Accredited investors is a term that refers to a select group of individuals, corporations, and endowment or retirement plans who have been granted access to investment opportunities that are subject to regulations enacted during the Great Depression in the United States. Accreditation as an accredited investor indicates that an individual or entity has sufficient reserves to deal in higher-risk investments without causing long-term economic problems.
According to the Securities and Exchange Commission’s current regulations, an individual who wishes to be recognized as an accredited investor must have a net worth of at least $1,000,000.00 US dollars (USD). Alternatively, a single investor may be considered an accredited investor if he or she has made a gross annual income of $200,000.00 USD for the two most recent calendar years. Couples who have been legally married for two years and have a combined annual income of more than $300,000.00 USD may also qualify.
Additional regulations apply to corporations and other entities. Endowment and employee benefit plans with a minimum asset value of $5,000,000.00 USD qualify for accredited investor status. Charitable organizations with total assets of at least $3,000,000.00 USD are eligible. When all of the company’s equity owners are accredited investors in their own right, the corporation may be granted the same status. Accredited investor status may also be granted to trust funds that were not formed with the express purpose of achieving the status and are managed by a person deemed financially responsible.
Investing is a high-risk activity. The regulations enacted in the United States were intended to prevent a repeat of the 1929 stock market crash by restricting participation of individuals and various types of organizations to those with sufficient financial resources. Having assets that are considered reasonable for the degree of risk involved in certain high-risk investments qualifies you to become an accredited investor.