Do you know about fractional investments? Are you investing at all? If you haven’t already heard, millennials aren’t investing at the rate they probably should. Armed with reasons that range from not having enough money in the bank to a general distrust of the stock market, it was found out that 43% of millennials haven’t invested a dime. This news isn’t good for the other 57% — 54% of them that have invested. Some quick math will tell you that, even with compounded interest, it won’t be anywhere near enough for that ideal retirement.
So why aren’t millennials investing? 45% responded that they don’t have enough money, while 34% can be attributed to a lack of education around investing — either they don’t know how or aren’t aware of the different options available. The other 21% either don’t want to invest or don’t have time.
No matter how you slice it, these results reflect how disillusioned millennials feel towards investing, and financial matters in general. The real estate market is off-limits to most, the impending recession has decreased trust in stocks. Bonds pay peanuts in interest. Savings accounts? Well, what’s the point? There is hope, though!
A combination of technological advancement and innovation has given birth to the idea of fractional asset investing. The idea is simple: instead of buying an entire property, work of art, sports collectible, or share, you buy a portion of it, also known as fractional investing. Here’s what makes it so interesting.
Why Fractional Investments Are the Future of Investing
1. It Solves the Money Problem
The main problem with investing it that few people can afford it. Stocks can be very expensive, even for just one share. Fractional investments change this.
2. It Speeds Up the Process
Even if you could afford real estate, the process for making it happen is paved with bureaucracy. Fractional investments remove much of the bureaucracy and legwork from the equation. You simply buy the desired portion of the property, sign a document, and watch as the rental income arrives in your account each month.
3. It Makes Portfolio Diversification Easier
Art as an investment has long been considered an activity of the wealthy. Sure, you’d love to own a masterpiece and then sell it at an auction for a handsome sum, but how many of us have that kind of money lying around? Fractional investments give you access to assets that you wouldn’t normally have access to. You can expand your portfolio beyond stocks, bonds, and ETFs with minimal effort and at an affordable price.
4. It Turns Illiquid Investments Into Liquid
Some assets, like real estate and art, can’t easily be converted into cash. To make these traditionally illiquid assets liquid, the assets are often tokenized so that they can be sold fractionally. Tokenization is a method that converts rights to an asset into a digital token. In real estate, for example, your ownership share is denominated in tokens that can easily be exchanged for cash. No real estate agents are necessary.
5. It Provides More Passive Income Opportunities
You can park your money in fixed-income assets like bonds as access to passive income, but that’s about it. Your return on investment may not be that high, however. Fractional investments give you access to higher-yield investments. Owning a portion of a rental property or blue-chip share is a lot more lucrative than your typical bond or savings account. And you can reinvest the income for greater profit potential.
What to Look For When Getting Started With Fractional Investing?
As with any investment, it’s important to do the necessary due diligence. Ask yourself: Is the investment legal? What are the tax implications? What are the associated fees? What level of risk are you willing to tolerate? What return can you expect? How is that return paid out? Can it be reinvested?
Next, figure out how much you’re willing to invest. Diversification is key, so don’t put all your eggs in one basket. If necessary, give the investment a trial run with a small amount. If all goes well, you can always invest more.
Finally, commit to investing at least some of your salary each month. It doesn’t have to be a lot, but nothing will help you build that retirement nest egg faster than monthly contributions.
For most millennials, fractional investing is the answer they were looking for: the ability to invest in stable assets at an affordable price without the hassle while earning passive income. And if you need a quick injection of cash, you can easily sell your assets without the need for annoying paperwork. This is the future of millennial investing. Invest what you want, when you want, then sit back and let the asset do the work. Because you shouldn’t let others have all the fun.
