(Guest post by RichUncle El)
The financial world is a broad system of complicated formulas, terminologies, and rules that are everyday changing and evolving in this modern world. I just came across a new to me financial term called, Accredited Investor.
What does it mean you ask? The SEC made a rule back in 1933, that a business can only accept investments from certain individuals that were certified accredited by them as a way to differentiate investors with big pockets and those with small pockets. Boo Hoo. Don’t cry as you can do something about this, start by saving every penny ASAP.
I stumbled upon this new term while reading an investors page of a startup airline / car manufacturer. I was just curious what the rules were for a new investor who may be interested in dropping some dollars with this company. Then I saw the word accredited and I thought immediately I have to Google this. This is what I found for the term “Accredited Investor”:
- A bank, insurance company, registered investment company, business development company, or small business investment company;
- An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- A charitable organization, corporation, or partnership with assets exceeding $5 million;
- A director, executive officer, or general partner of the company selling the securities;
- A business in which all the equity owners are accredited investors;
- A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
- A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
There you have it one of the 8 ways to qualify is a person with more than 1 million dollars net worth. Wow, imagine have a cool million and collecting over 14K in interest a year. Now can you see why it’s important to increase your Net Worth? It’s a door revolving way to get into certain investing opportunities that will otherwise be closed if you had a small net worth. This also is a requirement for many franchise opportunities like Dunkin Doughnuts, Subway and McDonalds. This was eye opening to me because in all my years dealing with finance, I have never seen this term mentioned or maybe I skipped over that part in my many finance classes.
Comment below if you have heard of this term before or how you feel about a company being so strict with its investor choosing’s.
If you want to see the SEC rule for yourself, follow this link: http://www.sec.gov/answers/accred.htm
Keeping up with the Jones is not important, but increasing your Net Worth is!
RichUncle El is a goal driven person who enjoys talking about finances and money matters. In any social situation if the topic of savings or money is brought up, he immediately wants to chime in and can not shut up regarding personal finance. He is a family man who pushes those people in his network to open up about money and do better for themselves. You can find him blogging at MoneyWatch 101, or on Twitter: @MoneyWatch101.