“`html

Understanding Accredited Investors and How to Become One

Retirement accounts such as 401(k) plans are a popular way to invest in stocks, bonds, and other securities. However, some high-risk investment options aren’t available through these plans and are open only to accredited investors. An accredited investor is someone who meets Securities and Exchange Commission (SEC) criteria such as having a certain income level or net worth, or a license to sell securities or provide investment advice.

What Is an Accredited Investor?

An accredited investor is an individual who meets at least one of the following three requirements:

• Had annual earned income over $200,000 (or $300,000 in combination with a spouse) in each of the previous two years and has a reasonable expectation of similar income this year.
• Has a net worth over $1 million, either individually or combined with a spouse (excluding the value of the primary residence).
• Holds a Series 7, Series 65, or Series 82 license in good standing.

Additionally, certain entities such as broker-dealers registered with the SEC, investment advisors, and knowledgeable employees of the company selling the securities can also qualify as accredited investors.

How to Become an Accredited Investor

To become an accredited investor, the SEC requires the company, entity, or broker offering the investment to take reasonable steps to confirm your status. This can be done by:

• Providing documents such as W-2 forms, tax returns, pay stubs, or letters verifying your employment to prove income.
• Submitting bank, brokerage, or similar statements to verify net worth.
• Obtaining a letter from a CPA, attorney, or professional with a Series 7, 65, or 82 license attesting to your income or net worth.
• Proving that your Series 7, 65, or 82 license is in good standing.

If no one checks your accredited investor status, the SEC cautions that it may be a red flag, indicating that the investment might not be wise.

Types of Investments Requiring Accredited Investors

Investment opportunities that are exempt from SEC registration requirements are restricted to accredited investors. These include:

• Private placements
• Hedge funds
• Private equity funds
• Private real estate investment trusts (REITs)
• Angel investing
• Venture capital (VC) funds
• Regulation crowdfunding

How Non-Accredited Investors Can Invest

Not everyone can be an accredited investor, but everyone can invest. Before you start, ensure your finances are in good shape with a solid emergency fund, minimal debt, and a realistic budget.

Begin by contributing to employer-sponsored retirement plans such as a 401(k) or 403(b). If your workplace doesn’t offer such a plan, you can open an individual retirement account (IRA) with a bank, credit union, or investment firm.

If you’ve maxed out your retirement plan contributions and your budget allows, consider investing through a brokerage account. You can manage your account yourself or use a robo-advisor or financial advisor. Mutual funds and exchange-traded funds (ETFs) allow you to own small shares in a wide range of securities, but you can also buy individual stocks.

If you’re interested in real estate but can’t afford an income-producing property of your own, investing in a REIT gives you a share of any income earned by the trust’s properties.

Diversifying your portfolio by choosing investments from a mix of asset classes, industries, and risk levels can help reduce risk and enhance returns. For example, a mix of 60% stocks and 40% bonds has delivered an average annualized return of 10% over the last 10 years. Another option is to invest in target-date funds, which automatically rebalance to lessen risk as you get closer to retirement.

The Bottom Line

Opening an investment account generally doesn’t require a good credit score, as most accounts don’t involve a credit check. However, good credit can help you qualify for lower interest rates on loans and credit cards and could even lower your auto and home insurance premiums. That means more money in your pocket—and more opportunities to invest. Keep an eye on your credit by checking your credit report and credit score regularly, and consider signing up for free credit monitoring to get alerts to important changes to your accounts.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your investment journey with confidence.

“`