Jan. 17, 2023
In our last blog discussing the future of equity investments, we talked about fractionalisation helping to create greater investor autonomy. In part three, we focus on how greater diversification can be achieved through automation.
If the last few months of chastening investment returns and soaring inflation has taught investors anything, it is that they need to be thinking about greater investment diversification. After two decades of low inflation and low interest rates, and where the pursuit of growth was the only investment game in town, we appear to be heading back towards an investment landscape where income will become increasingly important for investors, and they will be looking for a broader range of assets that will help them to achieve that income. The challenge is where to find it, and how to access it most effectively.
In the hunt for true diversification, real estate has to be a significant part of the puzzle. Real estate is one of the oldest types of assets available. Not only because of the stability that comes with investing in ‘bricks and mortar’, but also because real estate’s defensive income-producing characteristics have the potential to deliver inflation-beating returns even during an economic slowdown. But from an investor perspective, real estate investment opportunities have been limited. For too long, retail investors have been excluded from owning certain types of assets, including real estate, and have been prevented from entering particular markets either through lack of capital, lack of liquidity, or lack of transparency. But those days are fast coming to an end.
As we discussed in part two, fractionalisation means new asset classes are coming online and there are now plenty of opportunities to invest in equity or equity-like assets. It all comes back to investor needs and wants. Investors recognise the need to move away from lower growth investments for the foreseeable future, and they want to invest in areas with greater return potential. Fractionalisation will allow greater numbers of investors to actively participate in those asset classes or sectors where they see long-term value.
But diversification by itself won’t lead to better returns. There’s still plenty of work to be done in order for investors to invest in the assets they want, and to achieve the kind of returns they require. Automation can help them to achieve that. It can help investors to broaden their horizons without feeling overwhelmed by the paradox of choice, and can provide the data and insight needed to help them make a fully informed investment decision. Platforms like ION are already being used by investors to gain access to more underlying assets than they ever could before. But automation can help them go even further.
At IPSX, we believe real estate should be a core component of any well-diversified investment portfolio. As the world's first regulated real estate stock exchange, we give all types of investors the opportunity to invest in income-producing, institutional-grade assets, and the ability to buy and sell their shares in a two-way, fully regulated marketplace.
We’re at the early stages of a new era for equity investment, where diversification will be the critical component. In this environment, and with the technology now available, there’s no reason why investors shouldn’t be able to own portfolios that blend safe and ‘boring’ traditional assets – such as bonds, real estate and even cash deposits – with digital assets located much higher up the risk spectrum. Fortunately, there exists a plethora of ways for investors to plug into systems that help create and oversee this diversification for them.
future of equity investment is diversified, it is autonomous, and it is digital.
Richard Lester is Senior Advisor at IPSX, the world's first regulated stock exchange dedicated to IPOs and trading of commercial real estate.