How to Invest in a Time of Digital Disruption
The landscape for private investors has been turned upside down in recent times. Big changes to the way we communicate and the way in which data is disseminated and processed have created a wealth of new opportunities and challenges that would have been unheard of just a few years ago. Disruptive technologies such as online investment platforms, social investing and copy trading, big data emergence for investing, and social media have tools lent a new transparency to the financial services sector, placing more power in the hands of individual investors.
In addition, sweeping regulatory changes have brought about huge changes in the way that financial services firms are compelled to go about their business, most with the intention of promoting greater responsibility and transparency in the sector following the excesses of the pre-global financial crisis years. Today’s investor has more choice, and more information, than ever before, which on one level makes it a lot easier to make sound investment decisions, but on another level makes it a lot more challenging.
The Rise of the DIY InvestorIntelligenthq skyline
Today’s investor has more choice – and more power – than ever before. Back in the pre-internet era, investors had little option but to build and monitor their investment portfolios via intermediaries such as financial advisors and stockbrokers. In some ways, this made life a lot easier for the investor, in that much of the responsibility for making the right choices lay in the hands of a third party, but it was far from being an ideal arrangement.
Chief among the issues with this arrangement were the high fees charged by these middlemen, which took a sizeable chunk out of the profits in the good times, and merely added to the losses incurred in the bad times. Also, there was the issue of trust – without the wealth of information that there is today, investors had little to go on except marketing materials and personal recommendations.
Now, with a virtually endless supply of data, educational resources, and tools available at the fingertips of anyone with a computer and an internet connection, investors can take on these roles themselves. It has never been easier – or cheaper – to find out all about how the global markets work, and how to make money out of them.
If they have the time and the inclination, investors can educate themselves to a professional standard in the workings of the capital markets, and can even trade in them directly using online trading platforms. This is a route that has been taken by many investors, and there have been countless success stories involving individual investors making fortunes by playing the markets at home. It’s not for the faint of heart, though, and few independent investors have the time, patience, expertise, and market nous to become a successful day trader.
For the vast majority of investors, pooled investment products such as mutual funds, unit trusts, and ETFs provide a much more manageable – not to mention less risky – way to build up the funds they require to secure their financial future. But just because funds provide a more accessible way to profit from the markets, doesn’t mean that investors can afford to be ignorant. There is a whole universe of fund-based financial products out there, and naturally, some perform better than others.
Big Data and the Need for Independent Research
In order to identify the best funds, and develop an investment strategy that strikes the right balance between risk and reward, investors need to educate themselves using the vast resources that are available online. There are several in-depth educational guides available to teach you how to choose, evaluate, and monitor fund investments, including the U.S. Securities and Exchange Commission’s own guide to mutual funds, digital premium content from industry providers such as as Transamerica Resource Center, a similar offering from Investopedia, and of course the guide you are reading right now.
It has to be remembered, for example, that an investment in a government bond fund is really an investment in government debt. Therefore, in this case, you would need to know what the state of the market is for this type of investment in general, and also the specifics of the type of debts that the fund is invested in. Are government debt securities giving high yields at the moment, and if they are, does this make them unsafe? Is the fund invested in ‘safe bets’ or does it pursue a more risky strategy of buying high-yielding debts from countries that are on the verge of default? What are the top investors and analysts saying about it? And, can you trust their opinion on this matter?
This is why investors need to be smart and use all the digital resources at their disposal in order to inform their investment decisions. Today, it has never been easier to find out the information you need – and the expert opinions – to help you make sound investment decisions.
Yet, with the plethora of information and opinion out there on the web, it can sometimes be a case of ‘too much information’. According to a recent study by IBM, we are now producing 2.5 quintillion bytes of data on a daily basis, and 90% of the data that exists in the world has been produced in the last two years.
This means that we have to use ever-more powerful and sophisticated tools for sorting out the wheat from the digital chaff, and also that these tools need to be quite specialised in order to obtain the right kind of information. One of the main reasons for the exponential rise in the amount of data produced has been the emergence of social media, which is fast becoming a powerful tool for investors.
For example, do you want to know what Warren Buffett has to say about tech stocks, or George Soros’ latest opinion on the currency markets? Follow their Twitter accounts, and you can find out in real time. Want to know who else is wielding influence over the financial markets with their social media utterances ? You can find them all out at a glance with the finance-specific Klout equivalent Finfluencer. And from social media, you can gain access to a universe of blogs and online resources to inform and educate you about the markets.
The New Financial Media LandscapeIntelligenthq skyline
In the past, paper-based publications such as the Wall Street Journal and Forbes Magazine were the only few outlets for specialized information about the markets. And they still have a role to play today, but the world of finance doesn’t move on a day-to-day or month-to-month basis – it operates in real time, and mainstream financial media outlets such as these have adjusted accordingly.
These days, you don’t need to invest thousands in a Bloomberg Terminal to obtain up-to-date information about the world of finance. Today’s financial media works around the clock via websites, social media, and specialised television channels. Major market events are reported instantaneously, and you don’t even need to be near a TV or a computer to find out about them thanks to the rise of mobile devices such as smartphones and tablets.
While the old-school financial media still wields a huge influence over the investing world, the democratizing influence of social media technologies has brought with it countless fresh new voices to the investment advice sphere. Well-regarded investment blogs such as Mark Dow, the Brooklyn Investor, and Paul Kedrosky’s Infectious Greed have carved a niche alongside more established names in the financial blogosphere such as The Motley Fool, Seeking Alpha, and FT’s Alphaville, providing valuable and varied insights into the world of investing in a way that is accessible to all.
A Good Time For Investors
In short, there has never been a better time to invest in mutual funds. As with any investment, there is no such thing as a surefire guarantee of success, but the wealth of information, tools, and resources that is now freely available has tipped the balance of power in favour of the individual investor like never before.
This, combined with increasing levels of transparency in the marketplace and competition among fund providers, means that investors are no longer at the mercy of financial advisors and stockbrokers if they want to make money from the markets. Sure, the markets might not be booming like they were a decade ago, but investment (as opposed to speculation) is a long game, where results are measured over decades rather than days or weeks.
By investing a bit of time into educating yourself about how the markets – and in particular, funds – work, you can learn how to maximise the potential of your savings in a way that gives you a greater level of control over your financial destiny than ever before. In this series, we shall show you the ins and outs of how mutual funds work, and provide you with a comprehensive and useful range of techniques for identifying quality funds and evaluating their performance over time in order to help you make informed choices for your financial future.
This is the first of a series of articles of the Intelligent Guide to Investing in your future. Other articles will follow.
Article published under: IntelligentHQ Authority Publishing Partnership
IntelligentHQ Authority Publishing Partnership is a section produced by IntelligentHQ in coordination with the brand partner Transamerica. This section is an integrated and by-invitation content-production and sharing platform that enables companies and marketers to join IntelligentHQ platform with specific thought leadership content, education, narratives and special industry expertise.
I am a writer based in London, specialising in finance, trading, investment, and forex. Aside from the articles and content I write for IntelligentHQ, I also write for euroinvestor.com, and I have also written educational trading and investment guides for various websites including tradingquarter.com. Before specialising in finance, I worked as a writer for various digital marketing firms, specialising in online SEO-friendly content. I grew up in Aberdeen, Scotland, and I have an MA in English Literature from the University of Glasgow and I am a lead musician in a band. You can find me on twitter @pmilne100.