2020 has proven to be a year of challenges, loss and opportunity for investors and wider society alike. One of the discussions being had during the pandemic has been the need to diversify holdings, and spread both risk and rewards across a wider range of asset classes. The discussion about alternative investment should not be confined to 2020, though, with prevailing political and public health risk factors facilitating a continuation of uncertainty into the medium-term.
First, Sulte pointed to the sharp uptake in fintech solutions as a means of money management, with consumers looking to distanced money management platforms amid lockdowns and both tighter restrictions and fewer incentives from orthodox banking groups. During the first half of 2020, 12 out of 13 fintech sectors reported year-on-year growth, with this trend new likely to extend into the New Year.
“Fintech is already booming, but the market has yet to reach its peak and will continue growing throughout the next year,” said Mr Sulte. “Our own growth plans involve Mintos becoming a regulated marketplace, which will open even more opportunities for growth.”
The adoption and investment into startups developing technology and solutions for financial institutions, SMEs or personal finance is steadily increasing, despite the dip in investment numbers this year, 2020 investment in fintech numbers were higher than in 2018 in most of the EU.
Alternative investment means diversification
As stated, the pandemic has caused investors to diversify in two broadly classifiable ways. On the one hand, existing and deeply-committed veterans have branched into new fields to spread their risk going forwards, and hedge against potential losses incurred during March-mageddon. On the other, we have the relative newbies, who invest in fledgling sectors looking to grow during the recovery – and those attempting to fill a gap in the market.
According to Sulte, these trends are here to stay, with the pandemic heralding a behavioural shift among investment culture. As opposed to sticking all your money is a supposedly unsinkable ship, many are seeing the attraction of spreading their assets out, with the knowledge that while some of the bigger players might lack manoeuvrability, newer entrants might have the flexibility to weather a storm.
“If anything, 2020 should have taught investors that well-established principles like investing for the long-term with a low-cost diversified portfolio and only checking your investment balance occasionally might not be the safest bet afterall,” said Mr Sulte. “I think that in 2021 investors will pay extra attention to see how they can future-proof their portfolios by diversifying their investments across various assets. Alternative investment options can be diversified further with many options and risk variability to choose from.”
New entrants require new regulation
Another important feature of alternative investment growth has been the rapid entry of newcomers, providing innovative tech and services. While some companies have merely complimented existing sectors, others are creating new ways of new business, with fintechs – for instance – driving a reconceptualization of the way we manage our money.
While many of these burgeoning household names are set for success, the regulatory response has (predicatbly) been hesitant about how to implement a framework of rules on this new way of doing business. This anticipated regulation might make it more difficult for new entrants to gain a foothold, but will ultimately improve the standing and public trust in existing fintech offerings.
“Going forward, the competition will become stronger because a lot of fintechs are looking at regulation as a way to reassure their clients and bring more clarity, transparency and safety,” said Mr Sulte. “As for new and small platforms, it will be more challenging for them to stay in the game if they refuse to become regulated.”
Slow value recovery
While some alternative asset classes like spirits, wines, precious metals and Bitcoin have enjoyed an upsurge in support during 2020, other alternative investments have taken a hit to their valuations during the pandemic. Sulte predicts that while initial signs of recovery in COVID-stricken classes has begun, but uncertainty about the new virus strain and Brexit might see some alternative under-performers be stuck with a slow recovery, as investors exercise caution.
“With the vaccine arriving in the majority of countries next year, optimism is felt across the investment markets,” said Mr Sulte. “Many investors will test what works for them on a smaller scale and look at sectors that are slated to rebound the fastest. At Mintos, we’ve seen very stable albeit slower investing this year, which can be interpreted as more cautious investing. This is likely to continue into 2021 with less focus on yield hunting, but more care in portfolio diversification, which will make the value regrow slower.”
Financial literacy takes centre stage
While after the 2008 financial crash, consumers were content with blaming speculative bankers and lenders for their woes, the 2020 downturn has not only affected us all, but created more interest – and less distrust – of financial services. Counting pennies has become a popular trope of a year marred by unemployment, furlough and pay-cuts, and with this, people have been looking for ways to make their disposable income and savings go further.
While on the one hand, new money management services and online investment apps have seen their popularity soar, consumers taking a more hands-on approach to money management may see increased support for alternative investments, with many wanting a stake in a possible product-of-the-future.
“It is the users’ pains, needs, and demands that drive the development of the financial industry,” said Mr Sulte. “Financial literacy can be a life-changer, impacting everything from getting a college education to starting a business. At the macro level, it can help bridge the wealth gap and support economic mobility. Since an increasing portion of the market understands the significance of financial literacy, we will see more efforts to support the new coming investors in 2021.”