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May 26, 2021

An accredited investor is an individual or entity that may have access to a restricted set of investment opportunities in virtue of being either sufficiently financially savvy to understand the associated risks or sufficiently wealthy to absorb the associated potential loss. 

The Securities and Exchange Commission, the US government agency in charge of protecting investors and maintaining fair and orderly functioning of the securities market, defines what it is to be an accredited investor. According to its definition, for an individual to be an accredited investor, he/she must meet at least one of the following conditions:

The restricted investment opportunities to which accredited investors may gain access include:

These investment opportunities are considered both riskier and more complex than other investments. Hence, as a protective measure, the SEC restricts them to those who have the knowledge and wealth to understand and endure the associated potential loss.

It should be noted that there is no formal process that one goes through in order to acquire the accredited investor status. It is the responsibility of the organization that’s offering a restricted investment to verify that potential investors meet the requirements for being accredited.