Please ensure Javascript is enabled for purposes of website accessibility

Ask a Fool: What Is an Accredited Investor?

By Matthew Frankel, CFP® – Jun 28, 2019 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What it means when an investment is open to accredited investors only.

Q: I was looking at a real estate crowdfunding investment and the site says it's open to accredited investors only. What does this mean, and why are some investment opportunities restricted to accredited investors?

The Securities and Exchange Commission (SEC) aims to protect investors from taking risks they don't understand well (among other functions). Because of this, in most cases where an investment opportunity is offered to the public, there are extensive SEC regulatory requirements that must be met.

The exception is if an opportunity is restricted to accredited investors. The idea is that by restricting an opportunity to investors who have a certain level of financial sophistication, fewer protections are needed. And, if the investments take a turn for the worse, these investors have more room to absorb losses.

For individuals, an accredited investor is defined as having either $1 million in assets excluding a personal residence or having income of $200,000 per year ($300,000 if combined with a spouse) for the past two years, with a reasonable expectation of the same in the current year. Before you can take advantage of any opportunity that is limited to accredited investors, you should be prepared to verify that you meet one or both qualifications.

To be clear, this isn't a perfect system. Not everyone with lots of assets or a high income is necessarily more knowledgeable about investing than those that don't have those traits. However, many investment opportunities -- hedge funds, for example -- are restricted to accredited investors in order to limit regulatory filing requirements by the investment sponsor.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.