For retail investors, the typical portfolio consists of a home mortgage on a primary residence; indexed mutual funds held in retirement accounts; cash or cash equivalents in a bank account; and maybe some stock options.
This portfolio is far from ideal. First, the mortgage is overly exposed to the specific risks involved with the property and local market conditions. Second, the investment options are largely limited to financial instruments issued by publicly listed companies, offering only indirect benefits from growth in huge segments of the economy. Third, bank accounts are yielding near-zero (or negative) returns.
High-net-worth investors have a much wider range of investment options, including residential apartment buildings, commercial real estate, illiquid assets, artwork, high-end collectibles, and private equity. These lucrative options provide access to significant opportunities for wealth creation in ways that are largely inaccessible to retail investors.
For example, real estate represents one of the most dynamic segments of the global economy, and yet retail investors are limited mostly to owning shares in listed companies that benefit indirectly from property appreciation. Although retail investors may also buy shares in real-estate investment trusts (REITs), these targeted investment vehicles typically involve high set-up costs, high maintenance fees, and limited choice in investment properties.
The reality is that investing in commercial real estate calls for a level of financial commitment beyond the reach of all but the wealthiest, high-net-worth investors. The same holds true for other large-ticket alternative assets such as artwork, jewelry, or prestige properties. The potential returns are massive, but those asset classes have limited access to all but the wealthiest investors.
Read how tokenization will help individual to participate directly in assets classes, which is beyond their reach.