Iris ten Teije
September 10, 2021

Pros and Cons of Fractional Investing

At Koia, we allow investors to invest in fractions of iconic assets. We fractionalise assets so instead of buying the entire asset, you can buy just a small percentage of the item. Compare it to how over the past few years it’s become easier than ever to buy fractional shares. As fractional investing in tangible assets is a relatively new concept, you may wonder whether it's right for you. In this blog post we'll go over some of the most important pros and cons to help you decide.

Pros

Lower Minimums

Probably the most important advantage of fractional investing is that it allows a much bigger group of investors to participate. The price of assets on most fractional investment platform typically ranges from a hundred thousand to a few million euros, which means buying the entire item is not possible for the vast majority of investors.  By splitting up the asset into smaller pieces, the amount required to get started is a lot lower than having to buy the entire item as a whole. At Koia, for instance, investments start at €50. 

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Diversification

Even if you had, say, €20,000 available to buy a collectable Rolex, it’d only allow you to buy one. As with all other kinds of investing, it is wise not to put all your eggs in one basket and often better to diversify amongst different types of alternative assets and different brands. With fractional investing, this becomes possible as you can spread your €20,000 over a number of assets. 


No Hassle

Another major advantage of fractional investing is that you don’t have to worry about the hassle that usually comes with buying alternative assets. Think of for instance authenticating, storing and insuring an item. This is very important because not only is it risky to store expensive items at home, for assets such as wine the value will decrease if it hasn’t been stored in a specialised storage facility with the right temperature and humidity controls. When using fractional investment platforms, the platform will normally take care of all the hassle so you can simply invest like you would invest in a stock. You also have the confidence that all assets launched on the platform have been carefully sourced and authenticated. 

 

More Liquidity

Most fractional investment platforms offer secondary markets that allow you to sell your fractions to other users, making it easier to cash in when you want or need to. Koia is currently building out its secondary market, which will launch next year. 


Cons


Experiential Value

If you buy a piece of art as an investment but put it in your home, you may get greater enjoyment out of it versus buying a piece of art fractionally and perhaps only being able to view it in a gallery.  The same is true for collectibles such as watches or handbags that you can wear and enjoy and, if maintained well, can still sell on for a profit. For some other types of collectibles like wine this is less relevant as those will only retain their value - if bought purely as an investment - when untouched. That being said, at Koia, we have exciting plans to enable fractional investors to enjoy some of our iconic assets in a digital form and participate in an active community of passionate, like minded investors. 


Limited Choice  

If you have the budget to buy whole items and the required amount of expertise to compare items you’ll have more choice when sourcing your own collectibles. Fractional investment platforms typically curate their assets, which means most of these platforms do not have the same breadth in terms of collection versus, say, eBay. 


Conclusion

Fractional investing opens up the world of alternative investments to an entirely new group of investors: investors who for the first-time ever are able to access investments previously reserved for the wealthiest 1%. The benefits of fractionalisation are that it drastically lowers the minimum amounts required to start investing, and allows investors to build up a diverse portfolio of alternative assets at any budget. Fractional investment platforms further remove barriers to entry as they take care of all the hassle, such as storage and insurance. The downsides include that items cannot be enjoyed in the traditional sense of wearing or consuming them and the assets are more curated which may reduce choice. Ultimately, whether investing in fractional or whole items is right for you depends on your budget, reasons to invest in alternatives, as well as how much time you want to spend researching assets and taking care of matters such as storage and insurance. 


At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.

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The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.