From the GameStop saga of 2021 to massive cryptocurrency price swings during the pandemic, the start of the decade has seen the emergence of retail investors as a powerful force within financial markets.
In almost every country in the world, retail traders make up a larger share of speculative investors. According to Jefferies, retail trade has nearly doubled in the past 12 years, accounting for 44% of transactions, up from 25% in 2009.
While retail investment has been rising for decades, stimulus checks and free money issued by governments at the height of Covid-19 lockdowns have pushed retail to new heights.
But the retail trend has also gained traction thanks to another unlikely source: split investing. In recent years, new platforms have emerged that allow ordinary people to buy assets that in the past seemed inaccessible.
From real estate to digital assets to art, fractional trading is reshaping entire industries and revolutionizing the way the world invests.
What is split investing?
Fractional ownership is a process by which investors can purchase a percentage of an asset. Although these assets are usually physical objects, they can also extend to non-physical items such as NFTs or stocks.
Through co-ownership, unrelated parties can share the benefits of high-value items such as user rights, revenue sharing, priority access, and discounted rates (in the case of real estate).
Ultimately, fractional investing is more affordable and allows for less risk, but also comes with fewer rewards.
Split investment in real estate
Fractional ownership in real estate has been in place for 30 years, supported by the development of timeshare in the 1970s.
With timeshare, also known as vacation ownership, willing buyers can pay a lump sum upfront (plus annual maintenance fees) to use a property for a pre-selected period of their choosing.
Timeshare grew in popularity well into the 1990s, but demand for properties plummeted with the advent of home-sharing platforms such as Airbnb (ABNB) and Vrbo (VRBO).
New technology has since revived the practice of fractional real estate ownership. In 2021, a new real estate investment platform was launched called Homes arrivedwhich allows buyers to buy shares of rental housing and vacation rentals.
Once these shares are purchased (minimum investment is $100), investors can earn rental income and capital appreciation on the properties – while the actual owner responsibilities are taken care of by the property management team of Arrived.
Arrived differs from a timeshare in that buyers own a share of the immovable himself and receive a deed of ownership, not a time that they can use the house.
When the time is right, Arrived sells the property and distributes the proceeds to the co-owners.
So far, Arrived Homes, which is backed by Jeff Bezos, has currently fully financed 179 properties worth an estimated $65 million.
Fractional investment in NFTs
Non-fungible tokens (NFTs) have also benefited from the rise of fractional investing. When the NFT market started to take off around 2020, many NFT enthusiasts felt left out of top collections.
Everything changed at the beginning of 2021 when Fractional.art was founded with the aim of democratizing the NFT process and providing access to high-level NFT series for small and medium investors.
Currently, Fractional operates as a protocol that enables collective ownership and governance of NFTs ranging from CryptoPunks to the Bored Ape Yacht Club.
The company recently announced that it brand change as Tesseraand he also revealed a $20 million funding round led by crypto-native investment giant Paradigm that closed earlier this summer.
The Doge Meme
One of the most famous examples of a split NFT occurred after a buyer by the name of PleasrDAO purchased the iconic “Doge” meme which led to the creation of the Dogecoin meme cryptocurrency.
After buying the NFT for $4 million in June 2021, the buyer quickly split the piece on Fractional.art, splitting the original 17 billion times.
Today, NFT is valued to several hundred million dollars, with individual slices selling for pennies.
Cryptocurrencies such as Bitcoin and Ethereum can also be minted. Even though these assets are fungible, meaning each token is the same and therefore interchangeable, major crypto exchanges such as Kraken and Coinbase allow investors to purchase parts of an individual coin.
Split investment in art
For centuries, the art world has seemed impervious to fractional investment due to the exclusivity of space, the low resale rate of purchased artworks, and the lack of technology that could make the process feasible.
In fact, investing in art has largely been a hobby high net worth people who can afford to take huge risks, with most experts advising retail investors to stay out of the space.
However, the emergence of companies such as masterpieces and Otis allowed consumers to buy shares in unique works of art or collectibles in a way that was never available before.
Like Arrived Homes, these sites have acquisition teams that locate and select the best examples of artwork to offer to their members.
After paying the site a management fee (usually around 1.5%), users are free to buy and sell shares of artwork much like on a stock trading platform.
Split investment 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 price of individual shares of these companies could often run into the 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 buy fractional shares for users’ portfolios.
While split stock trading is now widely available, most sites have a minimum purchase amount in order to split stocks. Depending on the brokerage, the purchase of at least $1 or up to $5 worth of fractional shares may be required to complete the transaction.