Technology is changing the way we invest our money. Over the last several decades, apps and trading platforms have made investing more accessible and has put downward pressure on fees.
Here’s how technology is making investing easier:
Buying and Selling Securities
At one time, investors would have to call their stockbrokers if they wanted to make a trade. Commission rates were usually fixed, and high, because investors didn’t have easy access to information, and there weren’t any alternatives. Investors had no idea how their investments were performing until they received an account statement in the mail.
Thanks to advancements in technology, investors can now use the Internet to find and compare transaction fees among brokerage firms. They can even buy and sell securities themselves with just the click of a button.
Having the ability to compare brokerage firm rates has put downward pressure on fees. Fidelity paved the way for more affordable trades by lowering their transaction costs for trading stocks and ETFs to just $4.95 per trade. Schwab quickly followed, and other firms have since lowered their trading commissions.
Traders in many countries can now buy and trade securities on their own using different platforms. Investors can buy stocks using a robo-advisor or trade stocks using a variety of online platforms.
Instead of having to wait for mailed account statements, brokerage firms offer apps that allow users to track their investments through their smartphones. Alerts can be sent on various holdings.
Technology and the Internet have allowed investors to become better informed and gain access to tools to make smart trades and manage their portfolios.
Many brokerage firms now offer apps that make it easier to make smart trades and investments.
Some of the most well-known and popular investing apps include:
The Stockpile app is aimed at new and small investors. Users can get started with just $5, making investing easily accessible to everyone. By offering the option to purchase fractional shares, users can buy stock in Apple with just a few dollars.
A custodial account can be opened for kids or teens who are interested in investing.
Stockpile only charges 99 cents for most trades.
E*Trade has been in the online trading business since 1982. Their app offers access to free research on investments as well as charts to help users make informed trades.
The fee on most stock trades is about $7.
A newer financial app, M1Finance is aimed at long-term investing. Day traders will need to look elsewhere. The app allows users to choose their investments, or the app will put together a portfolio of ETFs, stocks and bonds based on your risk tolerance and goals.
With M1Finance, there are no commissions or fees.
Wealthfront is ideal for investors who want expert help with their investment decisions. Money is put into a globally diversified portfolio chosen by the company’s money managers and based on your risk tolerance.
The company charges a monthly advisory fee (which is negligible) and currently has more than $13 million in assets under management.
Robo advisors have transformed the industry and are one of the biggest innovations of the last decade. The technology allows firms to use algorithms to build and manage client portfolios. Generally, robo advisors invest in low-cost ETFs, but some also offer investment in 401(k) products.
Traditionally, investors relied on financial advisors to build and manage their portfolios. Robo advisors are inexpensive to run, and they’re highly effective. Human advisors can only help so many clients before reaching full capacity.
Robo advisors don’t really have a capacity. Once the algorithm is created, it doesn’t take much to keep it up and running for millions of people.
Human financial advisors charge a 2-3% fee, while robo advisors charge just 0.25%-0.5% of the assets managed.
Minimum account sizes are also low or non-existent, so they’re ideal for new investors. Financial advisors, on the other hand, often require a high minimum balance – sometimes as high as $200,000.
By removing the human element from the equation, the cost of investing is drastically reduced.
Some firms offer robo advisors which are augmented with human advisors. This technology is expected to continue changing the investing landscape for years.