Opportunities to Generate Passive Income for Accredited Investors
By design, an accredited investor has many more investing opportunities to generate passive income or to potentially achieve capital appreciation open to them than those who aren’t accredited. Here is how to become an accredit investor in the first place. However, with greater opportunities often comes more unique investments, as the origin of the accredited investor status was to protect investors who could less afford to lose portions of their investment.
Are you an accredited investor?
The U.S. Securities and Exchange Commission recently expanded the definition of accredited investors. Those whose net worth is at least $1 million individually or together with their spouse at the time of the investment (excluding the value of their primary residence) or whose pre-tax income is at least $200,00 per year (for individuals) or $300,000 per year (for couples) for each of the prior two years are considered accredited (so long as they are also on track to make the same amount (or more) in the current year). Your CPA or lawyer can also verify that you meet the accreditation criteria via a third-party verification letter. There is no application process to “become” accredited.
The SEC also expanded the definition to include people who have a certain level of sophistication in the financial industry, even if they don’t meet the net worth or income test. People with certain professional certifications, credentials, or licenses are considered accredited, as are “knowledgeable employees” of private funds and registered investment advisers with respect to securities being offered by those private funds or registered investment advisers.
What can you do when you become accredited?
When you become an accredited investor, you become eligible to buy certain unregistered securities. Many companies choose to offer their securities only to accredited investors, so they choose not to register them with the SEC or other regulatory agency.
What opportunities to generate passive income are available to the newly accredited investor?
Newly accredited investors often wonder how to start once they receive that designation, so if you’re feeling overwhelmed, you’re not alone. Here’s a list of some potential opportunities:
- Hedge funds – One possible way to take advantage of your accredited status is to invest in a hedge fund. There is a wide array of fund managers to choose from, so you should do your research before you make any investments. You can find hedge funds that invest in almost any asset class, from stocks and bonds to real estate and even cryptocurrencies. Be sure to review recent returns to see how the fund managers you are considering have been doing, but understand that one bad year does not necessarily make them a bad manager.
- Real estate – There are many ways to invest in real estate, and you don’t need to be accredited for all of them. However, there are more opportunities available if you are accredited. For example, Yieldstreet gears many of its real estate products toward accredited investors, including crowdfunding debt on a variety of different types of properties.
- Private equity – PE generally involves a fund purchasing shares in private companies. There can be more risk involved in PE because there is less public information about the company that’s selling shares.
- Venture capital – Venture capital firms invest in startups, which means there may be even more risk than with PE, although venture capital can be a form of PE. Before startups go public or are acquired, they may receive growth capital through venture capital investments.
- Crowdfunding Platforms – In the last few years, fintech companies have made additional investment opportunities available to newly accredited investors. Many list offerings in a single asset class like real estate, or in the case of Yieldstreet, offer investments across a slew of alternative asset classes.
Accredited investors have many more opportunities available to them than those who aren’t accredited, but those opportunities may come with more risks. Here is how Yieldstreer helps you streamline your investing journey as an accredited investor.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]