From the GameStop saga of 2021 to the massive cryptocurrency price swings during the pandemic, the early part of the decade has seen the emergence of retail investors as a powerful force within financial markets.
In nearly every country across the globe, nonprofessional traders are making up a larger share of speculative investors. According to Jefferies, retail trading has nearly doubled over the past 12 years, accounting for 44% of trades – up from 25% in 2009.
While retail investing had been growing for decades, the stimulus checks and free money issued by governments during the height of the Covid-19 lockdowns drove retail trading to new heights.
But the retail trend has also gained traction from another unlikely source - fractionalized investing. In recent years, new platforms have sprung up that allow ordinary people to buy pieces of assets that in the past would seem unreachable.
From real estate, to digital assets, to art, fractionalized trading is reshaping entire industries and revolutionizing the way the world invests.
What is Fractional Investing?
Fractional ownership is a process whereby investors can buy a percentage of an asset. While these assets are usually physical objects, they can also extend to non-physical items such as NFTs or stock shares.
Through fractional ownership, unrelated parties can share the benefits of high-value items such as usage rights, income sharing, priority access, and reduced rates (in the case of real estate).
In the end, fractional investing is more affordable and allows for less risk, but also comes with less reward.
Fractional Investing In Real Estate
Fractional ownership in real estate has been in place for the last 30 years, propped up by the development of timeshares in the 1970s.
With a timeshare, also known as a vacation ownership, willing buyers can pay a lump sum upfront (plus annual maintenance fees) to use a property for a preselected time of their choosing.
New technology has since revived the practice of fractional real estate ownership. In 2021, a new real estate investment platform was launched called Arrived Homes, which allows buyers to purchase shares of rental homes and vacation rentals.
Once these shares are bought (the minimum investment is $100), investors can earn rental income and appreciation from the properties - all while the actual landlord responsibilities are handled by the Arrived property management team.
Arrived differs from a timeshare in that buyers own a share of the real estate itself and are issued a deed for the property, not a time that they can use the home.
At the opportune time, Arrived sells the property and distributes the proceeds to the fractional owners.
So far, Arrived Homes, which is backed by Jeff Bezos, currently has fully funded 179 properties worth an estimated $65 million.
Fractional Investing in NFTs
Non fungible tokens (NFTs) have also benefited from the rise of fractional investing. When the NFT market first began to take off around 2020, many NFT enthusiasts felt priced out from top collections.
This all changed in early 2021 when Fractional.art was founded with the goal of democratizing the NFT process and allowing small and medium size investors to gain entry to high-profile NFT series.
Currently, Fractional functions as a protocol that enables collective ownership and governance of NFTs ranging from CryptoPunks to the Bored Ape Yacht Club.
The Doge Meme
One of the most famous example of a fractionalized NFT occurred after a buyer under the name PleasrDAO purchased the iconic “Doge” meme that led to the creation of the meme cryptocurrency Dogecoin.
After purchasing the NFT for $4 million in June 2021, the buyer promptly fractionalized the piece on Fractional.art, splitting the original 17 billion times.
Today, the NFT is valued at several hundred million dollars, with individual slices are selling for pennies.
Cryptocurrency such as Bitcoin and Ethereum can also be fractionalized. Even though these assets are fungible, meaning each token is the same and consequently interchangeable, major crypto exchanges such as Kraken and Coinbase allow investors to buy pieces of an individual coin.
Fractional Investing in Art
For centuries, the art world has seemed impervious to fractional investing due to the space's exclusivity, the low resale rate of purchased artwork, and the lack of technology that could make the process achievable.
In fact, investing in art has largely been a pastime of high net worth individuals who can afford to take massive risks, with most experts advising retail investors to stay out of the space.
Like Arrived Homes, these sites have acquisition teams that locate and choose the best examples of art pieces to offer to their members.
After paying the site a management fee (usually around 1.5%), users are free to buy and sell shares in art pieces much like on a stock trading platform.
Fractional Investing in Stocks
In the past, traditional stock market investing was limited to whole shares of companies. Blue-chip stocks such as Google, Apple, and Microsoft were off limits to retail traders because the individual share prices of these companies could often reach thousands of dollars.
Today, many online brokerage platforms sell fractional shares, including Fidelity, Charles Schwab and Robinhood. Other investing apps such as Stash, Cash App Investing, and SoFi Invest also offer fractional shares.
Even a few robo-advisors, such as Acorns and Betterment, can purchase fractional shares for user's portfolios.
While fractional stock trading is now largely accessible, most sites have a minimum purchase amount in order to fractionalize shares. Depending on the brokerage, buying at least $1 or up to $5 worth of fractional stock might be necessary to complete the transaction.