The world of investing has grown considerably as ‘zero-commission’ investment platforms have rocketed in popularity since 2020. Today, fintechs are becoming ever more intelligent - to the point where investors can effectively build their portfolios in a passive manner.
Driven by a series of advantageous market conditions, the volume of retail investors actively trading rose significantly in the wake of the Covid-19 pandemic. The lowering of interest rates across many nations alongside the arrival of government stimulus packages in a bid to encourage more spending was met with an unexpectedly impressive market recovery to deliver significant spending power for citizens.
(Image: The Economist)
As the data shows, this resulted in retail investors becoming the most dominant collective of players on the stock market. Furthermore, 2021 repeatedly demonstrated the strength of retail in the prevalence of social media-driven short squeezes that populated the stock market - particularly in the cases of GameStop (NYSE: NYSE:GME) and AMC Entertainment (NYSE: AMC) stocks.
Although the chart above shows that trading volumes have slowed for retail investors, their trading volumes still eclipse their counterparts.
Whilst 2022 has been a troubling year for Wall Street and other markets around the world, the deep corrections that have occurred have presented themselves as potential buying opportunities for investors.
However, the world outside of stocks and shares is also different in 2022. Lockdown measures and social distancing appears to be a thing of the past as vaccines have sought to keep the Covid-19 pandemic under control.
Today’s retail investors don’t have the same amount of free time to make research-driven decisions in the buying and selling of stocks. This goes too for investors who may have missed the last market recovery and are intent on beginning their investment journeys now that stock prices have fallen lower.
Fortunately, as the world changes, so too does the quality of technology that exists to support us. Life for retail investors has been enhanced by the time-saving features of fintech platforms that are capable of delivering a far more passive approach to investing.
That said, it could be difficult to find proper investing tools, especially the right retail broker. There are still plenty of retail brokerages that need to go the extra mile to provide their customers with better tools and support.
Maxim (NASDAQ:MXIM) Manturov, head of investment advice at Freedom Finance Europe, says: “To attract more retail investors, brokerage firms must improve their customer acquisition processes, lower the minimum investment threshold required to open an account, and make their platforms as simple, intuitive, and user-friendly as possible, as well as expand their funding options. Companies can also provide protocols for determining which investments are appropriate for new account holders in order to avoid costly mistakes at the outset.”
Let’s take a closer look at how new retail investors, or simply those with less free time, can continue to succeed in building their portfolios:
The Rise of the Roundup Investment Platform There’s no more effective way of investing in stocks and shares passively than through a round-up app.
These platforms take away the necessity of even contributing money into your ISA yourself, owing to an automated service that automatically counts your spare change and invests it into your chosen savings plan.
Through roundup apps like Moneybox and Acorns, users can simply link their bank cards to their account to enable the platform to begin making small investments on a weekly basis on their behalf. For weeks where money may be more tight, account holders can simply access their app to edit the amount of money they provide - meaning that interventions are possible.
Furthermore, roundup apps enable users to have control over the risk that they’re taking on in the stocks and shares that are added to their ISA. Following a few introductory questions about risk and payments into the ISA, the apps spring into action.
Theoretically, once users set their savings account up, they needn’t have to log in again until they’re ready to withdraw their savings but for the occasional re-linking of their card to the platform.
For those who are after a more hands-on approach, these fintech apps can offer great insight and data-driven projections into how investors can achieve their goals and when they can expect to earn their target ISA value by. With fully customisable controls on monthly payments, roundup apps can automatically adapt to suit your levels of ambition or caution.
Following the World’s Best with Copy Trading Although copy trading isn't exactly a new approach to passive investing, the emergence of intuitive fintech platforms has made the practice far more straightforward than yesteryear for investors.
Originally emerging as mirror trading in 2005, traders could copy specific algorithms that were developed through automated trading. To support the efficiency of the mechanism, developers would share their trading history and invite other users to take up their strategies. This paved the way for a more social approach to trading, whereby investors could copy their peers as opposed to building their own strategy.
Technology has come an awful long way since 2005, and today many platforms offer some form of copy trading functionality.
Today, fintech apps like eToro, and many more stock trading platforms offer copy trading features that can deliver an element of passive portfolio building.
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In copy trading, users don’t receive the layout of the trader’s strategy, meaning that they literally mimic their trades.
Although this may be a cause for concern among investors, eToro’s copy trading stats appear to show promising results. In 2021, the average profit of eToro’s 50 most copied traders was 30.4% - representing a healthy return on trades that are essentially conducted blind.
Although new retail investors may be motivated to buy into stocks and shares at their current discounted prices, other commitments may present issues in providing them the time they need to make intelligent decisions in building their portfolios. Thanks to the emergence of fintech, there is a growing range of intuitive passive options available for experienced investors and market newbies alike - showing that trading inclusivity is here to stay.
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