Saturday, May 25, 2024

Four Ways Technology Helps the Hesitant Beginner Investor

Many of us take the convenience of electronic banking and online shopping for granted.  It’s easy to forget that little more than a decade ago, such activities required our physical presence at inconvenient times and locations. But some mindsets are harder to change – like the idea that investing is the prerogative of the rich and super intelligent. 

The advantage of big data that can be analyzed for patterns is that solutions become predictable.  What’s predictable can be automated, and what can be automated can be made cost-effective.  The tools available through today’s technology put ordinary individuals in possession of knowledge that was previously reserved for a privileged few.  So what are you going to do with it?

Trading Stocks

Holding a stock portfolio used to be reserved for those with sufficient resources to be of interest to a brokerage firm. These firms couldn’t afford to spend time with clients if the fees they generated from them didn’t justify it.  In the past, the infrastructure required for trading meant employing a large staff and paying for premises to house them.  All that, in addition to the cost of complying with demanding regulatory requirements. 

But now, brokers have online trading platforms to automate many of the transactions associated with share trading.  They can support infinitely more clients without increasing their overheads.  Over time, these platforms have matured to the point where some of them even include training material and simulation environments for inexperienced investors.

Of course, not everyone has the time or interest to watch stock prices and read company reviews.  Robo-advisors take online brokering one step further by automating the advisor component.  With a robo-advisor, you plug in the answers to set questions about your financial position and investment goals.  After that, the system will automatically administer your investment using algorithms based on your risk profile.  There are even robo-advisors, like M1, that allow their clients to customize their stock holdings by proposing several different portfolios.  Others offer additional features like automatic tax harvesting (deliberately selling stocks at a loss to reduce capital gains tax).

Experimenting with Penny Stocks

Perhaps you do want to run your own brokerage account but don’t have the cash?  Blue-chip stocks may be secure investments, but they can often be out of beginner investors’ price range.  Penny stocks could be the solution!  Penny stocks are stocks that trade at under $5, according to the Securities and Exchange Commission (SEC).  They trade on conventional exchanges like the New York Stock Exchange (NYSE) and Nasdaq.  But, more commonly, they are found on over the counter (OTC) exchanges. 

Penny stocks are considered risky because the companies are less well-known and sometimes new.  There isn’t generally as much information about them as there is for established, well-traded entities.  They also tend to be traded less frequently, meaning that there might not be a buyer waiting when you decide to sell.  All that being said, some very successful companies started as penny stocks.  With their low entry point, your losses are limited, but percentage-wise, gains can be significant.

For new investors wanting to experiment with penny stocks, beware of the costs of trading.  The fixed transaction costs of many online brokers make penny stocks an unfeasible option.  However, there are some apps designed explicitly for penny stock trading.  Their fee structure and systems are designed to make investing in penny stocks a viable option.  And remember that penny stocks are risky.  Take care to understand your risk parameters – what you can safely afford to lose if you had to.

Maximizing your 401(k)

If you’re lucky enough to have an employer retirement fund, it is a perfect entry into investing.  Many employers will match their employees’ contributions – most commonly up to 6% of annual salary.  And most 401(k)contributions are pre-tax, which means you realize growth on two sources of income you wouldn’t ordinarily have – your employer contribution and the tax you would usually have paid.  That’s money for nothing!  So, if you’re not already invested in a 401(k), speak to your HR department without delay.  You can start with as small a contribution as you want and increase it gradually as you can afford.

Some 401(k) plans make investment decisions on behalf of their members – typically in target-date funds.  These are pre-set funds in terms of their mix of shares and bonds over time, depending on your age.  But it is also possible that your 401(k) requires you to make your own investment choices out of a selection picked by the provider and your employer.  Providers supply online portals that allow you to allocate and switch funds as you choose.

Dipping into Real Estate

For some beginner investors, real estate appeals as more tangible than monetary instruments like stocks and bonds.  Property flipping can be a rewarding and lucrative hobby for those with a creative flair and a willingness to roll up their sleeves.

The internet makes sourcing, pricing, and selling properties more painless than ever – theoretically.  But sometimes, the sheer quantity of information can be overwhelming.  And, if you want to hold onto the property, finding suitable tenants and maintaining the property long term can be time-consuming and distracting.

Once again, there are a range of technology-based offerings to assist for any part, or all, of the process.  Roofstock, for example, specializes in marketing properties with tenants in site.  They offer fractional ownership of pre-approved properties and provide professional management and maintenance services if required.  For prospective investors living in high priced real estate areas, technology like this opens up opportunities nation-wide. 

One small step now can make an immeasurable difference to your future financial well-being.  And the options are literally at your fingertips.

Claire James
Claire James
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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