Sophisticated Investor

AAA

DEFINITION of 'Sophisticated Investor'

A type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

For certain purposes, net worth and income restrictions must be met before a person can be classified a sophisticated investor. The distinction makes an investor eligible to buy into certain investment opportunities, such as pre-IPO securities, that are considered "non-disclosure" or "non-prospectus" issues. Typically, a sophisticated investor must have either a net worth of $2.5 million or have earned more than $250,000 in the past two years to qualify.

INVESTOPEDIA EXPLAINS 'Sophisticated Investor'

Sophisticated investors may have to prove their net worth prior to being eligible to purchase certain security types. Investors will often have their personal accountants send this proof to the brokerage firm. Sophisticated investors are the dream clients of most financial services firms, as they generate much higher fees than retail investors.

Certain assumptions are made about sophisticated investors: that they can hold their investments indefinitely (the funds do not need to be liquidated for cash needs), and they can assume a total loss of investment principal without causing severe damage to their overall net worth.

RELATED TERMS
  1. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a ...
  3. High Net Worth Individual - HNWI

    A classification used by the financial services industry to denote ...
  4. Wealth Management

    A professional service which is the combination of financial/investment ...
  5. Broker

    1. An individual or firm that charges a fee or commission for ...
  6. Accredited Investor

    A term used by the Securities and Exchange Commission (SEC) under ...
RELATED FAQS
  1. Does all common stock trade on exchanges?

    Not all common stock trades on exchanges. In addition to trading on exchanges, common stock is traded in over-the-counter ... Read Full Answer >>
  2. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
  3. How does an underwriter syndicate work together on an initial public offering (IPO)?

    An underwriting syndicate is a group of investment banks that share the responsibility of marketing the shares of a company ... Read Full Answer >>
  4. What is the average range for the price-to-earnings ratio in the electronics sector?

    Investors purchase shares of company stock and other traded securities through capital markets in either primary or secondary ... Read Full Answer >>
  5. How can I calculate the Macaulay duration of a zero-coupon bond?

    The funds from operations is a measure of the amount of cash flow that a business's operations generates. Real estate investment ... Read Full Answer >>
  6. Are money market accounts for short-term investments a good idea?

    Money market accounts are a good idea for short-term investments. Some of the desired traits in short-term investments are ... Read Full Answer >>
Related Articles
  1. Retirement

    Bursting Boomers' Inheritance Dreams

    Waiting for a big payload from an aging relative? The chance of cashing in is lower than you think.
  2. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.
  3. Options & Futures

    What Is A Registered Investment Advisor?

    Hoping for a career in the financial services industry? Working for an RIA may fit the bill.
  4. Entrepreneurship

    Should I Have An IPO on My Business

    The ultimate outside investment opportunity is going public through an initial public offering. However, IPOs come with costs that you may want to avoid.
  5. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  6. Mutual Funds & ETFs

    Top Skills Hedge Funds Look For In Job Candidates

    Lucrative salary, high perks, and best quantitative brains at work. What are the top skills a candidate needs to get a job at a hedge fund?
  7. Mutual Funds & ETFs

    Why Hedge Fund Managers Make Good Advisory Clients

    Super-busy hedge fund managers should be viewed as an opportunity for sophisticated financial advisors who can step in and offer their services.
  8. Professionals

    A Look at How the Ultra-Wealthy Invest

    Ultra-wealthy investors are cautious this year as they approach the markets. Many target mutual funds and stocks, but most also diversify their portfolios.
  9. Trading Strategies

    The Top U.S. Regulated Stock Brokers

    To operate in the United States, stock brokers must comply with SEC regulations that protect investors. Here is a look at some of the best.
  10. Investing

    Should You Buy Marijuana Stock?

    The legalization of marijuana has created a new investment niche: pot stocks.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center