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What is the deal with being an accredited investor, anyway? What kind of advantage does it give you if you're just trying to Bogle your way into buying mutual f

What is the deal with being an accredited investor, anyway? What kind of advantage does it give you if you're just trying to Bogle your way into buying mutual funds until retirement? Should you be trying to become "accredited" as soon as you can prove your net worth / revenue is high enough?

DennisP 7y ago
If you're just buying index funds, it doesn't help you. If you want to swing for the fences with angel investing, you need to be accredited.
- cortesoft 7y ago
  If you don't qualify to be an accredited investor, 'swinging for the fences' by angel investing is simply foolish... you can't hope to make a return unless you can make lots of bets, and making a lot of bets requires a lot of money. Investing in an angel phase company as a normal wealth individual would be like if someone asked you if you wanted to be the house at a roulette wheel where someone is going to bet $100,000 on red. Sure, the bet is in your favor, but there is a good chance you are going to lose it all. Most of us can't afford that.
  - tunesmith 7y ago
    It seems to me that a million bucks wouldn't really enough to be wise, either. I mean, even if you had a 10% chance of getting 50:1 upside (and a 90% chance of losing everything)... you'd still have to bet 29 times to have a 95% chance of getting your upside. I mean, can you be an angel investor by investing as low as $5,000? (Not sure if 10% and 50:1 is anywhere close to what angel investors shoot for.)
    - gowld 7y ago
      > can you be an angel investor by investing as low as $5,000 Yes. Not so much on your own, but as part of a friends&family pool of investments.
drngdds 7y ago
>What kind of advantage does it give you if you're just trying to Bogle your way into buying mutual funds until retirement? I'd guess none? I think it just gives you access to riskier forms of investment like hedge funds.
hadlock 7y ago
Accredited investor effectively means you can invest directly into a company as an angel investor. To legally do this you need a certain level of assets or income. As a result it locks a lot of people out of the high risk/high reward investment market. Kickstarter et all try and get around this, but early donations in Kickstarters like the Oculus DK1 don't get paid when the company gets bought by Facebook for a billion dollars. Accredited investors can invest $1000 and then get money back out of the deal if/when the company is bought
- Danieru 7y ago
  > Accredited investors can invest $1000 and then get money back out of the deal if/when the company is bought Scale is off though, any startup worth investing in will want investment lots 10x to 1000x larger than that. Any investment willing to accept $1000 would be a large red flag. Thus the accredited system IMHO is super reasonable. Anyone with enough capital that investments of 10kUSD to 100kUSD into high risk investments makes sense must have significant other capital. Meanwhile it saves the regular Joe from getting scammed out of his $1000 emergency fund.
  - jachee 7y ago
    Sounds a lot like a system for controlling Regular Joe.
    - IfOnlyYouKnew 7y ago
      A US government trying to prevent "Regular Joe" from becoming rich would have an infinite number of better ways to do so. Not running lotteries, for example. Or regulating the health care market to bring doctors' and lawyers' salaries down to European levels. Or taxing income in the 6-digit range at the rates of comparable countries. Or taxing investment returns at levels comparable to incomes. But there really isn't even a theory of why "regular Joe" striking it rich is in any way threatening to the status quo, is there?
    - sokoloff 7y ago
      I think it's more a system to protect Regular Joes from having small amounts of money stolen from them by shysters hawking get rich quick investment schemes. Many of those are now federal crimes, making the risk-reward unappealing. The assumption is accredited investors are more capable of doing their own diligence and better able to weather the loss of a $50K angel investment than Regular Joe.
xwdv 7y ago
I recently passed the threshold for being an accredited investor. Personally, my next steps are to get access to invest in IPOs, I don't plan to invest in startups much unless someone comes at me with a genuinely good idea and doesn't need much money. Still, I'd rather just buy stocks.
6gvONxR4sf7o 7y ago
I think it's just a way to segment people who can afford to lose more. The government wants to protect people from getting screwed out of their money, but can't strictly define "this is good, this is bad." So they just say "okay, you can afford to lose more, so you're (relatively) on your own. Go ahead and invest in those crazy schemes if you really think it's a good idea."

DennisP 7y ago

If you're just buying index funds, it doesn't help you. If you want to swing for the fences with angel investing, you need to be accredited.

cortesoft 7y ago
If you don't qualify to be an accredited investor, 'swinging for the fences' by angel investing is simply foolish... you can't hope to make a return unless you can make lots of bets, and making a lot of bets requires a lot of money. Investing in an angel phase company as a normal wealth individual would be like if someone asked you if you wanted to be the house at a roulette wheel where someone is going to bet $100,000 on red. Sure, the bet is in your favor, but there is a good chance you are going to lose it all. Most of us can't afford that.
- tunesmith 7y ago
  It seems to me that a million bucks wouldn't really enough to be wise, either. I mean, even if you had a 10% chance of getting 50:1 upside (and a 90% chance of losing everything)... you'd still have to bet 29 times to have a 95% chance of getting your upside. I mean, can you be an angel investor by investing as low as $5,000? (Not sure if 10% and 50:1 is anywhere close to what angel investors shoot for.)
  - gowld 7y ago
    > can you be an angel investor by investing as low as $5,000 Yes. Not so much on your own, but as part of a friends&family pool of investments.

drngdds 7y ago

>What kind of advantage does it give you if you're just trying to Bogle your way into buying mutual funds until retirement? I'd guess none? I think it just gives you access to riskier forms of investment like hedge funds.

hadlock 7y ago

Accredited investor effectively means you can invest directly into a company as an angel investor. To legally do this you need a certain level of assets or income. As a result it locks a lot of people out of the high risk/high reward investment market. Kickstarter et all try and get around this, but early donations in Kickstarters like the Oculus DK1 don't get paid when the company gets bought by Facebook for a billion dollars. Accredited investors can invest $1000 and then get money back out of the deal if/when the company is bought

Danieru 7y ago
> Accredited investors can invest $1000 and then get money back out of the deal if/when the company is bought Scale is off though, any startup worth investing in will want investment lots 10x to 1000x larger than that. Any investment willing to accept $1000 would be a large red flag. Thus the accredited system IMHO is super reasonable. Anyone with enough capital that investments of 10kUSD to 100kUSD into high risk investments makes sense must have significant other capital. Meanwhile it saves the regular Joe from getting scammed out of his $1000 emergency fund.
- jachee 7y ago
  Sounds a lot like a system for controlling Regular Joe.
  - IfOnlyYouKnew 7y ago
    A US government trying to prevent "Regular Joe" from becoming rich would have an infinite number of better ways to do so. Not running lotteries, for example. Or regulating the health care market to bring doctors' and lawyers' salaries down to European levels. Or taxing income in the 6-digit range at the rates of comparable countries. Or taxing investment returns at levels comparable to incomes. But there really isn't even a theory of why "regular Joe" striking it rich is in any way threatening to the status quo, is there?
  - sokoloff 7y ago
    I think it's more a system to protect Regular Joes from having small amounts of money stolen from them by shysters hawking get rich quick investment schemes. Many of those are now federal crimes, making the risk-reward unappealing. The assumption is accredited investors are more capable of doing their own diligence and better able to weather the loss of a $50K angel investment than Regular Joe.

xwdv 7y ago

I recently passed the threshold for being an accredited investor. Personally, my next steps are to get access to invest in IPOs, I don't plan to invest in startups much unless someone comes at me with a genuinely good idea and doesn't need much money. Still, I'd rather just buy stocks.

6gvONxR4sf7o 7y ago

I think it's just a way to segment people who can afford to lose more. The government wants to protect people from getting screwed out of their money, but can't strictly define "this is good, this is bad." So they just say "okay, you can afford to lose more, so you're (relatively) on your own. Go ahead and invest in those crazy schemes if you really think it's a good idea."