> > Accredited vs. Non-Accredited Investor: Everything You Need to Know

Accredited vs. Non-Accredited Investor: Everything You Need to Know

Many or all of the products featured on this page are from our sponsors who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here is how we make money.

The information provided on this page is for educational purposes only. The Modest Wallet is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual.

The Securities Act of 1993 introduced the term accredited investor to the financial industry in the United States to protect unwary individuals from dealing with securities that are fairly complex and typically riskier than traditional assets.

Meanwhile, in August 2020, the SEC introduced some amendments to the criteria that investors must meet to be considered accredited.

The word “accredited” might sound a bit snobbish at first glance but it is primarily a legal term that is used to define what kind of investments certain people and institutions can have access to in today’s modern financial markets.

In this article, we discuss what accredited and non-accredited investors are and what kind of securities they can invest in. We hope to clear up any doubts that our readers may have about this interesting topic.

Accredited vs. Non-Accredited Investor: Why It Matters 💵

What Is an Accredited Investor?

It is easier to define what an accredited investor is first as non-accredited investors are just everybody else who is not considered accredited.

Accredited Investor Definition

An accredited investor is someone whose net worth, expertise, or income qualifies them as a knowledgeable investor, i.e., one who understands the intricacies and complexities of investing in unregistered securities.

An unregistered security is one that is either not traded on a public exchange or has not received authorization from the US Securities and Exchange Commission (SEC) to be marketed to the general public.

Requirements To Be An Accredited Investor

According to the SEC, an accredited investor is an individual or business entity that meets at least one of the following criteria:

  • Had an annual income exceeding $200,000 for individuals and $300,000 for couples in the last two years with the expectation to earn the same figure or higher in the current year;
  • Has a net worth exceeding $1 million either as an individual or jointly;
  • Is a general partner, executive, director, or holds a similar role at the company that is issuing the securities;
  • Is a private business whose assets exceed $5 million; or
  • Can demonstrate that they are qualified (academically or empirically) to deal with unregistered securities.

Meanwhile, the amendments introduced in August 2020 included the following criteria:

  • Holds a financial sector certification or credential such as a Series 7, Series 65, or Series 82 license;
  • Is a “knowledgeable employee” of the private fund that is issuing the securities or one of its subsidiaries; or 
  • Is a family office or a family client as defined by the Investment Advisers Act of 1940.

Other forms of accredited investors mostly apply to institutions and, hence, they will not be covered in this article.

Significance Of Being An Accredited Investor

The accredited status is required if an individual or institution wants to invest in unregistered securities, funds, and vehicles such as hedge funds, private stock offerings, structured debt deals, and non-traditional real estate investment vehicles.

What Is a Non-Accredited Investor?

Now that we have cleared up what the term accredited means we can now define the characteristics of the unaccredited group.

Non-Accredited Investor Definition

In summary, a non-accredited investor is any person or institution that does not meet the criteria mentioned above to qualify as accredited. These investors cannot participate or invest directly or indirectly in unregistered securities and funds and companies are not allowed to promote these investments to them.

Requirements To Be A Non-Accredited Investor

There are no requirements as all investors are considered unaccredited unless proven otherwise.

Significance Of Being A Non-Accredited Investor

Being an unaccredited investor is not necessarily a bad thing as there are many authorized instruments such as stocks, bonds, exchange-traded funds (ETF), and mutual funds, that will allow investors to get exposure to most corners of the real economy and financial markets.

However, not being accredited does limit the range of vehicles that are available for investors to participate in certain opportunities.

Important Note

The U.S. Securities and Exchange Commission (SEC) was created after the financial crisis of 1929 to protect people from investments they couldn’t afford or understand. As a result, non-accredited investors are limited in their investment opportunities for their own safety.

Good Investment Opportunities for Accredited Investors 

In the following section, we discuss some of the investment opportunities that accredited investors can have access to.

Real Estate Crowdfunding

Crowdfunding is an activity that involves raising capital from a selected group of investors to fund a certain activity. In the specific case of real estate crowdfunding, there is a sponsor who structures the deal and secures the funding required via equity or debt.

In most cases, the deal involves buying and operating a real estate property with an underlying value that exceeds its market value or that can generate attractive returns to investors.

Some online platforms have mass-marketed these deals to accredited investors as is the case of EquityMultiple, RealtyMogul, and AcreTrader.

Real Estate Syndications

Real estate syndication is the process through which a sponsor of a real estate project gathers capital from a group of investors to acquire real estate. Syndications give investors some sort of participation in the project, whether they act as lenders or shareholders.

Most syndications generate passive income in the form of dividends that are distributed periodically while the underlying property acquired should also appreciate in value over time.

Equity Crowdfunding

Companies at an early stage of their development such as startups can raise capital from a pool of accredited investors to obtain funds to build a prototype, conduct some required research, or move to the next phase of their business plan. 

Investors who participate in these deals typically get to acquire common shares of the business at a low price or they may be offered to be the first people to get the company’s product once it is manufactured.

Venture Capital & Private Equity Funds

Venture capital firms invest in early-stage projects on behalf of their investors. They focus on identifying promising companies with huge upside potential to deliver sizable gains once they are taken public or sold to a large corporation. 

Meanwhile, private equity funds focus on acquiring a large stake at publicly-traded firms to take them out of the market to improve their financial performance to then sell them to a third party or take them public again at a profit.

Hedge Funds

A hedge fund is an investment fund that employs sophisticated strategies to deliver gains that exceed a certain benchmark, such as the S&P 500 and Dow Jones Industrial Average.

These funds are typically managed by seasoned financial professionals whose years of expertise in the marketplace allow them to identify opportunities that generate alpha-rich returns. Commonly, these funds charge hefty performance and annual fees and require a minimum investment of thousands of dollars.

Specialty Investment Funds

There are some investment funds whose strategies are so sophisticated and niche that they fall in a separate category. These funds include those that invest in distressed debt or that structure complex private debt offerings. More recently, these funds have also opted to focus on specific niches of the market such as fine art, fine wine, farmland, and cryptocurrency.

Pro Tip

Accredited investors have access to many investment opportunities compared to those individuals with less access to capital. While these opportunities are able to provide greater rewards than traditional investments, keep in mind that these come with greater risk as well.

Good Investment Opportunities for Non-Accredited Investors

The following is a list of the opportunities accessible to investors who do not qualify as accredited.


A stock is an instrument that gives ownership to the holder over a portion of a certain incorporated business. Stocks can be common or preferred and, depending on their type, they can give the holder voting rights over some crucial matters concerning the business such as appointing officers who will be in charge of running the firm’s day-to-day operations or members of the Board of Directors.

Stocks generate gains via price appreciation or in the form of dividends that the company may opt to distribute periodically to its shareholders.


Bonds are financial instruments that entitle the holder to receive periodical coupon payments along with the repayment of the principal invested once the instrument reaches its maturity date. 

ETFs & Mutual Funds

ETFs and mutual funds are investment vehicles that focus on certain strategies or segments of the market and provide investors with diversified exposure to these instruments by buying in a basket of different securities.

ETFs charge an annual management fee and are listed in a stock exchange in the same way as a regular stock. 

Mutual funds, on the other hand, offer non-listed shares to the investment public and they may or may not decide to require a minimum investment. They also charge an annual management fee and tend to impose stricter conditions when it comes to redemptions.

Real Estate

Even though not all opportunities within the real estate landscape are available to non-accredited investors, platforms such as Fundrise, Roofstock, and Groundfloor have provided access to registered securities that offer exposure to a basket of private real estate deals.

These are real estate investment trusts (REITs) that have been vetted and approved by the US Securities and Exchange Commission (SEC) and that can be marketed to non-accredited investors.


Cryptocurrencies are innovative digital financial assets that are powered by a technology called the blockchain. They are perhaps one of the most exotic investment alternatives out there but the ecosystem has evolved positively in the 12 years that have passed since Bitcoin (BTC) — the first project — was made public.

Many pure-play cryptocurrency brokers and even some traditional firms nowadays allow investors to buy these tokens and hold them in a segregated account. For non-accredited investors, even though almost any token can be bought via these platforms, it is perhaps a better idea to stick to projects whose practical application and underlying technology are considered robust, as is the case of Bitcoin and Ethereum (ETH).

Peer-to-Peer (P2P) Lending

P2P lending removes the middle man in what is one of the most traditional activities in the financial world: lending money. 

For investors, this innovative approach increases the returns earned on their savings. The platforms that currently offer access to this investment opportunity — such as Prosper — provide the kind of information that a bank would need to determine a borrower’s creditworthiness.

With the right methodology, investors can generate returns of 15% or higher per year by building a diversified portfolio of loans with moderate-to-low default risk.

FAQs About Accredited vs. Non-Accredited Investors

The following are answers to the most frequently asked questions we get on the topic of accredited vs. non-accredited investors.

How Do I Become an Accredited Investor? 

To be considered an accredited investor, the individual or institution must meet one of the criteria set forth earlier in this article.

That said, investors don’t need to apply for a credential. The company or institution that is offering the unregistered security will require and review certain documentation to vet each candidate. Legally, they can only accept people or companies that are considered accredited for their projects.

Is There a Way to Qualify as an Accredited Investor with a Low Income?

Yes. For individuals who may not meet the income or net worth criteria, there are other alternatives to be considered accredited. One of those options is to prove that the person has sufficient knowledge about how unregistered securities work and another one is to be or become a licensed financial professional.

Why Do I Need to Be an Accredited Investor to Access Some Investment Vehicles? 

The SEC deems unregistered securities as riskier than registered assets such as stocks and bonds. Therefore, they created the accredited status to prevent unwary investors from exposing their capital to investment opportunities whose risk and intricacies they may not fully understand. 

How Long Does It Take to Become an Accredited Investor?

There is no time constraint for becoming an accredited investor. Once the individual meets one of the requirements established by the SEC, the company that is offering the investment opportunity can immediately review the documentation and complete the vetting process.

Are There Penalties for Misrepresenting Your Accreditation Status as an Investor?

In most cases, the consequences of misjudging if an investor is accredited or not fall on the company that is offering the unregistered investment opportunity. For investors, other than the ethical or moral matters involved, the legal repercussions are limited as the company is responsible for screening investors based on the criteria established by the SEC.

Final Thoughts

There are plenty of opportunities in the marketplace for both accredited and non-accredited investors. Most of the investment vehicles offered to those who meet the criteria to be considered accredited are either more complex or riskier compared to traditional registered securities.

That said, whether you invest in stocks, bonds, or hedge funds, it is still crucial to understand what you are getting into and perform adequate due diligence before putting any money down. 

Get our free Stock Market Playbook to learn how to invest your first $500 in the stock market.

Plus our best money tips delivered straight to your inbox.

CTA Bottom Blog Post Investing