Affluent Investor Status
In a world of billionaires, the term millionaire doesn’t seem to have the same cachet it used to. Instead, the term high-net-worth-individual (HNWI) has taken the place of millionaires to refer to individuals with significant liquid investable assets.
The term HNWI refers only to the basic category of affluent individuals. There are additional categories of affluence based on the amount of net-worth (assets-liabilities) as outlined below:
High-Net-Worth Individuals (HNWIs) – People or households who own liquid assets valued between $1 million and $5 million.
Very-High-Net-Worth Individuals (VHNWIs) – People or households who hold liquid assets valued between $5 million and $30 million.
Ultra-High-Net-Worth Individuals (UHNWIs) – People or households own more than $30 million in liquid assets.
Why Is The Status Of A HNWI A Big Deal?
HNWI status is a big deal because it opens up doors not available to Main Street investors. HNWIs get invited to participate in investments that Main Street investors don’t qualify for?
What kind of investments are these? Private Investments.
Why are private investments a big deal? Because they offer many benefits public offerings don’t provide, including:
Recession-proof cash flow and appreciation.
Stakes in tangible assets where income and underlying value synchronize with inflation over time.
Tax deferral and deduction benefits.
Asset protection through multi-layer entity structures.
Why don’t Main Street investors have access to private investments? The short answer is because the SEC doesn’t want them to get hurt.
Private investments are typically offered to investors through a private offering (i.e., private placement) of securities. Unlike IPOs, private placements are exempt from the costly and time-consuming registration process. However, to protect the investing public because of the reduced reporting and disclosure requirements, only investors meeting specific financial criteria and sophistication are permitted to participate.
The most important criteria that potential investors are expected to meet is that they qualify as accredited investors.
An individual will be considered an accredited investor if he or she:
Has earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence).
In terms of net worth, $1 million is the minimum for participating in private placements, and because the vast majority of these offerings is strictly limited to accredited investors, the sponsors and promoters of these offerings are only interested in reaching out to individuals with net worths of $1 million or more.
That’s why it pays to be HNWIs, VHNWIs, and UHNWIs. More opportunities will come your way because once you’re identified as an HNWI, your name will be passed around among investing circles to participate in potential private offerings.
Do HNWIs Really Take Advantage Of Private Investment Opportunities?
ABSOLUTELY! Just check out the asset allocation of one prominent group of HNWIs:
The members of Tiger 21 are all UNHWIs, each with minimum investable assets of $50M – the minimum requirement for joining this online investment network. Tiger 21 is a real-world example of how being an HNWI opens up doors since the overriding goal of the club is for the members to share investment insights and opportunities with each other.
What Sets HNWIs Apart From Main Street Investors?
HNWIs have different priorities than Main Street Investors because their overriding objective is to create and sustain wealth to call their own shots and not be married to an employer or someone else’s schedule.
To that end, here is what HNWIs are focused on:
Passive income investments to make money in their sleep and to compound wealth through reinvestment.
Start investing early to take advantage of the compounding effect of their income investments.
Minimizing debt to prevent resources from being wasted on debt servicing instead of being used on cash-flowing investments.
Avoid capital-depleting expenditures such as big houses, fast cars, fancy clothes, expensive jewelry, exotic vacations, etc., that take away from income-producing assets that build wealth.
Impressing their families and charitable causes vs. their neighbors or social media.
You CAN Be A HNWI.
Anyone can be an HNWI. You just have to be focused. You can attain affluent investor status as long as you focus on what’s important for creating and maintaining wealth. Start early, minimize debt and focus on the right types of assets that build wealth.
Don’t gamble, and don’t speculate.
Instead, allocate to assets like private real estate and private equity like other HNWIs do to take advantage of reliable cash flow and appreciate over time to create and maintain wealth.