If you’re engaged in the financial sphere in any capacity, you’ve likely heard the term “Accredited Investor.” It’s often thrown around in investment circles, and many opportunities are available only to Accredited Investors.
But what is an Accredited Investor anyway, and how do you become one?
It’s not quite as complicated as you’d think. To earn Accredited Investor status in the United States, one must fulfill one or more of the following:
· Net Worth of at least $1 million, excluding one’s primary residence
· An annual income of $200,000 ($300,000 total if married) for the past two years, with the expectation to make the same amount this year
The term itself is defined in rule 501 of Regulation D of the US Securities and Exchange Commission.
Protecting Wall Street
The idea of the Accredited Investor has been sold to the public as something that protects them from putting their money into risky investments they don’t fully understand. This, however, is a load of nonsense.
My personal opinion is that the term was invented to protect Wall Street. If you don’t see it now, take a step back and look at the puzzle pieces.
Wall Street can’t stand competition. If you do a quick Google search of qualified plans, you’ll see what I mean. In 2018, in the third quarter, there was over 28 trillion dollars locked away in qualified plans. Twenty-eight trillion. That’s a heck of a lot of money that Wall Street benefits from, simply because those involved aren’t “accredited” to invest in other things.
Now, in 2020, the markets are even higher, which means that that 28 trillion has undoubtedly increased significantly. And that only accounts for equities.
So there are millions of people with their money tied up, and Wall Street is profiting directly. And if these people had other investment opportunities, there would be too much competition for Wall Street. And so the status protects Wall Street.
When aiming for Accredited Investor status, the biggest mistake I see people make, is investing in their Primary Residence first. For this status, your Primary Residence is not included in your Net Worth. That makes $1 million even harder to obtain, and yet people continue to pour money into their homes first.
The number one thing holding people back is their personal residences.
People buy big, lavish homes as soon as they’re able, but those homes have nothing to do with one’s Accredited Investor status. In fact, it’s just one more thing keeping them in the rat race, despite the perceived status symbol it becomes.
It’s not to say that people shouldn’t enjoy nice things when they can, but without strategy, you’ll have a difficult time reaching AI status.
Exiting the Rat Race
Have you ever heard of the game Cashflow? It’s a game invented by Robert Kiyosaki (and his wife, Kim), the author of the best-selling personal finance book, Rich Dad, Poor Dad.
Each player starts the game in the center, in the rat race. The objective is to get out of the rat race, which takes you to the “fast track.” When you’re in the fast track, you’re able to invest in bigger and better deals, with better operators—the cash flow gets better and better, as do the tax incentives.
In real life, the rat race is exactly where we all start (well, most of us). One of the keys to getting out of this race is to work your way toward the Accredited Investor status, so you can continue to invest in more and more opportunities.
So if the goal is to get out of the rat race, and onto the fast track, what behaviors can we modify or adjust? And what can we do to live intentionally, to progress towards that goal of becoming an Accredited Investor?
Would you, perhaps, be better positioned to reach that status if you take the money you may have put toward your primary residence and start off by purchasing an investment property?
Because the thing is—not only would that property then count toward your Net Worth, but it would produce cashflow for additional opportunities. You could then use that toward your primary residence, among other things.
The key is to stop thinking like everyone else, and begin thinking like the person you want to be. Learn how to develop strategies, use leverage, and play the long game.
So How Do You Become an Accredited Investor?
If you weren’t sure before, maybe you’re sure now—you want to get out of the rat race. You know it’ll take work and strategy. So where do you start?
The quickest way is through income—it only takes two years of consistent income above $200k, and remaining on track in the third year.
If you’re looking at this option, take some time to sit down and take stock of your current situation. Does your current job have the earning potential needed to reach this requirement? Does it have a ceiling, or is there limitless potential?
You can also look at additional opportunities, like a side hustle. Is there something you could start that would generate the income you require?
If you’re married the exercise is essentially the same, you’re just looking for a combined potential of $300k. The potential here could be even greater—two heads are better than one. Sit down with your spouse and look at each of your careers, then ask the same questions. What is the earnings potential? Is there a business you could start together? Are there businesses you could start separately?
Obviously, the other way to reach Accredited Investor status is through Net Worth. Living intentionally and playing the long game will take you far. Look to solutions in your life that will check multiple boxes so you can get where you want to go.
Ultimately, reaching this status means unlocking more opportunity. Recognize now that there are already opportunities available to you without reaching that status, and use those opportunities to leverage your way to Accredited Investor status. Many people don’t reach for it, because they think it’s too far, or they can’t think outside the box. If this is something you want for yourself, you need to look at the big picture.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/