Should Your Retirement Portfolio Include Private Equity Or Equity Crowdfunding?
Written by Jasmin Sethi and published in Forbes.
This year has brought a regulatory push to expand opportunities for ordinary investors to invest in asset classes that have been historically restricted to the wealthy and financially sophisticated. Three areas of greater inclusion being considered by regulators are access to private equity, crowdfunding, and leveraged ETFs. Out of these three – only one – namely private equity – is grounded in investment principles that support more widespread investment by ordinary individuals saving for retirement.
In a trend towards deregulating restrictions on ordinary investors, the SEC has released a series of rule proposals designed to provide investors with greater access to certain asset classes that have been restricted to date. First, in January, the SEC proposed making it easier for fund sponsors to launch leveraged ETFs that maintain a leverage level below 300% by allowing them to skip the rule filing process. While the proposal would require brokers to approve their customers’ accounts to engage in the buying or selling of leveraged ETF shares on self-directed brokerage accounts – a new requirement – the proposal overall could make leveraged ETFs a more mainstream product. While these products may be useful for a subset of investors, they are not well understood and present a lot of risks to ordinary investors who may not understand how these ETFs compute leverage on a daily basis.
In January, the SEC also proposed loosening the definition of accredited investors to include knowledge as another proxy for financial sophistication. Currently, individuals who have a net worth exceeding $1 million or individuals who had an income in excess of $200,000 in each of the two most recent years, qualify to invest in private securities.
