Not your parents’ portfolio: The rise of ETFs and fractional shares
Next-gen options like ETFs and fractional shares are revolutionizing investing and making financial markets more accessible, especially to young investors. Veteran investor Brendan Walsh explains how.
7 min read
I started my career in markets back in 2006. In the nearly twenty years since, I’ve witnessed some dramatic shifts — from the 2008 financial crisis to the eurozone crisis, the COVID-19 pandemic, and the recent AI-driven rally. But beyond these headline-grabbing events, I’ve seen an even more profound revolution in how everyday investors approach trading and investing. This article is part history lesson, part guide on how you can leverage these innovations to build wealth.
Understanding fractional shares: A modern investment tool
Thechallenge with investing is you never understand everything: It's futile, but we're driven to try — so we tell ourselves stories, build mental models, and debate these with our peers. Over the last fifteen years, social media has dramatically transformed how we communicate and share these stories. These changes in how we share stories are mirrored in how we invest. Traditional mutual funds, which were once the go-to for your parents, are increasingly being replaced by more flexible, accessible tools, like exchange-traded funds (ETFs) and fractional shares. For today's younger investors, these tools are not just financial instruments, but a way to seize control of their financial futures, offering the same ease and personalization they expect from other aspects of their increasingly digital lives.
What are fractional shares?
Gone are the days when investing broadly in the stock market required hundreds or thousands of dollars. Fractional shares have democratized the investment landscape by allowing anyone to own a slice of a company with just a few dollars or euros. This innovation has broken down barriers, making high-priced stocks accessible to everyone, regardless of their financial starting point. In the past, with a small portfolio, you had a choice: Put it all into one or two companies or give up control and buy into a fund managed by someone else. Fractional shares offer a third way.
How do fractional shares work?
Fractional shares allow you to invest a specific dollar amount rather than buying whole shares. This means you can diversify your portfolio with minimal capital, owning pieces of several leading companies instead of being limited to one or two total shares. This democratization of the stock market, fueled by platforms like Robinhood and N26, empowers today's investors to invest, particularly those with small amounts. They can participate in the market's growth on their terms — without the need to hand over their money to fund managers, as their parents might have done.
From active to passive investing: The rise of ETFs
Early in the twentieth century,mutual funds gained popularity by offering ordinary investors diversified exposure to the stock market, managed by professionals. The household names of asset management firms — like Fidelity, T Rowe Price, and Franklin Templeton — all built their businesses on selling mutual funds to retail investors. And it was indeed a very good business, since assets under management (AUM) grew into the billions. But in finance, nothing stands still — you don’t stay on top of the pile for long.
Why investors turned to ETFs
However, over time, many of these funds struggled to outperform their benchmarks. In fact, it became apparent that many simply hugged the benchmark, and as a result, the high fees associated with active management became more challenging to justify. The financial crisis of 2008 challenged investors’ confidence and trust in traditional investment funds. This gave a relatively new product called exchange-traded funds, or ETFs, the launchpad they needed, and they haven't looked back since.
But what is an ETF?
An exchange-traded fund (ETF) is a type of investment fund that holds a basket of assets, such as stocks and bonds, and is traded on exchanges like a stock. Unlike mutual funds, which are actively managed, ETFs typically track a specific index, aiming to mirror its performance rather than beat it. This passive approach results in lower fees and greater flexibility, as ETFs can be bought and sold throughout the trading day.
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Out with the old, in with the passive: How ETFs sparked a new era
Offering a low-cost, passive alternative that easily allowed investors to track entire indices, ETFs meant you didn't have to assess or assume the manager's skill — because there was no skill required. You simply bought the market. ETFs quickly became the preferred tool for investors seeking diversified, cost-effective market exposure, shifting the focus from active to passive investing. ETFs changed the game to such an extent that the big beasts of the mutual fund world — like Fidelity, Franklin Templeton, and BlackRock — all decided that if you can't beat them, join them. They started building their own passive funds — but were they late to the party?
The new era of fractional investing
While ETFs took the baton from mutual funds, the advent of fractional share trading and platforms like Robinhood and N26 have shifted the goalposts once again. By enabling investors to buy exactly how much they want of any stock or ETF and providing them with the tools to manage and analyze trades, these platforms have democratized access to markets in a previously unimaginable way. With as little as €5, investors can now craft highly personalized portfolios that reflect their individual values and goals — whether that's focusing on green energy, tech innovation, or avoiding industries they find objectionable.N26 offers a seamless app experience that integrates fractional share and ETF trading. It allows customers to start investing with minimal amounts, gain exposure to a wide range of ETFs, and even set up automatic investments to build wealth over time. These features are a must-have if you want to attract and retain today's generation of investors, who have grown up in a digital-first world where their online and offline lives are closely intertwined.
Social investing: sharing strategies in real time
Given the overlap between online and offline life, it's no surprise that the lines between investing and social media have blurred. This has led to the emergence of social investing platforms, where people share ideas, strategies, and trades in real time. Wall Street Bets, FinTwit, and The Motley Fool are some well-known examples, but there are also multiple small communities on Discord or other platforms. These networks provide collaboration and enable information sharing, which was previously only available within big investment firms.
“I Can Haz Pr0fits”: New investing models are more than just memes
As a new generation of investors, your approach to markets, storytelling, and information sharing is worlds apart from the traditional fund-manager model your parents might have known. With access to tools and analysis that were once reserved for professionals, you can make decisions on the fly, tap into opportunities previously limited to the wealthy, and connect with the investing community like never before. Ironically, the passive investing trend driven by ETFs has come full circle, as newer tools now empower you to take a more active role in investing — putting the active or passive decisions squarely in your hands.
The future of investing
The rise of ETFs, fractional shares, social investing networks, and digital-first investment platforms like N26 and Robinhood signifies more than just a shift in investment tools. It represents a broader transformation in how people think about and engage with their money and peers. As the financial landscape continues to evolve, the demand for flexibility, customization, and low fees will only grow as today's generation of investors demand the right to take control of their economic destinies. This evolution mirrors the broader shifts we've seen in other areas of life, where technology has disrupted traditional practices and given individuals more say in how they live, learn, and invest.As social media continues to transform communication, modern investment tools are reshaping how we approach wealth-building. The genie is very much out of the bottle now. Just as MySpace led to Facebook, which led to Instagram, and then TikTok, the world of app-based fractional investing and ETFs will continue evolving. New generations will continue to innovate for their peers in ways their parents could never have foreseen, driving a future where investing is as dynamic, accessible, and personalized as their digital world.
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