How to become a “sophisticated” investor

Property prices have grown at their strongest annual rate in almost seven years. Learn how soaring property prices could help you become a “sophisticated” investor.

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Recent research released by property analytics group CoreLogic revealed that property prices have grown at their strongest annual rate in almost seven years – with Sydney prices growing by 18.4 per cent.

What isn’t immediately obvious when looking at the housing price growth is the potential impact on what is called wholesale investing.

In Australia, often more complex or higher return products are only offered to wholesale clients, also known as sophisticated investors.

Unless investors invest over $500,000 in order to become a wholesale client, a qualified accountant must issue a certificate confirming an investor has net assets of $2.5 million or annual income in excess of $250,000.

There are some other tests, but these are the main ones.

To put it in perspective, in 2013-14 the Australian Bureau of Statistics (ABS) revealed that the top 20 per cent of Australian households had a mean net worth of $2,514,300.

Since then Melbourne and Sydney have seen continued house price rises.

That is likely to mean that more than one in five households now has an average net wealth of in excess of the wholesale investor requirement.

Furthermore, in the same year the Australian Taxation Office (ATO) data shows 195,000 Australians with an income of greater than $235,000.

As property valuations continue to soar, so too does the number of potential wholesale investors.

There is often little clarity from investors on what exactly makes one “wholesale” and why this can prove a good option for everyday investors.

Wholesale investors get access to investment opportunities that are generally reserved for the ‘big end of town’ like exotic bonds, off-market capital raisings, share placements and other potentially high-yield opportunities.

Thanks to Australia’s network of thriving financial technology (fintech) companies, the opportunities available to wholesale investors are expanding even further.

The cost of providing these investment opportunities is being driven down by technology which means that the “cheque size” needed to invest in them is reducing.

How to embrace fintech wholesale investment opportunities:

Take control: Unlike many opportunities made available to retail investors via traditional paths, wholesale opportunities allow investors the ability to curate and pick their own portfolio rather than being pushed into a fund.

This means they can match their risk tolerance with their own personally curated investments from lower risks and returns all the way up the risk spectrum.

Do your research: With the level of risk that comes with sophisticated investment opportunities, it’s important to appropriately assess the different offerings to ensure investment security.

Diversify: Everyday investors tend to invest in three core streams – property, shares and cash.

While these are all solid investments, adding diversity to your portfolio through innovative sophisticated investment options can provide high returns.

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