8 Opportunities For Accredited Investors
By Charles Schaffer
Accredited investors enjoy several high-end investment opportunities otherwise closed to regular or non-accredited investors. The reason is simple. With investing, the more significant the stake, the higher the returns.
With an increase in the number of accredited investor households in the U.S. over the last decade, it's apparent that the market presents massive opportunities for investors interested in alternative investments. Becoming an accredited investor opens you to a new world of investment possibilities.
In this guide, we've explored the following:
What an accredited investor is
Top investment opportunities for accredited investors
How to become an accredited investor
Want to learn more about the investment opportunities open to this group of investors? Read on.
What Is An Accredited Investor
An accredited investor is an individual, trust, partnership, retirement structure, or other such business entity allowed to trade and invest in securities that aren't registered and listed with the Securities and Exchange Commission (SEC). What do we mean?
The SEC typically requires "any company offering its equity to register such offerings with the SEC unless the company regards it as an exception." Securities not registered with the SEC usually cannot be sold to the public.
However, while this is universally true, accredited investors are given the opportunity and regulatory clearance by the SEC to purchase securities that fall under the SEC exception list — in essence, unregistered securities.
They are allowed this exclusive access once they meet at least one prerequisite related to their income, asset size, net worth, professional experience, or governance standing.
Being an accredited investor has several benefits, including a broad selection of exciting investment choices for portfolio diversification.
You can invest in anything, whether stocks, bonds, commodities, or real estate, provided you have the risk tolerance to handle it and the money to make the required commitment. However, there are always sour grapes as much as sweet lemons when it comes to investing. This raises the question, "What are the best prospects for accredited investors?"
8 Opportunities Worth Looking At
One significant benefit of being an accredited investor is having a financial advantage over many others. Accredited investors have access to investment openings and opportunities that those with less wealth don't.
The global alternatives market is expected to surge by $8 trillion over the next five years.
Below are eight opportunities worth considering:
1. Venture Capital Investing
Venture capitalists are investors who provide capital or technical and managerial expertise for startups and small businesses with high growth potential. They usually do this in exchange for a stake in the company.
As these companies expand and increase in value, accredited investors can earn even bigger returns on their earlier investments — usually proportional to their ownership stakes and the amount invested. This is how companies like Meta Platforms Inc. (Facebook) and Alphabet Inc. (Google) raised their startup capital before becoming prominent names.
Venture capital investing is often a great place to begin for investors seeking long-term growth opportunities. However, as with most alternative investment options, you may have to sacrifice high risks for potentially higher returns. Some businesses will scale, but many won't. For the ones that do, getting in early enough can be all you need to accumulate wealth worth a lifetime.
The performance spreads of venture capital funds are among the widest of any alternative asset class, with some managers yielding less than 0%. This is why manager selection is the key to effective VC investing. If you're considering VCs, you want to choose your investment vehicle carefully and make them only a small part of your portfolio.
You can easily leverage crowdsourcing websites like StartEngine or venture capital funds to begin investing in venture capital. Venture capital funds, in particular, are an excellent way to get started as they allow investors to participate in several firms simultaneously and guarantee investors of the best possible pool of offers.
This is because the investment opportunities in the funds are usually reviewed by experienced venture capitalists whose networks and connections provide them access to some of the best offers.
2. Hedge Fund Investing
Hedge funds are private investment fund pools and partnerships, another popular alternative investment among accredited investors, especially institutional accredited investors.
In hedge fund investing, investors pool large amounts of capital to invest in multiple alternative investments simultaneously.
Hedge funds work as a safety net against losing too much money if one or more of the assets in the fund experience a dip or market correction by diversifying their capital over a broad range of offers.
The ideal investments are hedge funds with a track record of success. For instance, Bridgewater Associates, which controls nearly $800 billion in assets, AQR Capital Management, which manages $164 billion, and Blackrock Advisors are examples of powerhouse alternative investment businesses that have received trillions of dollars from accredited investors. Large investment banks like J.P. Morgan also offer hedge fund opportunities.
Different hedge funds come with their unique investment strategy.
While they may generally provide unparalleled investor returns due to how they operate (distributing large capital sums across a wide range of alternative investments), the minimum investor contributions can be relatively high.
Accredited investors usually invest in these risky investment vehicles to outperform the market or generate higher returns.
However, due to their high minimum investment or net worth requirements, only the wealthiest investors can typically invest in hedge funds.
3. Multifamily Syndication
Real estate investments have been among the top options for accredited investors. The field is vast, with several opportunities to enter it.
Real estate syndication, particularly multifamily, is one way accredited investors have participated in real estate.
Some other options are investing through crowdsourced real estate platforms or investing through private equity or hedge funds specializing in real estate.
Multifamily syndication is a popular real estate deal where several investors combine funds to purchase a sizeable multifamily property. So, for instance, a group of accredited investors can pool funds to buy an apartment complex or a larger facility that may have been too expensive to purchase separately.
The multifamily real estate syndication model is set up by a syndicator, who locates, secures, and manages property investment contracts (as well as administers and supervises the investment for a fee), then connects and matches investors. In exchange for equity in the property, investors provide the bulk of the funds.
Accredited investors in multifamily syndication make money in two ways: rental revenue and property appreciation. Multifamily syndication is a good choice for accredited investors interested in real estate investing but who lack the time, inclination, or know-how to manage properties.
4. Real Estate Investment Trusts (REITs)
Real estate investment trusts, or REITs for short, are trust companies that pool funds together to invest in a wide range of profitable property and real estate holdings.
For instance, they could have equity in many properties, including apartment complexes, warehouses, shops, medical facilities, or other commercial properties.
With REITs, accredited investors can participate in a wide range of real estate holdings and earn income through them without necessarily having to concern themselves with the hassle of day-to-day property management and administration.
5. Cryptocurrency
Cryptocurrencies have unexpectedly emerged as a distinct asset class over the last few years. In the previous ten years, they have gone from nonexistent to a market valuation of nearly $2 trillion as of January 2022. And while the market suffered a brutal dip in 2022, it no doubt is a place that provides some investors high returns as compensation for their risk.
Undoubtedly, regarding the returns investors have received, the crypto market is the asset class with the fastest and most dynamic growth in history. But should you think about including a cryptocurrency investment in your portfolio?
Cryptocurrencies are perceived to be a better store of value than fiat currencies, as the inflation and depreciation that come with economic distress are almost non-existent in crypto. This makes them an attractive alternative investment when hedging against economic distress and inflation.
The rapid increase in value that sometimes comes with owning this risky asset class is another reason accredited investors often desire to keep at least a small portion of their investment in cryptocurrencies.
Note the crypto market is highly volatile. Due to the volatile nature of this asset class, investing in cryptocurrencies comes with plenty of risks. As a result, it is advisable to begin with a small portion of your overall portfolio, especially if you're tipping your toes into the waters of crypto investments.
The rapid increase in value probably drives most investors' desire to keep at least a small investment in cryptocurrencies as time goes on.
6. Precious Metals
Among asset classes, precious metals have historically performed relatively well as an inflation hedge.
Due to competition from cryptocurrency interests such as Grayscale and its Drop Gold campaign, the prices of metals like gold and silver were relatively flat in 2023 — despite an inflationary environment.
But because of significant upheavals in the crypto realm, including the Celcius and FTX bankruptcies, metals may get renewed attention from investors in 2024.
Options for investing in this asset class include buying and storing physical products. Alternatively, some ETFs track the price of gold.
Another option is to invest in junior mining stocks — although these are highly speculative.
7. Fine Wine
Because of its low market volatility, fine wine is a highly profitable alternative investment asset class. Furthermore, good wines (such as the Domaine de la Romanee-Conti wine) grow in quality and value as they age, providing you with substantial returns on your investment.
While many wealthy people collect exquisite wine for personal enjoyment, some consider these feasible investment opportunities. There are several platforms devoted to fine wine investing.
What are the advantages of investing in fine wine? For starters, they are significantly less volatile than conventional investments, such as the tech sector of the stock market. For instance, the Live-ex 100 Fine Wine index has very closely mirrored the returns of the S&P 500 over the previous 12 years but with significantly less volatility.
Furthermore, fine wines have a low connection to other securities, so they can help you diversify your portfolio.
8. Land Investing
Investing in agricultural land is a growing trend. As with many alternative investments, the value of this asset class is not correlated to traditional assets like equities.
Typical harvest yields and increasing commodity prices can mean steady returns. Conversely, the risks with this asset class include lower-than-expected yields and falling commodity prices.
An investment closely related to this asset class is farmland that's converted to solar farms.
Solar farm investing is a newer but fast-growing opportunity that provides investors access to the rapidly expanding solar generation industry, especially with the increasing demand for sustainable electricity generation. The solar energy sector creates and installs equipment to harness solar energy and convert it into electricity.
The opportunity for accredited investors in the clean energy sector of solar farms is in land holdings. An investor could also invest money with one of the sizable Independent Power Producers (IPPs) deploying utility-scale solar projects costing hundreds of millions of dollars. However, land investing is more attainable for the average accredited investor.
This form of solar land investment involves holding land with a 35-year ground lease to an IPP with solid credit and paying revenue through lease payments. Investment returns are often low to middle teens but have a high degree of certainty, ensuring stable long-term income.
Most solar projects aim to lower power expenses and allow businesses to take charge of their energy management. Utility-scale solar helps entire communities benefit from renewable energy while also providing investors with the opportunity to profit from protecting the environment.
Companies like SDC simplify investing in utility-scale solar for extended, stable returns and help investors manage their tax bills by investing in commercial and nonprofit solar projects.
Or, review detailed information about the investment opportunity:
How to Become an Accredited Investor
In the U.S., under Rule 501 of Regulation D, the SEC uses the term "accredited investor" to describe financially secure individuals with little to no need for the protection offered by regulatory disclosure reports.
In essence, the SEC defines an accredited investor based on certain income and net worth benchmarks, including
Has an individual income as a single earner of more than $200,000 over the previous two years (or joint income with spouse of over $300,000 for those years) and reasonably expects the same for the current year
Has an individual net worth that exceeds $1 million (excluding the value of the primary residence), or joint net worth with spouse of $2 million
Once you meet these requirements, you can apply to be certified as an accredited investor through a third-party verification company. You can also qualify as a professional if you have an SEC Series 7, 65, or 82 license. Submitting your information directly to investment platforms is another way to participate in accredited offerings.
Business entities, such as banks, brokerage houses, and trust funds, also qualify as accredited investors.
The Bottom Line: No Risk, No Reward
Accredited investors have greater access to more exclusive and exotic investment opportunities than those with less investment capital. If you prefer a more aggressive investment strategy with the potential for significantly higher returns, check these investment alternatives for accredited investors.
While offering higher distributions than traditional securities, some investment alternatives also carry greater risk.
If you're looking to invest in an asset that has the potential to grow significantly over time but in a less volatile market, then solar technologies might be a wonderful place to start. SDC companies particularly stand head and shoulders above the rest. Following closely behind are real estate and fine wine.
Nonetheless, before investing in any alternative investment, do your due diligence, go through the prospectus, find out past performance, and, as much as possible, have all the specific information needed.
Charles Schaffer
President and Founder, SDC Capital Ventures
Charles has founded and operated several development companies over his 35+ year history to pursue his passion for Alternative Investing where he believes outsized returns can be achieved without a corresponding increase in risk. Under Charles' leadership, SDC has developed and financed over $80 million of commercial real estate and renewable energy projects.
