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For a decade, the cloud has been eliminating financial middlemen. Stockbrokers, real estate agents, insurance agents, brokers — they’re all disappearing under the wave of fintech innovation.
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Investment advisors are now in the crosshairs at Yieldstreet. It’s a market for “alternative investments,” the kind that only “accredited investors” can make. Since its founding in 2015, it has been growing like a weed.
In its first three years, Yieldstreet moved $560 million, mostly in real estate and commercial financings. In 2019 it more than doubled that. It also made two acquisitions, moving into self-directed IRAs and the financing of fine art.
The company has also made some big-time friends. It has a strategic partnership with Citigroup (NYSE:C) on some of its private credit investments. BlackRock (NYSE:BLK) even launched a closed-end fund with Yieldstreet.
Yieldstreet Review: How It Works
Investing with Yieldstreet isn’t like opening a Charles Schwab (NYSE:SCHW) account. You need to prove you’re accredited, which requires income of at least $200,000 or a net worth of $1 million.
This is not as big a hurdle as it seems. An estimated 12.4 million households meet the threshold, nearly one in 10. Most accredited investors are aged 50-70.
Once you prove your worth, you link your bank account to Yieldstreet’s Evolve Bank & Trust, insured for up to $250,000, and you can start investing. The Evolve account is the start of a “wallet” through which you invest.
Deals on Yieldstreet look a little like equity crowdfunding ideas you’ll see on sites like StartEngine or AngelList. The difference is that these are real financings, the kind banks and brokers do. Things like multi-family housing projects, short-term notes, oil tankers, commercial and industrial properties and even art collections. Many deals close in less than a day.
Why Do It?
The motivation is in the name. Yield. Millions of tech workers are now approaching retirement, with decades of experience using the web. Many, like myself, have been using platforms like Charles Schwab for years. We’d like to have a first-class retirement and leave something behind for our kids. There’s also some ego involved. We like to think we’re as smart as the people who claim to advise us.
But Yieldstreet investors are taking on the same risks big banks do. A recent deal to finance scrap ships for over $89.2 million may have been fraudulent. The Dubai firm behind the deal denies the charges and claims its reputation is being tarnished.
Some 30 customers complained directly to Yieldstreet about their payments. What looks like a shortfall in due diligence caused BlackRock to pull out of its Yieldstreet deal, which was called the Yieldstreet Prism Fund.
Then there’s real estate. The novel coronavirus is opening the market with borrowers desperate for re-financing. A lot of rent isn’t getting paid on office buildings, strip malls and apartment blocks. Just like the big banks, Yieldstreet investors will be hurt by deals going bad and should be pickier.
But will they be? Or are they being treated as suckers? That’s Yieldstreet’s challenge.
The Bottom Line on My Yieldstreet Review
Banks and brokers take on big risks all the time. They have huge pools of money to invest. If you’re not taking some loan losses, the saying goes, you’re not taking enough risk.
But investors aren’t banks. Even taking a piece of someone’s package may represent a big chunk of our capital. We figure if a bank or broker has blessed a deal, it’s a good one. We expect due diligence. We’re customers.
But there is a cost to diligence. If sites like Yieldstreet pay those costs, the money must come from investors or borrowers, and it’s not spread out across as much capital as at Citibank.
There’s a price in reaching for yield. It’s called risk. Make sure you understand that before going to Yieldstreet.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.