How digital platforms and AI are empowering individual investors

The world of investment has changed dramatically in recent years, thanks in large part to the democratization of alternative investments through digital platforms. Once the exclusive domain of institutional investors, private equity, venture capital, hedge funds, and other alternative assets are now more accessible than ever before.

Never has this been more relevant or important. The widening wealth gap, fuelled by income inequality, inflation, and economic uncertainty, has made it clear that traditional wealth-building methods are insufficient for large portions of the global population.

The shift towards greater accessibility – which has accelerated particularly within the last five years – has opened up new opportunities for individual investors, allowing them to access sophisticated tools, strategies, and asset classes previously reserved for the wealthy elite.

Historically, alternative investments were out of reach for most retail investors due to high minimum investment thresholds and limited access to specialized financial products. Private equity required millions of dollars in capital, while venture capital often demanded high levels of expertise or connections.

However, thanks to online platforms, these barriers are rapidly disappearing. Investors can get started with relatively small amounts. These platforms not only make alternative investments affordable but also offer lower fees compared to traditional financial advisors or fund managers. This democratization of investment opportunities enables a much wider range of individuals to diversify their portfolios.

The enhanced user experience and transparency offered by digital platforms is also a significant advantage. Real-time, seamless access to product information provides investors with the tools to make more informed decisions. For example, an investor can track the performance of a real estate investment trust (REIT) or a private equity fund with ease online, accessing key metrics like recent valuation updates, portfolio performance and other critical performance indicators. This level of transparency gives individual investors the ability to monitor their investments as closely as institutional investors, fostering greater confidence and engagement.

Alternatives also offer great potential for enhanced returns. Private capital strategies, which include private equity, venture capital, real estate and private debt, have historically outperformed traditional public indices over extended periods. According to data from Cambridge Associates, US private equity funds generated an annualized return of 15.4% over the past 10 years, compared to 9.6% for the MSCI All Country World Index.

With digital platforms now offering fractionalized access to private equity and other alternative assets, individual investors can tap into these higher-return opportunities. This improved access could be a game-changer in terms of building long-term wealth, as it enables smaller investors to diversify into asset classes that have historically provided superior risk-adjusted returns.

In addition to financial gains, alternative investments also provide the opportunity to contribute to socially and environmentally impactful initiatives. Governments alone cannot fund the transition to a low-carbon economy, and private investors are stepping up to fill the gap. According to a 2023 report by the Global Impact Investing Network (GIIN), impact investments aimed at tackling climate change grew by 25% between 2017 and 2022, from $32 billion to $40 billion, demonstrating the growing role of private investors in environmental sustainability. By investing in these areas, individual investors can not only grow their wealth but also contribute to solving some of the world’s most pressing problems.

The rise of AI is arguably the most transformative development in the world of investing today. In the context of alternative investments, AI's ability to process vast amounts of data and generate predictive insights is revolutionizing the way investors make decisions. AI algorithms can analyze historical data, identify patterns, and forecast future market movements with remarkable accuracy, helping investors navigate the complexities of alternative investments. They can evaluate macroeconomic factors, like inflation rates, interest rates, and geopolitical events to assess the risk exposure of different investments.

While AI should not be treated as an all-knowing, definitive source, it can help investors make better-informed choices and provide tailored recommendations based on individual risk profiles, investment goals, and past behaviours.

Digital investment platforms and AI are essential components of financial empowerment in today’s world. They help individuals navigate economic uncertainties, build wealth, and bridge the widening gap in access to financial opportunities. In an era marked by technological advancement and economic volatility, these innovations are crucial for achieving sustainable wealth creation and fostering greater financial equality.

The result is a more inclusive, diverse, and potentially more profitable investment environment that can help build wealth for a broader spectrum of people.