Being an accredited investor or a qualified purchaser are both levels of financial sophistication that have historically allowed individuals and entities to invest in alternative investments. Accredited investors are individuals or entities who meet certain criteria set forth by the Securities and Exchange Commission (SEC). Qualified purchasers are also individuals and entities who meet certain criteria set forth by the SEC, but the criteria are stricter than that of accredited investors.
To be an accredited investor, you must meet certain net worth or income thresholds. The SEC defines an accredited investor as someone who has a net worth of at least $1 million (not including the value of the person’s primary residence) or an individual who has earned an income of at least $200,000 each year for the past two years (or $300,000 when combined with a spouse) and has a reasonable expectation of earning the same amount in the current year. Entities such as corporations, trusts, and partnerships are also considered accredited investors if their net worth is greater than $5 million, or all of their equity owners are accredited.
Qualified purchasers, on the other hand, are individuals and entities with a total net worth of at least $5 million, not including the value of their primary residence. This includes a single individual with a net worth of at least $5 million or a family with $5 million or more in investments through a charity, company or estate, or a trust set up for their benefit. Qualified purchasers also include individuals or firms with discretionary control of over $25 in assets (own or others).
For generations, only accredited investors or qualified purchasers have been allowed to invest in traditional alternative investments such as venture capital, hedge funds, and private equity. These investments presented high-net-worth individuals with the opportunity to diversify their portfolio, hedge against risk, and increase their returns.
However, in recent years, the landscape of alternative investments has changed drastically. Thanks to a shift in regulations, innovation in technology, and lower investment minimums, almost anyone can now invest in some alternative investments.
The 2018 Jumpstart Our Business Startups (JOBS) Act opened the door to non-accredited investors, allowing them to invest in private securities offerings. This act, along with other regulatory changes, has enabled more people to get into alternative investments.
In addition, advances in technology have made it easier for individuals to access alternative investments. Online platforms and mobile apps have made investing in alternative investments much more convenient and accessible. These platforms have also made it possible to invest in alternative investments with lower minimums, enabling more people to get involved.
One of the most popular alternative investments today is cryptocurrency. Cryptocurrencies are digital assets that are created, stored, and transferred electronically. They are decentralized, meaning they are not subject to the control of any central authority. They are also highly volatile, making them a risky investment, but also the potential for high returns.
Another alternative investment that is gaining traction is fractional ownership of art. This form of investing allows people to buy a small stake in a piece of artwork. This can be a great way to diversify your portfolio and add some aesthetic value to it. Fractional ownership of collectibles is another alternative investment gaining popularity. This investment involves buying a small piece of a collectible item, such as a rare comic book or baseball card. This can be a great way to diversify your portfolio, while also getting in on the action of the collectible market.
Crowdfunded investments have also become a popular form of alternative investing. This type of investment involves pooling funds from multiple investors to invest in a company or project. Popular types of crowdfunded investments include P2P lending, equity crowdfunding, and real estate crowdfunding.
