Unlocking Potential: Exploring the World of Alternative Investments
Every day, individuals are bombarded with investment headlines and new opportunities. Often, these investments look the same: individual stocks, mutual funds, and exchange-traded funds, all of which play a role in our portfolios. But what about those who seek something different—an alternative investment? While there are classic options like watches, real estate, and art, these can be prohibitively expensive for those just starting to build their legacy. This is where apps like Fundrise, Titan, and Coinbase come into play because they provide individuals the opportunity to invest, without having to have millions of dollars. In this article, we will explore Fundrise to provide our readers with an opportunity to broaden their portfolios into the sphere of alternative investments.
Fundrise is seeking to recreate the traditionally wealthy playground of the elite by opening access to real estate and other private investments to the mass public. Ben Miller, Co-Founder and CEO stated, “our goal is to build a better financial system for the individual investor – one that is simpler, more reliable, lower cost and transparent.”[i] But let us dive into how a user invests in Fundrise, firstly unlike many private Real Estate Investment Trust (REITs) where an individual needs extensive upfront capital to invest, with Fundrise a user can invest with a minimum of ten dollars.[ii]Secondly, during the initial step up of an account, a user fills out a survey which based on those answers Fundrise suggest one of its four preselected investment plans, including Supplemental Income, Balanced Investing, Long-term growth, and Venture Capital.[iii] The Supplemental Income Plan “ [i]nvests primarily in private credit (80%) and real estate (20%) to generate consistent dividend payments with low volatility.”[iv] The Balanced Investing Plan “[i]nvests primarily in growth-oriented assets, such as real estate (90%) and private credit (10%) to grow wealth and diversify one's investment portfolio.”[v] The Long-Term Growth Plan “[i]nvests solely in real estate assets likely to appreciate in value over time.”[vi] The Venture Capital Plan “[i]nvests in various pre-IPO private technology companies, including AI and data infrastructure companies.”[vii] While each of these options are good in their own right, each individual investor will need to weigh their own risk appetite and expectation of returns to determine what would be the best option for their portfolio. However depending on the fund strategy the user selects their returns can be as high as 7.75% per year, which as of June was the current annual rate of return for the private credit/income fund.[viii] Contrasting the Income Fund, with the other funds, we see that the Real Estate Flag Ship Fund (4.4% annualized return since per inception) and the Innovation Fund (1.4% annualized return since inception), have produced less lucrative returns compared to the Income Fund, but such circumstance are likely due to market conditions, interest rates, and other economic factors. [ix] While these returns are enticing, we are now going to address some of the concerns with Fundrise and what you need to know, to determine if Fundrise is an option for you to expand your portfolio.
The largest and probably most important issue that a potential investor needs to weigh is the fee structure that Fundrise leverages, Fundrise has a dual fee structure via the forms of an Advisory Fee and Flat Management Fee on the funds it offers.[x] On all accounts Fundrise charges a 0.15% advisory fee, then with the Supplemental Income, Balanced Investing, and Long-Term Growth Plan, Fundrise has an annual 0.85% flat management fee.[xi] The Innovation Fund has an annual 1.85% flat management fee, which allows for Fundrise users to access the more capital expensive venture capital style funds.[xii] Overall this can lead to fees between 1%-2% , which depending on the fund can still lead to a profitable and stable return, but are not necessarily the lowest fees in market place for advisory and management costs. [xiii]
The other main criticism with Fundrise is the lack of liquidity with your investments at Fundrise, but this criticism should be qualified because when you invest in Fundrise, it is expected that you will leave your capital invested in Fundrise for a long period of time. Fundrise “review[s] liquidation requests for the Flagship Fund, Income Fund, Innovation Fund, and eREITs on a quarterly basis, and at the end of the month following a 60-day waiting period for the Fundrise eFund.”[xiv] Which leads to the conclusion that depositing funds into Fundrise is an overall easy process, but taking funds out of Fundrise can be a lengthy process, meaning that once you commit capital, you should expect to hold it in Fundrise for a significant time before making an exit.
Now that we have covered the basics of what Fundrise is and the essential information that an individual investor needs to know, I am going to talk about my experience with Fundrise to provide our readers with a context for deciding if they should invest with Fundrise. I decided to invest in the Income Fund of Fundrise because part of my goal with my portfolio is income replacement, which is perfect with Fundrise’s Income Fund, where I see dividend and appreciation payments every quarter. Fundrise allows me to access the private credits markets in ways that would be unimaginable to the average investor. Additionally, the higher rate of return compared to a High Yields Savings Account (HYSA) (hovering between 4% to 5% depending on the company),[xv] which maximizes returns at the cost of liquidity in accessing funds compared to a HYSA. Beyond my goals with deciding to invest with Fundrise, the overall process of using the company is exceptionally easy and the app is tremendously user friendly for depositing capital into different funds and tracking financial returns over a long period of time.
Many individuals are constantly chasing higher returns, and alternative investments offer a unique opportunity for investors to not only broaden their risk exposure but also acquire assets that produce significant returns and appreciate over time. Traditionally, access to these types of alternative investments has been reserved for the wealthy, who have the ability to use specific financial instruments and institutions. However, Fundrise is tipping the scale back towards the everyday user by providing the means to invest in the same real estate and private companies that high-net-worth investors are already investing in. Consider if broadening your portfolio to include alternative investments is the right move for maximizing your returns, if it is then consider investing in Fundrise. [xvi]
[i] https://fundrise.com/about
[ii] https://www.forbes.com/advisor/investing/fundrise-review/
[iii] https://www.businessinsider.com/personal-finance/investing/fundrise-review
[iv] https://www.businessinsider.com/personal-finance/investing/fundrise-review
[v] https://www.businessinsider.com/personal-finance/investing/fundrise-review
[vi] https://www.businessinsider.com/personal-finance/investing/fundrise-review
[vii] https://www.businessinsider.com/personal-finance/investing/fundrise-review
[viii] https://fundrise.com/client-returns
[ix] https://fundrise.com/offerings/26/view; https://fundriseintervalfund.com
[x] https://fundrise.com/help/articles/360032879331
[xi] https://fundrise.com/help/articles/360032879331
[xii] https://fundrise.com/education/everything-youve-ever-wanted-to-know-about-fundrises-fees
[xiii] https://smartasset.com/investing/what-is-the-average-investment-management-fee
[xiv] https://fundrise.com/help/articles/360034707931
[xv] https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/
[xvi] The information provided in this article is for general informational purposes only and does not constitute a recommendation or endorsement of any financial product or service. The views and opinions expressed herein are solely those of the Locupleto team and do not reflect the official policy or position of any other agency, organization, employer, or company. Readers are advised to consult with a qualified financial advisor before making any investment decisions. The information provided in this article is for general informational purposes only and should not be construed as legal, financial, or professional advice. The content is based on the opinions and interpretations of the authors and does not reflect the official stance of any affiliated organizations or entities. Readers are encouraged to seek professional advice tailored to their specific circumstances before making any decisions based on the information provided. Locupleto and its team disclaim any liability for actions taken or not taken based on the content of this article.