As small, inexperienced investors, we are unable to take advantage of the full range of available investment opportunities. In an effort to protect small investors, the 1933 Securities Act enacted rules about which securities must be registered with the SEC and which can be offered privately. Because registration is time-consuming and expensive, companies with smaller needs may prefer to promote their investment opportunity privately, but because there is less oversight, the SEC allows only wealthy and experienced individual investors to participate, along with qualifying organizations.

As an individual you must meet two tests to achieve “accredited” status. First is the wealth test. To meet these qualifications as an individual you must have a personal net worth of over $1,000,o00, or an income for the past 2 years of $200,000 (single) or $300,000 (married). In addition, you must qualify as a “sophisticated investor.” Although taken on a case-by-case basis, sophisticated investors are generally those that meet the wealth test, with the exception of those whose homes comprise the majority of their net worth. For these individuals, the broker must ensure that they be financial literate and have the ability to properly weigh the risks of the investment.

It’s important to grow not only in wealth but also in financial literacy, and a strong base of financial education will serve an investor well in the future, allowing him to take advantage of more, possibly lucrative deals.

References
Accredited Investors. SEC.
Sophisticated Investor. E-trade.
The “Sophisticated” Investor Defense to Suitability Claims; More Frequently Raised Than Proven. James J. Eccleston, Esq. FinancialCounselor.com