COVID-19 has changed the world of investing for good. In fact, 25% of investors are now considered “retail”, which represents an all-time high.
Technology is the driving force behind modern investing trends. From increasing market access to disruption among traditional brokers, the way the markets move is set to be further impacted by the changes brought by technology.
It’s important to be aware of technology and how it could influence your investing principles when building wealth.
1. Lower Barriers to Entry
The growth of online trading platforms throughout the pandemic lowered the barriers of entry for millennials. Traditional brokerages required time and effort to open accounts with, as well as high minimum balances.
Platforms like Robinhood changed that. You can also read our review on the M1 Finance platform for an example of how this works.
Much of this trend has been driven by younger millennials and Generation Z. Now, it’s possible to research and trade from your smartphone. This is perhaps the most visible change technology has made.
2. Disruption through Artificial Intelligence (AI)
The prospect of AI causing serious disruption in the investing world has been on the horizon for years. The pandemic has spurred change and innovation throughout the industry, thus disrupting financial institutions.
In particular, AI is starting to play a major role in how individual investors analyze stocks and how they implement their trading strategies.
For example, this great TrendSpider review discusses how AI is helping investors to make better trades.
On the backend, AI is being used by major corporate investors to refine and change their operational models. Much of the institutional level trading carried out on Wall Street is now powered by AI systems.
3. Investing on the Go
With more than three billion smartphone users globally, investing on the go is becoming increasingly common. Traders can see their portfolios and get the latest financial news in seconds, wherever they happen to be, thus making it easy to manage finances.
Mobile investing has benefited investors, but at the same time, this technology has had some unintended negative effects on the markets.
The fact that anyone can invest from their phones with just a few dollars means there’s an influx of uneducated investors in the markets. Professional investors now must contend with knee-jerk reactions and an increasingly volatile market.
For example, investments in blockchain instruments, such as Bitcoin, are largely driven by people who don’t know what they’re doing. The same could be said for the rise in GME at the start of 2021.
4. Growing Passively Managed Funds
Passive funds are financial instruments that track a certain market or index. In 2019, they overtook actively managed funds for the first time. This change was initiated after 2008 when investors lost confidence in active fund managers.
Emerging technology has made it easier to manage your funds by yourself. The average person can now invest and grow wealth alone because they have access to all the numbers and knowledge from their smartphones.
Passively managed funds are now the most common type of fund and investors are increasingly taking control of their own portfolios without the help of professionals.
5. The Role of Social Media in Investing
Since the dawn of social media, it’s always had a limited amount of influence on investing. The pandemic has shown how powerful social media can be when it comes to moving markets.
Elon Musk’s Tweets have both created and wiped off billions from the cryptocurrency markets. The GameStop rise became a thing purely due to thousands of users on Reddit.
To make better investing decisions, traders have to be mindful of the influence social media has on market confidence. Social media platforms are fast replacing newspapers as the fundamental controllers of market sentiment, and this must be taken into account when trading.
6. Automated Trading Strategies
Traditionally, there were two options for investors. You could make individual stock picks or hand your fate over to an investment manager to make a positive return on investment. Today, automation technology is quickly taking center stage.
Automated trading uses a combination of machine learning and special algorithms to make superior trading decisions. This has captured a large segment of the market and this technology is available even to individual retail investors.
Although this technology remains in its infancy, expect automated, algorithmic trading to take over the investing world as we move into 2021 and beyond.
Final Thoughts: New Strategies, Similar Goals
The rich keep getting richer not because of new technology but because they stick to tried-and-tested strategies.
Creating a well-balanced portfolio that aligns with your financial goals and risk tolerance continues to be the key to being a profitable investor. And nothing is going to change that going forwards.
Embracing new investing technology and being aware of its influence is important, but none of it should impact basic intelligent investing principles.
How are you using new technology to invest?
