High-yield investments attract many investors for their cash flow. You can purchase an asset and get rewarded for holding onto it. Accredited investors have more opportunities than retail investors with high-yield investments and beyond. A greater variety gives accredited investors the opportunity to get higher returns than retail investors.
What Are Accredited Investors?
Accredited investors are not your ordinary investors. They can access more investment opportunities and potentially generate higher returns than retail investors. You must fulfill at least one of the following parameters to become an accredited investor:
- You must have over $1 million net worth, excluding your primary residence. Business entities count as accredited investors if they have over $5 million in assets under management.
- You must have an annual income that exceeds $200,000/yr ($300,000/yr for partners filing together)
- You must be a registered investment advisor or broker.
The SEC (Security Exchange Commission) imposes these requirements to protect retail investors from high-risk assets. As a result, accredited investors have more experience and money to spread across assets.
Do You Get Better Returns as an Accredited Investor?
Accredited investors can pursue a broader range of assets, but more choices do not guarantee higher returns. Most investors underperform the market, including accredited investors. Despite the higher status, accredited investors can make significant blunders and do not have access to insider information. The accredited status lets investors put their money into riskier ventures that can significantly pay off or lead to notable losses.
The Best High Yield Investments for Accredited Investors
Accredited investors can access several assets that provide positive cash flow. Diversifying across several asset classes will help you achieve optimal returns while lowering risk. For example, you can consider the following assets for high yields.
Crowdfunding
Several investors pool their money into crowdfunding projects to buy assets or fund companies. Crowdfunders must consider the investment opportunity and leadership in charge. Crowdfunding gives accredited investors a passive role.
Real Estate Syndication
Real estate investing can help replace your income or lead to a quicker retirement. In addition, investors can build equity through positive cash flow and property appreciation. However, real estate properties require considerable maintenance, and a lot can go wrong if you do not have the right team.
Real estate syndication removes the complexity of real estate and turns you into a passive investor. The sponsor finds investment opportunities and has a team in place to handle every responsibility for the property. Real estate syndicates pool money from accredited investors to buy properties aligned with established objectives.
Private Equity Real Estate
Private equity real estate lets you invest in a group of properties. Accredited investors pool their money together to finance purchases and property development. Private equity real estate firms have greater flexibility in the projects they can pursue. These firms can develop new properties on purchased land and take more risks instead of immediately embracing the rental income model.
REITs
Real estate investment trusts make it easy for anyone to get exposure to properties. Retail investors can also buy REITs, but accredited investors have more choices. REITs invest in numerous real estate assets. Some REITs focus on residential properties, while others allocate capital for commercial and industrial properties. Real estate investment trusts must distribute 90% of their taxable income to shareholders as dividends. You can buy and sell REITs on the stock market, making them more liquid than most investments. REITs allow investors to diversify quickly across many property classes with very little capital. While REITs also turn you into a passive investor, you get more control over essential decisions if you join a real estate syndicate.
Convertible Investments
Convertible investments can become different assets in the future. The holder can decide to implement the convertible option or to sell before the conversion happens. Convertible bonds allow investors to buy bonds that can become stocks in the future. Investors will benefit if the stock price rises since convertible investments give them more attractive entry points. However, if the stock tumbles, investors can opt against the conversion and protect their finances.
Venture Capital
Venture capital is a high-risk investment that can produce incredible yields. Venture capitalists invest in early-stage startups that need initial funds to stay in business and gain momentum. While it’s easy to fantasize if you poured venture capital into Facebook or Google, most VC-backed startups go bust or break even. You will have to listen to the founder’s vision, review financial numbers, and analyze the competition to increase the likelihood of investing in a successful company. Accredited investors can also invest in venture capital firms that make investment decisions with their money.
Hedge Funds
Hedge funds give you exposure to various assets like mutual funds. However, hedge funds have fewer regulations and can engage in riskier strategies. Hedge fund managers can short investments, invest in derivatives (i.e., calls and puts), and use leverage. These dynamics can lead to significant market outperformance, but a hedge fund can also lose investors’ money. Hedge funds are also less liquid than regular mutual funds. Hedge fund managers usually provide a small window when investors can withdraw funds. If you miss the window, you may be unable to take money out of your position for a quarter or longer. Hedge fund investors also have to contend with higher management fees which can get in the way of returns. These assets can work tremendously well or result in significant losses.
Interval Funds
Interval funds do not trade on secondary markets and force you to become a long-term investor. Instead, investors have a small timeframe to deposit and withdraw funds before getting locked into an interval fund for a few months. These more complex funds expose investors to private real estate, hedge funds, and other risky assets. Interval funds require a high-risk tolerance but can provide promising returns.
Cryptocurrency
Cryptocurrencies are speculative assets that have taken off over the past decade. While Bitcoin is the most established digital currency, investors can choose from thousands of altcoins. Altcoins are more volatile than Bitcoin, but some of them have outperformed Bitcoin. You can buy and hold crypto and benefit from price appreciation, but there is also another way to make money with crypto.
Crypto staking allows you to turn your crypto into cash flow. During crypto staking, you let other people borrow your crypto and receive interest, just like a bank lending money. People borrow cryptocurrencies to help verify transactions and receive higher rewards from the crypto blockchain. You can receive cash flow for letting others borrow your crypto.
Cryptocurrencies are for investors with high-risk tolerances since they are prone to crashes. While Bitcoin has a history of dramatic crashes and recoveries, some investors don’t have the patience to ride the volatility. Safer assets like real estate still offer cash flow and appreciation, but you won’t have to worry about losing all of your investment. Real estate investing provides more choices than crypto and other assets, and real estate always has intrinsic value.
