The rules for investing also changed as the United States experienced inflation and a bullish stock market increased the total net worth of many households that might have been considered middle-income before the pandemic.
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The Securities and Exchange Commission enables protections to prevent people from investing in private securities, including investments through hedge funds, private equity, and venture capital. To qualify, an individual or household must earn $200,000 a year ($300 for her if a couple) or have a net worth of at least $1 million, excluding equity in their first home. These people may be considered “accredited investors.”
These limits set by the SEC ensure that those who cannot afford to lose money on risky investments are protected. In 2019, only 13% of households met any of these criteria. In the 1980s, when the standards were set, only 1.8% of households were eligible. These certification requirements have not changed since then.
As a result of inflation, 18.5% of households will be eligible for accredited investor status in 2022. If the standards were adjusted for inflation, a household would need a net worth of about $3 million, or a combined income of $911,352 for a married couple, according to CNBC.com.
Should I make personal investments?
Private equity investments tend to deliver higher returns than the S&P 500, according to a report published by Michael Chamberrest, head of markets and investment strategy at JPMorgan Asset & Wealth Management.
Some say these wealth-generating opportunities should be available to more Americans. However, it is important to realize that higher returns come with higher risks.
“Without information, you don’t have the ability to evaluate companies and make informed investment decisions…You’re investing blindly,” says Mika, Director of Investor Protection at Consumer Federation of America. Hauptmann told CNBC.com.
Additionally, personal investments tend to be illiquid, so you may not be able to access your funds in an emergency. For wealthy Americans with good access to cash flow, this may not be a problem. However, in states like Hawaii, California, and New York, where you need to earn more than $100,000 a year to earn a living wage, just meeting that $200,000 income bracket is not enough to make risky investments. We may not be able to provide you with the level of financial security you need.
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Even if you qualify to become an accredited investor, you may not be able to take advantage of the opportunities available to you. To determine whether private equity investing is worth the risk, it is wise to consult a financial advisor who can analyze your unique situation.
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This article originally appeared on GOBankingRates.com: Personal investing was once reserved for the ultra-wealthy, but now 1 in 5 households can afford it: You should mosquito?
