Like many people who are born and raised in San Francisco, I’ve been interested in start-ups since I was young. While choosing a career in finance might seem like the last place to work if you’re interested in technology and innovation, you’d be wrong.
Today, we are witnessing a rapid rate of financial services disruption as entrepreneurs and start-ups use technology to challenge the status quo and bring more transparency to finance. This opportunity is not being lost on investors. Global investment in financial-technology (fintech) ventures more than tripled from $928 million in 2008 to $2.97 billion in 2013, according to Accenture, and the first quarter of 2014 was the most active on record, with $1.7 billion invested globally.
Last year, peer-to peer lender (P2P) Lending Club, which matches investors with individuals who are looking to borrow money to refinance personal loans, made its debut with a $1 billion IPO. SoFi, a P2P start-up that has taken aim at disrupting the market for refinancing student loans, is expected to file for an IPO this year. The list of hot fintech companies is a long and growing one — LearnVest, Wealthfront, Betterment, Transferwise — and new start-ups appear to be arriving on the scene daily.
The great thing about this financial innovation is that it can be used to help fund your retirement. If you have a self-directed IRA, you are able to invest outside the box of typical exchange-traded assets like bonds or mutual funds, and you can hold a wide array of alternative assets — like fintech companies.
Take P2P lending for example. One of PENSCO CEO Kelly Rodriques’ top 5 predictions for 2015 is that P2P lending will gain popularity among IRA investors. P2P investments can be a way to diversify retirement holdings while also earning higher yields than are being offered on traditional fixed-income products.
Or let’s use equity crowdfunding as another example. These sites are using technology to make it easier for small companies, which might never have attracted the interest of big investors, to cast a wider net for potential investors. In return, these sites are making it easier for accredited investors, who in the past may have been locked out of private placement deals, to participate in these investment opportunities. Through your self-directed IRA you can invest in equity crowdfunding opportunities. And who knows? Maybe one of those crowdfunding opportunities could turn out to be the next Lending Club.
It’s exciting to see the intersection of technology and finance come together to offer a new wave of investment opportunities for retirement savers. At PENSCO, where we custody alternative assets for our clients’ IRAs, we’re keeping a close eye on these innovations because we know the world of fintech will continue to revolutionize and expand the options you have for building your retirement account.