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Updated on Friday, November 20, 2020
Yieldstreet is the type of fintech company that the internet makes possible: The investment manager, founded in 2015, connects borrowers with investors in alternative assets, taking a fee from each deal it completes. These alternative investments include short-term loans that might traditionally have gone to well-connected investors, such as placements in real estate, litigation finance, and marine vessel acquisition and deconstruction.
All investors can take advantage of Yieldstreet’s unique offerings through the Yieldstreet Prism Fund, while other investors interested in individual offerings must be accredited. Yieldstreet investors may also open Yieldstreet Wallet, a low-rate cash management savings account. Part of Yieldstreet’s appeal lies in the high yields offered on its deals; as of this writing, Yieldstreet has engineered financings worth more than $1.5 billion dollars. Also of interest is what Yieldstreet claims is its investments’ low correlation to the stock market, meaning these assets won’t zag when the market does. That provides diversification away from publicly traded companies and offers greater safety to an investor’s overall portfolio.
Who should consider Yieldstreet
While only accredited investors could use Yieldstreet in its early days, all investors can now get started with Yieldstreet Prism Fund. This gives less sophisticated investors the chance to invest in alternative assets across a diversified fund with relative ease. The Yieldstreet Prism Fund has holdings in the following asset classes: art, commercial, consumer, legal, real estate and corporate preferred bonds. The Yieldstreet Prism Fund makes distributions quarterly, but investors have the option to choose to automatically reinvest their distributions back into the Fund.
If you’re an accredited investor, you can use Yieldstreet to invest in single asset class offerings, including Short Term Notes. Per the Securities and Exchange Commission, an accredited investor is a person who has at least $200,000 in income for the past two years ($300,000 together with a spouse) or has a net worth over $1 million, which excludes your primary residence.
Another factor: As an investor, you’ll need to analyze the prospectuses of various loans, which the company will provide you. While Yieldstreet outlines many of the risks, it’s ultimately up to you to decide what to invest in, and that requires more work than simply buying an index fund and kicking back. These are illiquid investments, so if you need the money soon, you’re better off elsewhere.
Yieldstreet fees and features
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Strengths of Yieldstreet
- High yields and easy-to-make investments: Yieldstreet couldn’t really make it any easier, technically, to select potential investments. It’s easy to allocate a certain amount of your capital to each loan, and the prominent details of each are presented in an easy-to-read summary. You’ll read sections on the investment’s positives and negatives, and you can download further information too. It’s easy to go by what Yieldstreet says, but Yieldstreet investors will want to investigate and analyze each investment themselves. And those high yields? The company’s internal rate of return is 12.15% as of this writing.
- Asset-based investments: Each investment is backed by collateral, meaning it’s supported by an asset such as real estate or a legal settlement. Collateral provides greater safety to the loans that are on offer. If a loan does go sour, Yieldstreet works with the loan’s originator to recoup as much of the principal and outstanding interest as possible, potentially through legal action.
- Cash account makes for speedier investing: Investors can fund their investments from the Yieldstreet Wallet savings, which allows users to hold a balance with Yieldstreet. Plus, the account is FDIC insured by Evolve Bank & Trust. While convenient, the savings account doesn’t earn much by way of interest, currently earning a 0.001% APY.
Drawbacks of Yieldstreet
- Pricey management fees: The company clearly outlines that it takes a 1% to 2% management fee on all offerings on its financed deals, and that isn’t cheap. Of course, the appeal of Yieldstreet is the access to traditionally inaccessible deals, and the company is charging a premium for that access. The company earns transparency points, however: It highlights the expected net investment return for each deal and discloses the fees on its summary page for each deal (and not in illegible legalese either), so kudos for that.
- Illiquid investments: Another downside to these investments, relative to traditional stock and bond investments, is that they are tied up completely for the life of the project and are illiquid. The company clearly spells out how long each project should last, and projects may run for just a few months to several years. If you can’t keep your money in that long and need access to it, this kind of investing won’t be for you.
- Ongoing fees: It’s not just the management fee that comes out of your account but also an ongoing fee for each investment which depends on the type of legal structure set up to house the investment. This fee pays for such things as an annual audit and filing fees with the SEC. Depending on the specific type of structure, first-year fees run $100 to $150, while subsequent years cost $30 to $70. That can be more pricey than you think and can really ding your returns, especially if you’re investing smaller amounts. For instance, if you invested the minimum in each deal — $10,000 — and earned a 9% return, a $150 fee would eat up one-sixth of your first-year interest and as much as one-twelfth of your interest in subsequent years. That’s no trivial fee, and it encourages you to invest more in each deal, which may or may not be prudent.
- Uncertain risks and an unproven business model: The company does provide key details of each deal, a useful guide for what to watch out for and a prospectus. However, there may be further or unknown risks investors must ascertain for themselves (just as there are in publicly traded investments). That means investors in Yieldstreet really need to be able to analyze these potential investments effectively and perhaps even have some background conducting such analysis. There’s no one who’s going to do this work for you, so if you’re not comfortable doing it, Yieldstreet may not be for you. In addition, the returns on offer here imply high risk, and risky investments often perform poorly during tough times. Of course, this is not a prediction but something prudent investors will want to analyze for themselves.
Is Yieldstreet safe?
The biggest risk at Yieldstreet is the investments themselves, and that varies on a case-by-case basis. That said, the company boasts an annual return of 12.15%. Each investment fund is held in a separate company whose sole purpose is keeping the investment secure, and in the event of Yieldstreet going bankrupt, a new manager could be appointed for the funds.
The company’s Yieldstreet Wallet, which pays some interest on cash balances, is held by the FDIC-backed Evolve Bank & Trust, meaning that any cash deposits are insured up to $250,000 for individually owned accounts. However, this deposits protection does not mean that your at-risk investments at Yieldstreet won’t lose money.
Yieldstreet is an interesting investment offering enabled by the connective power of the internet, and it’s allowing investors and borrowers to come together in new ways. The potential for high returns is there for investors, but these returns also imply high risk. With high-risk investments, things can change quickly, so investors should invest accordingly.
Investors who find the risk and fee structure to be a bit too high may also turn to publicly traded stocks, where fees are moving ever lower. While such investments don’t offer the low correlation to stock markets, they offer a time-tested model and potential exposure to the world’s best businesses (and you can even invest in real estate if you want).