The Benefit of Being Accredited (It’s Not What You Think!)
Brandon Allen | Executive Director
Fortify Foundation
Have you ever wondered why the wealthy seemingly get richer quicker than the average everyday individual? Have you ever asked, ‘what’s the difference between them and me?’
While this article is not going to be able to capitalize on all the variables involved, there is most certainly one point that needs to be brought up for consideration. The point of greater returns.
I recently came across an article revealing one of Jerry Jones (the owner of the Dallas Cowboys) recent investment decisions that over doubled his money. This single decision moved him from an initial $1.1 billion investment to a whopping $2.6 billion dollars in return! I don’t care who you are, we all would have loved to have taken advantage of that if we had enough foresight to make that happen.
Sure, we probably can not relate to that amount of money but even if it was doubling that hundred dollars in our bank account, we would have loved to see that increase. As a matter of fact, it would have even made sense to take out a loan to generate some money from
nothing. Of course, investments of this nature are always in hindsight. It’s looking back at the ‘what ifs’ in life that has us kicking ourselves. What if I had invested in stock for Amazon or Apple or even Tesla. It’s hearing the stories about individuals that caught those companies early on that create the thoughts as to which company will be next.
But there is still one problem… each of these investments still involve risk.
Even when Jerry Jones made this decision that over doubled his money, on the flip side, he could have very well lost a good portion of that money in the short term. So how do we alleviate the risk knowing that there are no guarantees in any of these types of investments creating these great returns? The key is to develop a proper investment strategy. We’ve all heard the phrase “Don’t put all your eggs in one basket!” While this doesn’t always apply to things like your job and hopefully not your marriage, this is definitely something that applies to investments!
The formula for a proper investment strategy balances out the risk and reward. Typically, the greater the risk, the greater the reward, and of course, often the opposite is true, the lower the risk, the lower the reward. The best method is to try and find a good combination of both that will create those greater long-term returns and yet provide some stability to your overall financial plan and goals.
However, there is still one key that unlocks the door to even greater growth that has yet to be discussed. The one point that often creates greater returns in both the short and long terms of an investment. The answer to the proposed question above is found in the words ‘accredited investor.’
Where did this concept of an accredited investor come from? It actually originates back in 1933 when Congress voted on the Securities Act.
Prior to this act, the American economy had recently come through one of the greatest economical upticks it had ever seen. There were all kinds of business ventures that promised incredible returns and many Americans dove head first into that optimism. People started taking out loans, refinancing their homes, and pouring all of their savings with the hopes that it would generate some quick and easy money. Of course, most of us know what happened shortly thereafter. All the hopes and dreams of massive yields came to a crashing halt in 1929 when the stock market crashed contributing to the great depression.
The Securities Act was passed in order to avoid a similar situation from ever happening again. Future investors would now have access to information about their investments to make better informed decisions that were not available before. On the flip side, the issue of private offerings came up that dictated who could invest in these areas. This was the birth of the accredited investor.
The accredited investor was a classification held by those that held a certain level of financial knowledge and understood the capacity for, and could more easily recover from, a loss in their investment. The reasoning behind this was to help alleviate a similar situation coming out of the 1920’s when people were not making the best financial choices and didn’t understand the nature of investing and potential loss.
In order to become an accredited investor on an individual level, a single person would have to have created a minimum salary of $200,000 per year for the last 2 years with the expectation that nothing would change in the current year. A married couple’s minimum would move that amount up to $300,000. The only other option that would bypass this minimum requirement is for an individual to have a net worth of $1,000,000+ (excluding their main residence).
We wonder why some individuals are able to expand their portfolio to make greater headway in making greater returns… It’s their investment opportunities! An average person may be able to create a generous 10% return whereas an accredited investor can often double or even triple that number. Of course, becoming an accredited investor is often out of reach for many individuals.
It’s the same way for institutions.
The Securities and Exchange Commission has determined that an institution must have a $5 million dollar valuation in order to take on this same accredited status and ultimately take advantage of these investment opportunities.
Again, the problem is that many Christian school institutions are not able to create those greater returns because they have not reached that level. On top of that, for those that are well on their way, it still may take them years before they can attain that goal. The beauty of partnering with a foundation like Fortify is that we are able to get every school to reach that accredited status a whole lot faster regardless of their current size.
Fortify Foundation has given me the benefit of talking to lots of schools. Some schools are just being introduced to the concept of an endowment fund. I have talked to other schools that have millions of dollars in endowment due to the foresight of past founders and funders. In both of these situations, the Foundation can pool our resources and create something that only elite wealthier institutions have been able to do. It’s really just applying the principles laid out in Ecclesiastes 4 and 1 Corinthians 12. As believers, we have the ability to build a stronger foundation when we work together in unity.
We encourage every Christian school to consider their future and further increase their sustainability with a long range fund. Join our Foundation along with the many other schools that have partnered nationwide today!