Source: forbes.com

4 Ways Tech Has Democratized Investing

Investing, when one conducts thorough research and is careful with their investment decisions, has the potential to help someone grow their money to a substantial degree. However, for a very long time, not everyone had the opportunity to invest their money.

There are many reasons this was the case. Luckily, technology is changing that in various ways. Specifically, technology is democratizing investing in such ways as:

1. Allowing Children to Learn About Investing

Source: forbes.com

Kids certainly should not be given free rein when it comes to investing their money. Making smart decisions as an investor requires a significant amount of experience. Very few people naturally understand how to conduct proper research and evaluate opportunities critically. Most people who have gone on to become successful investors achieved success, at least in part, because they spent years learning about investing.

Thankfully, children now have safe ways to get investing experience (ideally under the supervision of their parents or other adults). For example, some new services provide kids with the chance to purchase fractional shares of stocks with as little as one dollar through companies like Green Light.

These services aren’t meant to help kids become millionaire investors overnight. Instead, they serve to provide the kinds of educational opportunities that can optimize their chances of becoming smart and careful investors as they grow up. This will naturally improve their odds of earning money instead of losing it when they make investments as adults.

2. Helping Investors Avoid Commission Fees

Source: economictimes.indiatimes.com

There are a number of reasons those who wished to invest their money in the stock market in the past may have nevertheless chosen not to do so. One of the most oft-cited reasons is the fact that brokers traditionally collected commission fees in exchange for facilitating trades. In other words, when someone invested a certain amount of money, they would need to pay an additional fee for the services a broker provided.

This is no longer necessarily a deterrent to potential investors. Several Internet-based services now give investors the chance to invest their money without paying these prohibitive fees.

Part of the reason they can do so is tied to the fact that they don’t have the same expenses as traditional brokerages. For example, many of these companies don’t need to rent out large offices. Because this helps them reduce spending, they are theoretically able to do away with hefty fees, eliminating one of the barriers that has prevented many investors from taking advantage of opportunities in the past.

Of course, that’s not to say that these services aren’t without their potential risks. When an investor can purchase as much stock as they can afford without having to worry about the way commission fees will add to their expenses, they may be more inclined to make impulse purchases.

This can be dangerous for what are likely very obvious reasons. Investors must still conduct thorough research before deciding whether certain stocks and similar investment opportunities are genuinely safe.

This highlights the next point:

3. Increasing Transparency

Source: martech.org

Although conducting research may have always been an important aspect of investing one’s money, it has not always been easy to do. Resources offering information about companies an investor could look into used to be fairly limited.

That’s no longer the case. Many point out that the Internet has provided investors with access to much more information about stocks and companies than has historically been available to them. Thanks to online resources, it’s less difficult for an investor to learn whether an investment opportunity is unreasonably risky.

Once again, that doesn’t mean all investors will succeed merely because they have access to more resources. They need to boost their odds of making money from their investments by actually leveraging those resources. If they fail to do so, they will put themselves in the position to make mistakes that could be very costly.

None of this is meant to discourage anyone from investing if they are in a financially stable situation that allows them to justify doing so. Instead, it’s meant to emphasize the importance of genuinely taking advantage of these innovative tech-based solutions.

Technology may have democratized investing, but it remains the duty of each individual investor to make sure they understand the potential risk they are taking when they invest in a stock blindly. The best way to reduce risk is to do due diligence.

4. Eliminating Minimum Account Balances

Source: dnaindia.com

Along with commission fees, another very traditional aspect of investing that prevented some from giving it a try has been the fact that many brokerage firms have historically required their clients to maintain minimum account balances.

Or, rather, they have required their clients to start with a certain amount of money in their account, instead of allowing them to experiment with investing by investing as little money as they want.

This is another barrier that has begun to erode thanks to technology. The same innovations that have allowed kids to learn about investing and allowed new investors to avoid paying brokerage fees have also given investors the choice to start investing with minimal funds.

Instead of having to deposit relatively large sums of money into their accounts before someone would unlock the door and let them start buying stocks, they can now invest with small sums of money and no minimum initial deposits.

In theory, this can minimize risk for some investors. Having the option to invest only a small amount of money can give someone the chance to begin learning about the stock market without spending more than they can afford. Once more, if they start learning in a safe way, they have a better chance of making safe decisions when they invest larger sums of money in the future.

We’ve yet to truly see how this will all impact the world of investing. For ages, investing in the stock market was a means of earning money that was reserved for only those of certain income levels or net worths. Technology is changing that in ways that can have major long-term impacts.

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