When I was younger I had always heard that it takes money to make money. But is that really true? Let’s explore.
Start with the knowledge that a low-cost (low-risk) index fund beats about 80% of actively managed mutual funds in the long run.
No “hoity-toity” money manager needed.
However, there are some investments where those seeking capital are looking for accredited investors.
So what’s an accredited investor?
In general, an accredited investor is a couple with annual income in excess of $300,000 or a net worth (excluding the home) in excess of $1,000,000. In my opinion, this is a bar set up to weed out tire-kickers, and people who are playing defense. I think the perceptions is that high income and high net worth individuals are more patient with their investments.
The types of investments I have seen that are seeking accredited investors are typically higher risk investments. The garden variety investor often doesn’t have the stomach for the roller coaster ride that is the S&P 500. Imagine how this type of investor would react with the ups and downs of an all-in investment in a shopping center, a real estate syndicate, or fledgling/reorganized business.
So what can the little guy do?
The best thing that we did was select our own investments. Among other things, we read The Bogleheads’ Guide to the Three-Fund Portfolio by Taylor Larimore. If you’re looking for a way to outperform most investors with less risk, read this book. The Bogleheads’ philosophy is simple and effective…
- Develop a workable plan
- Invest early and often
- Never bear too much or too little risk
- Never try to time the market
- Use index funds when possible
- Keep costs low
- Diversify
- Minimize taxes
- Keep it simple
- Stay the course
So don’t think you’re missing out if you’re not an accredited investor. FOMO in investments can lead to big losses for people who can’t afford to lose the money, or who don’t have the time and patience to let it develop. The typical millionaire has amassed their wealth with dollar cost averaging in index funds over the long run.
As Always…
Thanks for reading! I hope this information provides food for thought. Remember that I am not a certified financial planner, a certified public accountant, a licensed real estate agent, etc. My content is for educational purposes. I am a math educator who happens to have a finance degree. Like they say, never take financial advice from a math teacher! (Do they really say that?)
But you should spend less than you earn, invest the difference, and stay out of debt!
I would so appreciate your sharing my content with anyone you feel could benefit. And if you would like a free exploratory conversation or just want to shoot the breeze about personal finances, call me and leave a message or send a text to 570-731-0425.