My investor club is for “accredited investors.” What is an accredited investor? Well, it’s not something you apply for like it sounds. Being an accredited investor is just something you are or you are not…like you are either pregnant or you are not.
An accredited investor is a defined by our friends at the SEC as someone who makes a minimum of $200,000 ($300,000 if filing jointly) or has a net worth of 1 million dollars excluding personal residence. The significance of being an accredited investor is that you can invest in things that those with less money, cannot. You can also be something called “a sophisticated investor” which has a much more nebulous definition but essentially says you know what you are doing even if you don’t have that much money.
These laws were put in place long ago to “protect” the average person from predatory activity. The irony of this all is that there is no protection for the average Joe, or pension funds for that matter, against investing in a wildly bloated stock market at record valuations. Every major trader out there knows we are in bubble but there is no protection for individuals dumping money into their retirement accounts to buy mutual funds.
It’s an archaic system which makes little sense. Certainly there has been some recognition of this fact. The 2012 JOBS act made it easier for Main Street America to participate in “alternative” investments via crowdfunding and made it easier for sponsors to advertise previously unknown opportunities. However, we have a long way to go.
The whole securities thing is pretty confusing frankly but it is very important to understand if you are investing in private placements like we do on investor club or if you are sponsoring opportunities yourself. This week’s episode of Wealth Formula Podcast will help you to understand some of this complicated verbiage. Luckily, the guy explaining it is a very likable and well known attorney, Mr. Mauricio Rauld.