Investing has evolved beyond the conventional norms of stocks and bonds, now encompassing a broader spectrum of alternative investments. This shift is particularly significant for accredited investors, who—due to their unique financial standing—have access to these exclusive opportunities. This article aims to explore some of these alternative investments for accredited investors.
It’s worth mentioning that alternative investments are slowly democratizing investing to a broader public. However, most opportunities are still largely restricted to accredited investors because of the risks associated with them. Accredited investors are the exception because the SEC has given them specific clearance to trade and invest in unregistered securities.
Alternative investments are considered highly attractive because of the benefits investors can enjoy, such as their low correlation with the stock market and potential for high returns. This is coupled with the uneasiness of the traditional market, making diversification an important lever to balance one’s portfolio and control exposure to risks.
For accredited investors, diversification is a key strategy for staying ahead of the market. Furthermore, to build a robust safety net, one must not put all of one’s eggs in one basket.
But where exactly should you place those eggs?
This guide offers insight to accredited investors on the various avenues of alternative investments for capital allocation. For those who are unsure about what an accredited investor is and how this role differs from a qualified purchaser, we’ll uncover the nuances between them.
Qualified Purchaser vs Accredited Investor: What’s the Difference?
Before revealing the types of alternative investments, it is important to identify who this guide is for. While qualified purchasers and accredited investors have access to private market opportunities, important distinctions exist between them. This guide focuses on accredited investors, a broader category that includes many but not all qualified purchasers. To do so, we will explore what makes one a qualified purchaser vs accredited investor.
Qualified purchasers generally meet much higher financial thresholds and have access to even more exclusive and high-risk investment opportunities. In contrast, while still financially sophisticated, accredited investors are defined by slightly lower thresholds and represent a larger group. By focusing on accredited investors, this guide aims to be relevant to a wider audience while also touching on the nuances that distinguish them from qualified purchasers.
How do you become an accredited investor?
Accredited investors are individuals or entities that meet specific income, net worth, and licensing requirements established by the SEC:
- Income: An individual annual income of at least $200,000 over the past two years—$300,000 for joint income with a partner—and the ability to maintain this level of income.
- Net Worth: An individual or joint net worth of a minimum of $1 million, excluding the value of the primary residence
- Trusts: Trusts must have total assets of at least $5 million and not be formed specifically for the purpose of acquiring the investment. Additionally, they must be directed by a sophisticated person capable of evaluating the investment.
The SEC has expanded the definition to include individuals holding specific professional certifications (like Series 7, 65, or 82 licenses), knowledgeable employees of private funds, and registered investment advisors.
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6 Alternative Investments Accredited Investors Should Consider
Accredited investors have the advantage of being able to invest in alternative investments, which are often characterized by higher risk and the potential for higher returns compared to traditional investments. These investments offer valuable diversification benefits, as they may be less correlated with the stock market.
However, the success of such ventures depends on employing the right strategies and having a deep understanding of the risks involved. With careful planning and expertise, alternative investments can be a worthwhile addition to a diversified portfolio, though they are not without significant risks.
Let’s explore some of the alternative investments for accredited investors:
1. Private Equity Funds
Private equity funds for accredited investors have always been promising due to their high returns and growth qualities. These include venture capital, buyouts, and growth equity funds that investors can participate in.
These funds are characterized by a longer investment period, but investors can enjoy the benefits of having their assets managed professionally.
It’s important to note that the private equity landscape has recently experienced uncertainty due to external economic factors, but emerging signs point towards a performance rebound, making it a valuable venture.
2. Real Estate
One of the most favorable alternative assets is real estate. This is particularly due to its ability to generate consistent cash flow for investors and its potential for capital appreciation.
Within this sector, there are multiple avenues for accredited investors to leverage its benefits:
- Private Real Estate Investment Trusts (REITs): Private REITs are private companies that oversee funds consisting of income-generating real estate assets. They have lower volatility and unique tax advantages for accredited investors.
- Real estate crowdfunding: These platforms help investors gain exposure to a variety of real estate projects by pooling together resources, which enables lower minimum investment requirements than complete ownership.
- Real estate syndication: Multiple investors partner with a business to pool their capital to collectively invest in and split profits from a property. This opens access to better real estate opportunities, increasing the chance for high returns.
3. Collectibles
Collectibles have historically been a high-return yet risky alternative investment outlet for accredited investors.
From art to wine and even baseball cards, the collectibles market is exciting but requires time and effort to ensure profits. Without proper due diligence, investors may run into issues such as fraud and forgeries. Additionally, markets are highly unpredictable due to the volatile nature of consumer trends, and liquidating your assets takes time.
For accredited investors, various platforms have emerged that democratize access to high-valued collectible items, providing a captivating option for generating high returns.
4. Commodities
Commodities are natural resources that include precious metals, agricultural products, and oil. These assets have a low correlation to the traditional stock market, making it an appealing diversification outlet for investors.
Investors can access commodities through futures contracts—a legal agreement to buy or sell an asset at a predetermined price at a certain time. Although commodities can be easily liquidated, as they’re traded daily across the globe, they are prone to sudden price changes, making them a risky investment.
5. Angel Investing
Angel investing is a strategy in which capital is given to early-stage startups in exchange for equity. A benefit of angel investing is the potential for high returns because successful startups can yield significant profits.
Investors play a direct role in growth strategies, exposing startups to their networks and expertise. The downside to investing in startups is their low success rate. Investors also need to perform proper due diligence before committing, which can be time-consuming.
6. Online Businesses
A newer yet powerful emerging alternative investment is owning an online business. The online business sector is growing at an exponential rate, thanks to digital transformation and shifting global markets. Investors are turning towards leveraging this sector’s potential as it continues to prove its profitable nature.
Owning an online business offers high returns to investors, as it is easily scaleable, has low overhead costs, and can implement multiple revenue streams. The challenge of this venture is that it requires expertise to run and grow successfully, making it difficult for most accredited investors to capitalize on.
Thankfully, WebStreet introduces a streamlined solution for accredited investors who want to participate in this auspicious market but lack the time or expertise necessary.
In comparing qualified purchasers vs accredited investors, although qualified purchasers have greater access to alternative investment opportunities, this guide shows that accredited investors also have a broad range of options.
From private equity funds to online businesses, these alternative investments should be considered by accredited investors who want to exploit the benefits of investing outside the public market.
WebStreet’s Alternative Investments for Accredited Investors
Having reviewed the various alternative investments for accredited investors, one particular type that stands out is online business investing.
As this market expands, it becomes more apparent that it presents investors with unparalleled opportunities for high returns, scalability, and a strong investment portfolio.
For accredited investors who see the potential and want to capitalize on this lucrative market, WebStreet provides a compelling opportunity to access these valuable assets passively. Investors won’t need to take on the complexities of managing online businesses; instead, WebStreet handles all management aspects, from the acquisition to the sale.
This hands-off approach is ideal for those who want to invest in online businesses but lack the time or expertise to oversee day-to-day operations directly.
Accredited investors can trust WebStreet to scale acquired businesses efficiently through our carefully selected portfolio managers. These portfolio managers bring a wealth of experience and proven strategies to the table, ensuring that they possess both the expertise and the vision to drive significant growth.
Furthermore, portfolio managers perform comprehensive due diligence to acquire the best cash-flowing and sustainable online businesses. This rigorous evaluation provides a level of security and confidence for return on investment that is unparalleled in the alternative investment space.
This begins with a minimum investment of $60K per fund. These funds grant investors a portfolio of high-value assets such as Amazon FBA, content sites, Kindle publishing, SaaS businesses, and more. This diversification allows investors to spread their risk across different types of digital assets, enhancing their investment’s stability and potential returns.
Additionally, WebStreet has an average yearly cash yield of 12-15%, $40M capital raised, and a projected IRR of 20%+. These numbers should reflect the success-driven approach that underpins WebStreet’s strategy, ensuring promising returns that are distributed to investors on a quarterly basis.
If you’re ready to reap the benefits of alternative investments, join WebStreet today and leverage the cutting-edge strategy shaping the future of alternative investments.
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