Saturday, May 28, 2022

    Is Now the Right Time to Move to An Online Brokerage?

    To prevent the spread of coronavirus (COVID-19), face-to-face businesses around the world have been forced to shift to remote operations. This shift has proved to be particularly difficult for traditional investment brokers, many of which still rely on face-to-face contact with clients. Fortunately, online brokerages have been able to take on the additional demand for brokerage services.   

    Given their growing popularity, we thought now would be a good time to take a deeper look at online brokerages and determine whether they’re an effective investment platform for today’s turbulent economic conditions.  

    What Are Online Brokerages?

    The term “online brokerage” refers to a class of brokerage firms that use digital interfaces to both host their services and communicate with clients. Unlike a conventional broker, investing through an online brokerage does not require face-to-face consultation. By shifting their services to the web, online brokerages do not have to maintain or staff brick-and-mortar business fronts.

    In comparison to a conventional brokerage service, online brokerages—which benefit from very low running costs—are usually far more affordable when it comes to brokerage and account fees. What’s more, many online brokerages offer additional affordability bonuses. For instance, top Canadian brokerage Questrade offers zero account keeping fees and $0 brokerage for exchange-traded fund (ETF) products.

    The Economic Impacts of COVID-19

    To combat the spread of the COVID-19 pandemic, the international community has implemented strict containment and social distancing policies, shuttering non-essential businesses and, for all intents and purposes, locking down the global economy. While unquestionably necessary, there’s no doubt that COVID-19 prevention measures have wreaked havoc on global equity markets.

    In the U.S. and Canada, dozens of industries, especially businesses in the tourism and entertainment sector, have been pushed to the brink by the ongoing wipe-out in earnings. According to the U.S. Commerce Department, month-to-month retail sales have already fallen by a staggering 8.7 percent. U.S. unemployment data is similarly bleak, with slightly more than 10 percent of the domestic workforce, some 16 million people, losing their jobs over a three week period. Unfortunately, the economic impacts of COVID-19 are not isolated to North America., comparably bleak figures have been recorded in the Indo-Pacific, Europe, Africa, and the Middle East.

    Although it recently recorded an encouraging rally, the benchmark S&P 500 index (sitting at 2,783 points as of April. 16) is still a long way from its record high of 3,386 points on Feb. 19. When you consider that the COVID-19 pandemic is far from over, it’s entirely possible—maybe even likely—that global equity markets will undergo further falls.

    Why It’s Still a Good Time to Invest

    On the surface, you might think it’s crazy to even consider investing in today’s hyper-volatile geo-economic environment. However, as anyone who’s seen “The Big Short” would tell you, financial crises pose unique opportunities to savvy investors.

    Broadly speaking, when retail investors rush to take their money out of the market, they’ll often leave behind a treasure trove of distressed assets and undervalued stocks. Remember, looking for opportunities during a market downturn doesn’t mean you should go out and buy every cheap stock on the market. There are a lot of under-valued equities on offer right now, but you have to be discerning.

    If you’re in a position to invest, opening an account with an online brokerage will give you access to a wide range of low-cost stocks, bonds, and commodities. By getting a 20 percent to 30 percent discount on these assets, your portfolio will be primed for significant growth when the global economy starts back up and markets inevitably begin to recover. Encouragingly, there are several factors which suggest that the global economy might recover sooner than expected.

    The first factor is the extraordinary level of monetary and fiscal stimulus being hurled at the global economy. On March 26, the collective economies of the G20 announced that they would be injecting over $5 trillion into the global economy, mostly via central bank monetary stimulus and liquidity operations. In the U.S, the Federal Reserve has committed to buying an unlimited amount of Treasury Bonds, corporate debt, and municipal bonds. These unprecedented measures show that central banks are willing to do anything to pull the global economy out of recession.  

    The second key factor is the fact that the international COVID-19 outlook is slowly improving. While we’re not out of the woods yet, many countries have experienced a slowdown in the rate of new cases. For instance, in the U.S., models for the rate of new COVID-19 cases have begun to resemble a standard growth curve rather than an exponential growth curve. Meanwhile, in places as far afield as Australia, the daily infection rate for new COVID-19 cases has dropped from between 25 percent and 30 percent to 5 percent. The sooner we reach an international inflection point in the COVID-19 viral curve, the sooner economies around the world can begin reopening and recovering.

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