Some investments, available exclusively to accredited investors, offer the potential for both portfolio diversification and growth.
In this article, we’ll explore top platforms specifically catering to accredited investors and discuss how their offerings might integrate into your financial plan.
How to Become an Accredited Investor
An accredited investor can trade non-SEC registered securities personally or via entities like hedge funds.
To qualify, you must:
- Possess a net worth of at least $1 million, excluding your home’s value.
- Have earned $200,000 ($300,000 for couples) annually for the last two years, expecting to maintain it.
No formal registration exists for becoming an accredited investor, but those issuing the securities must verify their investors.
Accredited Investor Opportunities
Here are nine potential accredited investor opportunities to consider for your portfolio.
#1. Arrived: Cash Flow Through Shared Property Ownership
An innovative player in the real estate industry, Arrived is an investment platform focused on transforming the way individuals access and benefit from the rental property market.
This platform offers an opportunity to co-own rental properties, including vacation rentals, providing investors with regular rental income and potential asset appreciation.
With impressive backing, including the likes of Jeff Bezos, Arrived positions itself as a pathway for more people to gain exposure to this traditionally lucrative asset class. Investments can be made from as little as $100 to as much as $20,000 in individual properties across the United States.
Once invested, Arrived enables its investors to earn regular income from rental payments while offering the potential for long-term appreciation in property value. Each property offered on the platform is carefully selected, with Arrived focusing on high-quality properties in prime markets nationwide.
This blend of income generation and potential for appreciation positions Arrived as a fitting choice for investors seeking to diversify their portfolios.
Visit Arrived to learn more.
#2. Yieldstreet: Disrupting Art Investments
Between 1995 and 2022, contemporary art demonstrated a compelling financial performance with a compound annual growth rate of 12.6%, outpacing the S&P 500.
Traditionally, art has been considered an asset class with strong hedging capabilities against inflation, capable of retaining its value amidst market downturns. However, its high entry barriers have kept it within the reach of primarily ultra-high-net-worth individuals.
However, platforms like Yieldstreet have aimed to make this asset class more accessible.
Yieldstreet provides two distinct art investment vehicles: equity and debt investments.
Yieldstreet offers the opportunity to invest directly in a diversified fund of high-profile artworks. This fund, showcasing pieces from globally recognized artists, has demonstrated impressive growth. According to an independent third-party valuation, it has yielded a return of 25.6% since its launch in 2019.
In the debt investment model, which targets a 10% yield, Yieldstreet offers art-secured loans.
These loans have the potential to deliver interest payments that are above traditional fixed-income returns. These loans are collateralized by an array of artworks, which theoretically provides a degree of principal protection. Should a borrower default and the collateral needs to be liquidated, the underlying artworks’ potentially high value is expected to protect investors’ capital and any accrued interest.
Visit Yieldstreet to learn more.
#3. Percent: Shaping the Private Credit Landscape
The 7 trillion private credit market has long been seen as an effective income generation tool and a risk mitigation strategy that can preserve capital during market volatility.
However, this asset class was traditionally primarily accessible to institutional investors due to high minimum investment requirements and complex deal structures.
The platform Percent has stepped in to offer private credit investing to a broader range of investors to democratize this asset class.
Percent provides flexibility to choose transactions that align with your investment objectives. You can earn up to 20% annualized returns with investments maturing anywhere from one month to several years.
As of April 30, 2023, Percent’s performance metrics include $790M funded across 406 deals, a current weighted average APY of 16.30%, and a default rate of 1.95%.
Visit Percent to learn more.
#4. EquityMultiple: Pioneering Real Estate Investing
Accredited investors can access a variety of real estate investment opportunities, such as:
- Crowdsourced real estate platforms.
- Real estate syndication companies.
- Private equity or hedge funds specializing in real estate.
Many such platforms have emerged in the last decade, some open to all investors while others only to accredited ones. Platforms exclusive to accredited investors often follow more focused strategies with limited deal flow.
EquityMultiple stands out as a unique real estate investment platform catering to the needs of accredited investors. With a focus on mid-market commercial real estate, EquityMultiple offers a diverse array of investment options across multiple asset classes.
Since its inception, EquityMultiple has established a strong track record, delivering a 17% total net return to its investors. With a minimum investment requirement of $5,000, it offers a more accessible entry point than many of its peers.
One of the most innovative products of EquityMultiple is their Alpine Note, a savings alternative that lets you earn more from your money.
Unlike traditional savings accounts, the Alpine Note is backed by real estate. You can enjoy a fixed APY of up to 7.0%, compounded monthly, and get your principal back in as little as three months.
Visit EquityMultiple to learn more.
#5. AcreTrader: Leading the Way in Farmland Investments
Investing in farmland has traditionally required substantial capital and labor, putting it out of reach for most investors. That’s unfortunate because, since 1990, farmland returns have outperformed the stock market. Moreover, Farmland only experienced a third of the volatility of the stock market.
Similar to real estate, a number of crowdsourced platforms have popped up for accredited investors to invest in farmland.
AcreTrader is a crowdfunding platform that focuses exclusively on farmland. With AcreTrader, each farm is listed as a private placement, in which members have the opportunity to invest. AcreTrader then charges a 0.75% management fee.
Investors receive an annual dividend payment — expected to be around 3% to 5% — of the initial investment. Plus, they earn appreciation when the property is sold. Properties are held from five to 10 years. In addition, a secondary marketplace is offered for investors who need liquidity before the sale.
Visit AcreTrader to learn more.
#6. Republic: Spearheading the Angel Investing Movement
Angel investors provide seed money to early-stage companies — often as early as during the ideation phase, when no product or service is actually available.
While anyone can invest money in an early-stage startup and call themselves an angel investor, traditional angel investing describes a more formal process where companies actively seek capital from diverse investors.
Currently, the SEC limits the number of non-accredited investors an entity can have, and those slots are typically taken by close friends and family of the founders.
If there is a successful exit from your investment — which may include a sale of the company or an IPO — the time frame is most often around five to 10 years.
Unless you have a large personal network of founders, many angel investors source their deals on Republic.
With these platforms, you can connect directly with companies or funds, which allows you to co-invest alongside others.
#7. Moonfare: Reshaping the Private Equity Landscape
A private equity fund works similarly to a hedge fund, where the investor’s money is managed by a group of experts at the PE firm.
The difference with private equity is that it’s most often correlated with longer-term investments.
For example, a private equity fund may buy a stake in a company, and by doing so control the management and dictate the direction of the company with the aim of making it profitable.
Compare this to a hedge fund, which may make short-term trades; private equity deals are for longer-term focused investors.
Many of the U.S.’s largest pension funds are investing more in private equity funds, with the average holding reaching an all-time high of 8.9%.
Minimums for some of the top private performing private equity firms tend to run high — often in the millions. Smaller PE firms’ minimums get as low as six figures.
Moonfare democratizes access to private equity funds, traditionally available only to institutions or high-net-worth individuals.
Lowering the entry point, it offers a broader range of investors the opportunity to diversify their portfolios with these high-performing, long-term assets.
#8. AngelList: Fueling Growth in the Venture Capital Landscape
Venture capital funds provide capital for startups and small businesses in exchange for a stake in the company. This money is then used for expanding new business lines or funding day-to-day activities.
Technically, it’s a form of private equity investing with a very specific focus on early-stage startups. The fund as a whole is managed like a mutual fund, pooling investors’ money together. Profits are then split between the VC fund and its group of investors.
In 2021, inflows in venture capital were greater than $300 billion for the first time.
Similar to a hedge fund, the key to successful venture capital investing is manager selection.
Venture capital funds have among the widest performance spreads of any alternative asset class, with some managers returning below 0%.
AngelList is a prominent platform for venture capital investing, offering individuals access to early-stage startup investments, including funds managed by established venture capitalists
#9. Vinovest: Simplifying Fine Wine Investment
While many higher-net-worth individuals collect fine wine and high-end spirits for personal enjoyment, some now turn to these items as viable investment options.
There are even several platforms, such as Vint.co and Vinovest.co, that focus on fine wine investing.
What are the benefits of investing in fine wine and spirits?
First, these items tend to be much less volatile than other investments, such as stocks. Over the last 15 years, the Live-ex 100 Fine Wine index has nearly matched the returns of the S&P 500, yet with much less volatility. Just as important, fine wine and spirits have a low correlation to other asset classes, which means they can help diversify your portfolio.
To learn more, check out our analysis of Vinovest, where we dive deeper into the history of fine wine investing and explain why it potentially makes sense to add this asset class to your portfolio.
Do Accredited Investors Get Higher Returns?
Not always.
While accredited investors do get access to a wider array of investments, there’s no guarantee that they’ll outperform an index-based approach.
The now-classic Wall Street Journal article “Hanging With the Hedge-Fund Bros to Get the Story” interviews Gary Shteyngart, who spent four years hanging out with the world’s elite hedge fund managers.
One of the quotes from the story says a lot:
“Some of the coolest guys I’ve ever met in this industry say, ‘Let me tell you a secret, Gary: low-cost index funds,’ ” he said. “They’re like, ‘Don’t invest in our stuff. Just low-cost index funds’.”
What does the data say?
The ultra-high-net-worth investor — someone with $30 million or more in assets — can outperform the high-net-worth investor significantly. Data from KKR shows that ultra-high-net-worth investors could generate average returns of between 8.8% and 12.4%, while high-net-worth investors generated returns between 2.5% and 5.4%.
Much of the disparity comes down to manager selection. UHNW investors have the network to access the best managers, while access to the best managers is limited for HNW investors.
Accredited Investor Opportunities: Final Thoughts
Where I find accredited investors have advantages is within the alternative asset space.
A recent Morgan Stanley report revealed:
“…a large sample of state and local government pension funds in the U.S., with total assets estimated to be $4.5 trillion, have increased their allocation to alternative assets from 7 percent in 1990 to 29 percent in 2019. Close to 40 percent of surveyed institutional investors plan to increase their exposure to alternative assets.”
The traditional 60/40 portfolio, comprising 60% stocks and 40% bonds, has been a long-established guideline for investors. However, as access to alternatives improves, I envision the 40% bond portion transforming into a diversified mix of conservative alternative assets like real estate.
The more aggressive 60% of each investor’s portfolio will primarily consist of stocks, with a higher allocation to riskier alternatives, such as asset-backed loans and artwork. As we move forward, these strategic shifts in investment allocation can potentially lead to higher returns and better portfolio diversification for advanced investors.
For more, see: seven intriguing alternative investment classes.
