Do you need a degree in finance to make money investing?
No.
Formal education is one of the least important contributors to successful investing. A degree may help in the hiring process, but even then, it does not necessarily need to be in business or finance. Skills and knowledge matter more than education for investors in the 21st century.
Do I Need A Degree to Purchase Stocks, Bonds, or Investment Property?
Again,
No.
You do not need a degree or even a high school diploma (leaving certificate) to buy, sell, or trade investments that are publicly traded on the New York, London, Tokyo, or Shanghai Stock Exchanges.
Investing requires only a brokerage account and funds. Brokerage accounts vary in what they require to open an account. Most require a minimum investment (although there are many with no minimum), identification for tax requirements, and contact information. There is no education requirement.
If you are interested in IPOs or investments closed to the general public, then you will need to qualify as an accredited or qualified investor – but neither of these requires formal education. If you want to sell securities or become a broker, then you will need to pass certification requirements, but these do not require an education level either.
What is an Accredited Investor?
The Securities and Exchange Commission (SEC) approves accredited investors to buy and sell securities that aren’t registered with them. Investing in these investments may be riskier or have limited documentation. Examples are hedge funds or angel investments in start-ups.
Requirements to Become an Accredited Investor
The SEC lists the requirements to become an accredited investor in Regulation D. An individual has 3 ways to earn accreditation:
- Earnings of more than $200,000 (or $300,000 combined with a spouse)
- Over $1 million in net worth (excluding your primary residence)
- A valid financial professional license (Series 7, 65, or 82)
What is a Qualified Investor?
An individual qualified investor owns more than $5 million in investments, not including the value of her primary residence or place of business. Stocks, bonds, cash, real estate, and future contracts are included. Retirement accounts allow counting toward $5 million.
What is a Qualified Client?
The SEC defines a qualified client in Rule 205-3 of the Investment Advisors Act. In 2021, the SEC increased the net worth requirement to $2.2 million (not including a primary residence). The SEC adjusts this threshold as needed. If you are a qualified client, financial advisors may charge you performance fees.$5 million.
How to Qualify for Investment Property
Mortgage lenders that finance investment properties usually require at minimum, a 15 percent down payment. There are exceptions, however. If you have an excellent credit score of 700 or more and cash reserves, then you may still be in a position to qualify for an investment property loan with favorable terms. If you are borrowing the money to invest in a rental property, you may qualify with a credit score of 680 if you have a debt-to-income (DTI) ratio of less than 36 percent.
Example of how to calculate the debt-to-income ratio:
Lisa’s salary before taxes (gross income) is $7,500 a month.
Her primary home mortgage payment is $1400, student loans $300, car payment $400, and minimum credit card payment is $400. Altogether, these payments add to $2,500 a month.
To calculate Lisa’s debt-to-income ratio, divide her total monthly payments by her gross monthly income: $7,500 / $2,500 = 0.33 or 33 percent.
This is less than 36 percent, so Lisa may qualify for an investment loan with a credit score of 680.
Education Requirements for Investors
So, what are the education requirements for an investor?
There are no formal educational requirements, but you do need skills and knowledge. Formal education is only one way to learn what you need. You can also study books, take continuing education classes, and learn from your own experiences.
What is Investment Education?
Not all investment education is equal. An instructor may be biased or, in the worst-case scenario, unscrupulous. Investment advice from brokers, investment advisors, or any institution may push you toward the investments they offer. One red flag is if the individual or agency is not listed on the SEC’s Investment Advisor Public Disclosure (IAPD) list.
Scams are a constant danger. If something seems too good to be true, take a second look. The SEC’s Office of Investor Education and Advocacy has a search option to check institutions involved in court actions and administrative proceedings. You can also check for judgments against a financial advisor or brokerage.
I don’t have a net worth of over $1 million. Can I still become an accredited investor?
You can bypass the net worth requirement if you have a professional financial certification in good standing. These certifications are designed for entry-level professionals in brokerages and investment firms. None require a degree or any formal education.
What Certifications Are Available for Investment Education?
The SEC recognizes 3 certifications: Series 7, 65, and 82. Each of these certifications requires passing an exam in addition to other requirements. Series 7 and Series 82 require sponsorship by a member of the Financial Industry Regulatory Authority (FINRA).
Requirements for Series 7 Certification
A Series 7 license qualifies individuals to sell all types of security products including stocks, bonds, options, and future options. The qualifying certification exam for Series 7 is multiple-choice and takes 6 hours. Additional requirements:
- Sponsorship by FINRA member firms or other self-regulatory organizations (SROs)
- Fingerprinting
- Background check
- Passing grade of 72 percent or higher
Requirements for Series 65 Certification
A Series 65 license is required by most states in the US to sell securities in that state. You need at least 70 percent to pass the exam. The qualifying certification exam for Series 65 has 65 multiple-choice questions that you have to answer within 75 minutes. Additional requirements:
- Additionally, you must pass the Series 6 or Series 7 exam
- Fingerprinting
- Background Check
Requirements for Series 82 Certification
If you want to register as a Private Securities Offerings Representative, you will need to pass the Series 82 certification exam with a minimum score of 70. The Series 82 certification exam has 50 multiple-choice questions and must be completed in 90 minutes. Additional requirements beyond the Private Securities Offerings Representative Exam:
- Must pass the Securities Industry Essentials® (SIE®) Exam
- Sponsorship by FINRA member firms or other self-regulatory organizations (SROs)
- Fingerprinting
- Background Check
Education for Investment Banking
Investment banking is an exception to the “no formal education required” rule. Most investment banking positions require a bachelor’s degree and some require a master’s degree. However, if you have the knowledge, connections, and track record, you may still be hired.
An education for investors can be achieved in many ways. A degree in finance or accounting will help if you want to be hired by a securities firm, but as an individual investor, a lack of education is not a restriction. Joining BizBuzz is a great way to start.
If you’re interested in joining a community that values your contributions and where you can earn some rewards over the weekend, check out how you can help Biz-Buzz today!
