Not all investors are created equal. To invest in certain things like private companies or hedge funds, you have to meet criteria including minimum income or net worth thresholds. But as incomes have grown, more and more Americans are ticking these boxes.
The number of accredited investors jumped to 24 million in 2022, a 50% increase from 2019, according to the Securities and Exchange Commission. To qualify, you must have an annual income of at least $200,000 ($300,000 for married couples), or a net worth exceeding $1 million, excluding the value of your primary residence.
The Role of Inflation
This surge in accredited investors has been primarily driven by inflation, according to the SEC.
To be sure, high inflation over the past years drove up wages, and home prices have risen as well. On top of that, the thresholds for accreditation have been unchanged since the 1980s. So while incomes and net worths have risen, the checkboxes have remained the same.
Back then, meeting the qualifications was much rarer, with only the top 1% to 2% of earners becoming accredited, compared with 18.5% in 2022.
If these accreditation criteria were inflation-adjusted, they would have increased to more than $900,000 in joint income, or roughly $3 million in net worth, according to the SEC. In that case only 5.7% of households would qualify.
Redefining Risk and Opportunity
The ballooning number of accredited investors has major implications for the dynamics of private investments: As many as 2 in 3 households could qualify for accreditation in the next three decades, according to the SEC.
And while this could further democratize access to investments, it would also introduce a broader audience to higher-risk investing in private markets, which tend to be less transparent and liquid than public markets.
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