The number of "accredited" investors in the US has increased significantly over the past few years, largely driven by high inflation rates. According to new data from the Securities and Exchange Commission (SEC ), there were over 24 million accredited investor households in the US in 2022, up from 16 million in 2019.
This gives them access to markets that are reserved for only a few. Despite this, the average investors prefer to diversify their savings differently, opting for crypto or gold.
More Americans Gain Access to Private Investments amid High Inflation
An accredited investor meets certain financial thresholds and can invest in private securities like hedge funds, private equity, and venture capital. However, just three years ago, only 13% of US households had access to private market investments. The record-high inflation, which drove up prices and consequently led to an increase in earnings, has resulted in a significantly larger number of people exceeding the accredited investor threshold. The number of eligible households has risen by over five percentage points to 18.5%.
One of the main reasons behind this rapid increase is that the financial qualifications for accredited investor status have not kept pace with inflation. To qualify, an individual must have $200,000 in annual income or $1 million in net assets, excluding their primary residence. However, these thresholds have stayed static since they were first introduced in the early 1980s.
Accounting for inflation, the income threshold would now need to be over $900,000 for a couple, or the net worth threshold would need to be around $3 million. If adjusted accordingly, only 5.7% of US households would currently qualify as accredited.
Nearly half of U.S. households will qualify to invest in sometimes lucrative, often risky private markets deals as accredited investors by 2042, the SEC estimated in a report last week. Currently, just under 20 percent do. šhttps://t.co/qRcvrLji7z
ā Declan Harty (@declanharty) December 18, 2023
Freed or Too Much Risk?
Consumer advocates have raised concerns that allowing too many people access to complex and risky private investments may lead to issues down the line. Private markets tend to be much less transparent than public markets, making it harder for average investors to conduct proper due diligence.
However, others argue that more investors should have the freedom to diversify their portfolios beyond traditional stocks and bonds. In the long run, some private assets like private equity have delivered returns exceeding public market equivalents.
The SEC just published a report on accredited investors; a few facts on the exempt offering market (which includes syndications and crowdfunding):
ā Aleksey Chernobelskiy (@chernobelskiy) December 15, 2023
- $3.7 trillion of capital raised in '22, vs $1 trillion in '21 š¤Æ
- approximately 9.6 million investors participated in Reg Dā¦ pic.twitter.com/jb8kvwJgRp
As inflation continues to impact income and wealth, the pool of accredited investors is likely to keep expanding rapidly. Whether that is ultimately good or bad for investors remains to be seen.
During Inflation, Investors Turn to Gold
Regardless of whether the average retail investor should have access to private markets or not, record-high inflation is pushing American savers towards alternative assets. According to a study shared exclusively with Finance Magnates, 83% of millennials express doubts about the current state of the economy. Consequently, they are exploring new investment and savings avenues, including gold.
Precious metals, long considered as a hedge against inflation, are experiencing a notable increase in interest. Specifically, online queries for āhow to invest in gold and silverā have skyrocketed by 656% over the last year.
A look at the gold price chart shows this situation is not a coincidence. The precious metal has grown almost 12% this year, significantly outperforming inflation and the interest rates of savings accounts. Moreover, it is a safer alternative to the more rapidly growing but riskier stock market.
The price of gold is once again hovering above the psychological level of $2,000 per ounce, and according to experts at StoneX Bullion, it āis showing resilience.ā They also pointed out that on the leveraged gold market, long positions continue to dominate.
In addition to gold, investors show interest in cryptocurrencies and collectables. One out of four respondents indicated a heightened interest in alternative assets following the Silicon Valley Bank collapse in March 2023. Among those who had invested in the past six months, a third chose alternative investments, with cryptos emerging as the most popular option.
