Wealth Tech is Changing How We Invest
By Sachin Jhangiani co-founded Elevate.Money
When the oldest millennials were 31, they were watching Leonardo DiCaprio’s portrayal of Jordan Belfort’s penny stock fraud in 2013’s Wolf of Wall Street. As a former Wall Streeter, I can confirm that what the movie portrayed was on the money: boiler rooms of investors and brokers shouting, buying and selling stocks and slamming down phones to proclaim huge profits. Whether you learned about the market from Leo or Dan Aykroyd’s explanation of orange juice futures in Trading Spaces, how the modern investor engages with the market has changed.
Today, investing stories are making headlines as stock in strip mall tenants like Game Stop become news thanks to amateur investors. These individuals rallied the purchase of a no-news stock through real time chats and conversations on Reddit. The rally in January 2021 thwarted short-stock selling investors and disrupted the market in an attempt to draw attention to high-risk hedge funds and inflicted significant losses on those investors. This grass roots attempt to bring a kind of equilibrium to the opportunity of the market – at best, to point out the advantages behemoth Wall Street firms have in our market – isn’t the only attention amateur investors are bringing to our system of wealth acquisition and management.
Cryptocurrency and Bitcoin trends also point to alternative investment approaches that appeal more to the millennial and Gen Z crowd, many of whom are unable to enter the market at high price points. Robinhood, the first-ever free investing app with the tagline “investing for everyone” was introduced in 2013 as we watched Belfort’s fraud on the big screen. Since then, the app has proliferated, making every “easy investment apps” or “trading apps for beginners” list out there.
Paired with sleek, easy-to-use interfaces like Venmo, a new category of “wealth tech” is born of technology’s ever-advancing abilities. Real-time transactions, colorful receipts, gamification and the ability to watch the market from your smartphone, or even better, smartwatch, sparks interest from investors who were otherwise excluded from the market because of access to brokers, complicated funds or even prohibitive cost of entry. Now, after a thirty-second download, investing platforms can be at our fingertips along with coaching and chat streams in community-driven social spaces like Reddit.
According to Accenture’s Millennials and Money survey, millennials are, by far, the most digitally savvy investor group overall, and they’re projected to overtake baby boomers in wealth by 2030. Both of these generations are now bringing their economic power to bear in that same space as the ultra-wealthy.
For generations the wealthy have allocated a reasonable portion of their wealth to income producing real estate to reduce their exposure to the swings of the stock market, while utilizing the power of compounding to significantly increase their wealth over longer horizons.
Even though wealth tech is empowering the average investor to do the same, it is important to consider the nuances when choosing which platform to work with. Some platforms allow investors to choose a specific property to invest in. This can be challenging as as an individual investor may not have resources or know-how to do research necessary to make a confident investment decision. It’s also imperative to understand if the platform is the manager of the assets or if they are a marketplace connecting investors to third-party real estate managers and developers. The latter adds another layer of counterparty risk that should be a consideration. Other offerings may be investing in commercial development which doesn’t always ensure the investment will pay off because of the number of steps between the investment and the finished property. Unforeseen delays in everything from construction to zoning could result in many years between the time you invest and start earning dividends.
One thing the barrage of investment apps doesn’t fully treat is education on long-term investing or access to long-term choices. The appeal of quick trades, daily investments or even the challenge of a crypto cash out are part of the current appeal of “wealth tech.” Answers to the volatility of the stock market and inflation are largely missing from the conversation. Some platforms, however, are conquering this challenge with an entry investment of only $100 and offering access to through Real Estate Investment Trusts, or REITS, which allow investors to pool their money for purchase of real estate properties. In this case an investor doesn’t have to determine which property they want to invest in, they get to own a fractional share of all the properties in the entire portfolio which are generally managed by one real estate fund manager.
The important element of wealth tech we shouldn’t forget in this market is the wealth. While new apps and platforms emerge to incentivize stock trades and quick-turn investments, millennials and Gen Z still need increased access to acquiring wealth, and that happens with a balanced portfolio of long-term investment returns like real estate. Redditors may be able to use Robinhood to make a statement about their desire to enter the market, but as with any generation, establishing and building wealth is a long-term endeavor and an important goal.
With more than two decades of finance experience on Wall Street at institutions such as Credit Suisse and Bank of America, Sachin Jhangiani co-founded Elevate.Money, a private real estate investment trust. With investment buy in as low as $100, the platform is working to become the Blackstone for millennials. As CMO, he is focused on removing barriers so real estate investing is more accessible and educating on why investing in stable sectors such as real estate is the long game.
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