The deeper you dive into finance, the more terminology you will have to learn in order to be successful. Take, for example, the difference between a qualified investor and an accredited investor. What do these terms mean? Is there any difference between the two? What criteria will you need to meet to become either one? If investing is in the cards for you, let’s break down these two terms to learn more about what they are and how you can acquire the title you are looking for.
What is the difference?
Although you may see the terms “qualified” and “accredited” used throughout various platforms, these terms are used interchangeably and refer to the same type of investor status. While these two terms may have referred to different investors in the past (qualified investors could not previously include the value of one’s residence in their net worth calculations whereas accredited investors could), the Dodd-Frank Wall Street Reform and Protection Act passed in 2018 eliminated the inclusion of a primary residence in net worth calculations, causing the two classifications to fall under one. If you see either name during your research, you can rest assured knowing they mean the same thing.
What are the criteria for becoming an accredited investor?
There are certain requirements that must be met in order for someone to obtain accredited investor status. The U.S. Securities and Exchange Commission (SEC) defines an accredited investor as:
- Someone who has an earned income of $200,000 ($300,000 if married) in each of the two previous years and anticipates having the same income for the current year.
- Has a net worth of over $1,000,000 on their own or with their spouse (excluding the value of their primary residence)
Why would someone want to be an accredited investor? Accredited investors have the ability to participate in investments that are not registered with the SEC. These guidelines are essentially meant to show the SEC (and any companies that you deal with) that you have enough financial knowledge and the accompanying income level to participate in these riskier investments and deal with any subsequent losses. While there are no certifications given by the SEC for your status, companies that you invest with will assess your financial statements and other necessary documents to ensure that you meet the minimum requirements.
To better illustrate the difference, investors who are just breaking into the scene and who are more interested in pursuing the same types of assets as the average investor may choose to open their own Canadian Couch Potato ETF portfolio with a company like Passiv. This gives new investors the opportunity to develop a reliable, automated portfolio of securities like stocks and bonds that can provide them with passive income over time (all without the hassle that comes with physically managing your own portfolio). Through these types of accounts and managed portfolios, investors are able to start building their wealth safely and easily.
On the other hand, we have accredited investors who are looking to invest their money in high-risk assets that have the potential for greater profitability. But what do “high risk” investments look like, and how would you get started investing in such asset classes?
How do I get started?
Accredited investors who meet the above requirements and are eager to grow their wealth may not know where to begin. One great way to get started is by turning to a company like Yieldstreet. Yieldstreet is an alternative investment platform focused on income generation and ease-of-use. Through their platform, accredited investors can gain access to innovative investment opportunities like real estate and art (and, for more careful investors, assets backed by collateral for improved risk mitigation). If you’re looking for short-term investments that can help you grow your wealth more effectively, Yieldstreet can provide you with the support you need to generate passive income and meet your financial goals.
So, what’s the difference between a qualified investor and an accredited investor? As of the moment, these two terms refer to the same kind of investor. Hopefully, the accredited investor definition above has provided you with a more comprehensive overview of what this term means and how you can obtain such status. If you are looking to invest in riskier and potentially more lucrative investment opportunities, begin your investment journey today by seeing whether or not you meet the criteria (adjusting your course if you do not) and getting started with a reputable investment company such as Yieldstreet.