Before looking at the investment options available for non-accredited investors, it is important to know what makes an investor to be termed as non-accredited.
Definition of Non-Accredited Investor
A non-accredited investor is simply any investor who does not meet any of the requirements of being an accredited investor. They are also known as retail investors. This type of investors include those whose net worth is below $1 million, have an income of below $200,000 individually and below $300,000 in total together with a spouse.
Also read: Crowdfunding Investment – What It Is & Types Of Crowdfunding
What Investments Can a Non-Accredited Investor Make?
Many individuals in the financial market do not qualify as accredited investors. They are, therefore, not eligible to invest in various projects. However, there are investment options available for them, which include:
This is the contribution of money to fund a business startup in exchange for equity shares of the same business. However, it is important to note that even if the startup becomes successful, the investors do not get any returns on their investments until the business becomes a public company. It may take up to 8 years for a company to go public. Non-accredited investors, therefore, will need to wait for that long before earning anything from their investments.
Real Estate Crowdfunding
There are two types of real estate crowdfunding. Investors can invest in debt or equity real estate crowdfunding. For debt, investors invest in a mortgage mostly for commercial properties, and they earn a share of interest as the mortgage is paid back. Equity, on the other hand, means that the investor receives a percentage of ownership with returns being paid once the property is sold.
Peer to Peer Lending
For investors who prefer not to invest in businesses, peer to peer lending is an available option for them. Peer to peer lending platforms raises money from investors for members of the public to borrow. The investors receive their returns as a share of the interest. The return is received by the investors as the borrowers pay the money.
Non-accredited investors can also invest in various bonds. Bonds are a great investment option because they are more secure than other financial assets. Most governments regulate the bonds market, making sure that bondholders receive their money back in case the company is liquidated.
Related: Which Investment is Better? Tangible Assets Vs. Bonds
Regulations for Non-Accredited Investors
Investments for non-accredited investors are highly regulated by governments because they are prone to more risk than accredited investors. For individuals with a net worth below $100,000, they can only invest up to $ 2,000 or less of 5% of their annual income or net worth. For investors who have a higher net worth greater than $100,000, they can invest up to 10% of their income or net worth, whichever is higher, but the investment must not exceed $100,000.
Basically, non-accredited investors are barred from investing in the public stock markets because their financial ability does not protect them enough from market risks. However, because the majority of the population comprises non-accredited investors, there are options that are available for them. Even though the regulations are strict, non-accredited investors still get a chance to invest their savings and earn a profit.