With the rise of financial technology, there are now many apps that allow retail investors to invest other people’s money. These apps provide easy access to various investment products and strategies traditionally only available to institutional investors or high net worth individuals. While investing through such apps offers potential opportunities like asset diversification and higher returns, it also comes with risks that investors should be aware of. This article will explore the world of investing other people’s money through apps.
Apps democratize alternative investment opportunities
Apps such as Yieldstreet and Cadre provide exposure to real estate, private equity, and other alternative assets that were previously difficult for average investors to access. By pooling money from many individual investors, these apps can participate in deals with high minimums. This allows for greater asset diversification. The multi-billion dollar asset pools also have more bargaining power to negotiate better terms and access exclusive deals.
Convenience and intuitive interfaces attract new investors
Investing apps feature easy sign-up processes and intuitive interfaces for browsing investments, monitoring portfolios, and transferring funds. This makes investing more accessible to millennials and other first-time investors who may be intimidated by traditional brokerages. Apps also simplify historically tedious processes like account opening, paperwork, and reporting. The 24/7 availability and automated advisory services provide added convenience.
Higher risk from pooled investment structures
Unlike direct peer-to-peer lending platforms, most investing apps use a pooled funding structure where individual investments are aggregated. This introduces additional counterparty and governance risks. If the fund manager engages in fraud or mismanagement, all investors suffer losses. The risk is especially high for apps offering alternative assets that are difficult to independently value and audit.
Illiquidity from long lock-up periods
Alternative assets like real estate and private equity require long holding periods to realize gains. Investors’ money can remain inaccessible for months or years. Sudden need for cash can force investors to sell at a loss. Apps try to improve liquidity by creating secondary markets, but supply and demand imbalances can still cause unfavorable exit valuations.
Investing other people’s money through apps provides individual investors with easy access to a diverse range of assets and investment strategies. However, the pooled fund structures and alternative asset classes also introduce unique risks like illiquidity and lack of transparency. As with any investment, investors should research apps thoroughly and commit only discretionary capital they won’t need access to on short notice.