How The Digital World Is Changing The Investing Game
Dear Rich Lifer,
In today’s modern world, investing is changing just as fast as any other type of technology. New investors want the process to be modern, affordable, flexible, convenient, innovative, fast and, of course, profitable.
Thanks to the internet, smaller or newer investors can now benefit from unlimited knowledge to make decisions on investments. (Just like this huge opportunity to create massive paydays.)
The same kind of knowledge that older, wealthier investors have gotten from investment advisory.
Ultimately, the internet has made it easier to invest. There are now a plethora of comparison sites one can use to determine the best investment.
Gone are the days of hopping from bank to bank to find the best overnight deposit account. There’s no longer a need to search for new investment products in newspapers and magazines.
And just as digitization has allowed for easier and faster investing, it has also opened up new opportunities in digital investing.
Financial service providers and banks are no longer the only ones explaining the financial world to people.
A new, younger financial industry has emerged to question the status quo.
These so-called fintechs (startups in the financial technology sector) cover the investment market and are also active as payment service providers, account providers and lenders or, more specifically: insurance intermediaries.
Additionally, online banking and online brokerage have become the norm and Social Trading, Roboadvisors, and Crowdinvesting are becoming more and more established.
Roboadvisors provide financial advice and financial management online based on algorithms (or mathematical rules) with little human intervention involved.
Although the roboadvice market only currently accounts for a small fraction of the multi-trillion-dollar advisory market, the speed at which it is growing has traditional financial advisers scurrying to find ways to capitalize on the trend.
We don’t want anyone falling behind the curve, so today we are going to talk about some digital investing opportunities… read on…
Digital Investment Opportunities
The internet has allowed investors to invest electronically in all asset classes: stocks, bonds, real estate, commodities, and mixed investments through Roboadvisors, as well as through social investment platforms.
Investors can use the internet to purchase traditional investment products, or they can use it to get involved in new investment opportunities such as cryptocurrencies, cryptocurrency markets or the Blockchain technology.
They can also now invest their money in startup companies, existing real estate, real estate development projects or consumer loans (crowdlending).
This is truly revolutionary when you think about the fact the only 10 years ago closed-end investment funds for wealthy investors and open-ended real estate funds for retail investors were the only way to participate in the profits of value-stable real estate investments.
This new creation of the Roboadvisor has taken a complicated factor out of investing: human emotion.
In fact, Betterment and many of the Roboadvisor’s algorithms rely on a Nobel Prize-winning investment theory to drive their models.
Now, selection, investment, and risk management are mostly done by algorithms, programs, and scientific analysis or portfolio theory, thus, relieving the investor of one of the hardest parts of investing — deciding on assets themselves.
Another positive of this type of investing is that it is far more affordable than hiring a traditional human asset manager.
Even further, private or novice investors can now participate in investment strategies and product selection by professional investors or experienced experts by tracking their transactions on social investment platforms and replicating the process with their own money.
It’s like having a digital cheat sheet you can copy when making your investments.
Pros and Cons
Digital investing has many advantages. For one, convenience — it allows you to get advice or make investments via phone, mail, or video on the go.
You will always have someone to answer your investing questions due to the digital nature.
It’s also much more affordable, with lower minimum investment amounts often resulting in better diversification.
However, digital investing isn’t perfect, so be sure you understand some of the risks when beginning your digital investment journey.
Roboadvisors lack some of the personal touch of a human asset manager. They are not going to hold your hand and talk you through a market drop. They also offer less personalized options to set investment goals — although some Roboadvisors are introducing financial planning software to fix this problem.
You are also missing out on the “face-to-face” time many investors want with their financial advisor. In other words, you’re most likely sacrificing person contact and relationship building for convenience.
Technology also is not perfect. There are risks of data misuse, data breaches, and aggressive advertising strategies are a real danger in the digital world.
If funds are misappropriated, or investment programs and algorithms are wrong, capital losses can be high.
There is always a possibility that customers will underestimate the risks of these investments due to the simplicity of the digital installation and the easy availability.
If you are seriously considering digital investing, you should do your research on the impact of digital investment risks, just as you would research any other traditional investments.
When it comes down to it, the Roboadvisory sphere is just getting started. The new entrants into the landscape benefit the potential investor by lowering fees while contributing many paths to professional asset management.
There is clearly competition between traditional banks/financial providers and innovative fintech companies.
Only time will tell how fully the digital world can be harnessed to provide increased accessibility to investing.
Will there be a day when a robot on your screen can provide as much trust and security as a human advisor sitting behind a desk at a bank? We will see…
To a richer life,
The Rich Life Roadmap Team