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Have you heard of the term “accredited investor”?

An accredited investor is defined under federal law, in general terms, as an individual with at least $1 million in net worth (excluding her primary residence) or $200,000 in annual income.

If you qualify as an accredited investor, there are many more investment opportunities open to you than to everyone else.

This definition has not been updated significantly since 1982.

The definition has been criticized from two opposite sides: advocates for investor protection believe the dollar amounts should be increased to reflect inflation, while advocates for greater investor access argue that the definition should be expanded to allow more people to invest wherever they want.

There are some proposals on the table to update the definition that have nothing to do with dollar amounts.  These include

  1. allowing people with a certain amount of past investment experience to be included in the definition
  2. allowing people with certain professional credentials, such as licensed securities brokers, to be included
  3. allowing people who pass an exam that demonstrates financial sophistication to be included.

What do you think?!  How do we balance the need to protect investors with fewer resources and less sophistication with the benefits of allowing everyone to make his or her own decisions about how to invest?

(Source: Report on the Review of the Definition of “Accredited Investor,” a report by the staff of the U.S. Securities and Exchange Commission, December 18, 2015)