An accredited investor is an individual or entity that meets specific financial criteria allowing them to invest in securities that may not be registered with financial regulatory authorities.
Accredited investors, also referred to as qualified investors, are typically defined by their income or net worth and some times their level of financial literacy.
They have access to private investments that are not available to retail investors, such as hedge funds, venture capital, private equity, and other high-risk, high-reward opportunities.
The accreditation criteria are intended to ensure that these investors are financially sophisticated and can bear the potential risks associated with unregistered securities, which may be illiquid and carry a higher risk of loss.
Accredited investors face fewer regulatory protections compared to retail investors, as they are presumed to have the knowledge and resources to evaluate investment risks independently.
In recent years, the definition of an accredited investor has expanded to include certain financial professionals, such as licensed investment advisors or individuals holding specific financial certifications, recognizing their expertise beyond just income and net worth.
Accredited investors can diversify their portfolios with alternative assets that are not correlated to public markets, potentially improving their risk-return profile.
Many private investment opportunities available to accredited investors have high minimum investment requirements, making them accessible only to individuals with significant capital.
