly. Additionally, an accredited investor may receive an offer to invest in hedge funds.
The SEC (Securities Exchange Commission) sets guidelines which stipulate what constitutes a person’s investor status. To start, an accredited investor must have a net worth (total assets) of more than one million dollars. This includes the spouse’s income if the investor is married.
Additionally, the accredited investor’s annual income must be greater than $200,000 each year, for the past two years. An accredited investor must act as a general partner, executive officer, or other executive in business. Alternately, an accredited investor may function as a broker-dealer.
With all of these SEC rules and regulations in place, how does a business owner like yourself begin to act as your own investor?
Non-accredited investors have different Securities Exchange Commission guidelines. For instance, the SEC limits the total assets, net worth, and other financial realities of the non-accredited investor. Only a few exemptions exist in a handful of states.
Fortunately, the SEC provides several options for non-accredited persons to invest. Even as a business owner, you have options. When your net assets are under stated thresholds and you do not meet the accredited investor guidelines, you have a handful of lucrative investment avenues.
Most commonly, you may act as your own investor through a crowdfunding investment. Crowdfunding allows you to invest in startups and growing businesses that would more typically be the targets of angel or VC investments. This is often referred to as “equity crowdfunding.” Political leaders in support of the JOBS Act opened this avenue to non-accredited investing.
Equity crowdfunding is particularly popular because it doesn’t require large upfront investments. Even a small business owner can make a large enough contribution to see profitable returns. Depending on the size of a funding round, a non-accredited investor can participate with as little as $1,000. Crowdfunding is a means of leveling the playing field between accredited and non-accredited individuals.
Another popular investment type is real estate investing. Naturally, this refers to investing in property outside of your primary residence. To act as your own investor through real estate, you have two main options: investing in debt and investing in equity.
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Debt investing means that you are investing in a mortgage note. You receive a share of the interest after the mortgagee pays the note in full. Typically, the return arrives directly into an account at your financial institution.
Equity investing, on the other hand, stipulates that you take on a percentage of ownership stake in a given property. Investing in equity requires a bit higher risk than debt investment, but the returns aren’t as limited.
Of course, there are a handful of other ways that non-accredited individuals can invest. However, these are some of the most common and most effective. To learn more, reach out to your financial advisor to discuss investment options.