Monday, January 28, 2019
Until the beginning of this century, the world of investment management hadn't really changed much for over a hundred years. A bookkeeper from the 1890s would still have more or less recognized the investment landscape of 1990. But fast forward another 20 years, and that landscape would have been utterly transformed. Moreover, that transformation is still going on.
A different world
Digital technology and the internet have of course transformed every aspect of our lives in comparison to 20 or 30 years ago, and how we invest is no exception. In the 1980s, something of an iconic era for stock market trading, men with mobile phones the size of a brick shouted orders on the trading floors of large institutions. A broker was someone at the other end of a landline who you could only get hold of during office hours, and who executed each individual order on your behalf in return for a commission of 2% or more, on every order.
Stocks that you owned were represented by paper certificates, and if you wanted investment advice you generally made an appointment to see your bank manager. It is largely thanks to the ubiquity of digital technology that these scenarios are now consigned to history, and investment is open to a far wider demographic. Orders are easier, faster and more affordable to execute in both large and small quantities, while advice and information are accessible to all.
From electronic to online
The first electronic stock exchange was introduced by NASDAQ in 1971, and by 2000 all the world's stock markets were electronic, allowing far greater ease of access. The next stage was to take the markets online, opening up online trading to everyone with a secure internet connection. The rise of all-in-one investment and trading platforms, plus trading apps allowing you to buy, sell and manage your portfolio from your phone, drastically changed the role of brokers. Online discount brokers opened up the field to ordinary people from any background, with commissions and other fees reduced across the board.
Being able to trade from their smartphone has enabled investors to move much faster, acting on the latest news wherever they might happen to be at the time it breaks. And there's no reason to miss out on what's going on as access to news sources can also be had any time and in any place. You can even set up alerts on particular subjects, or go a step further and use automated trading to buy or sell if prices hit a certain point.
Advice for all
It is also far easier to access genuinely independent wealth management advice. Creative Planning was one of the first wealth management companies to offer impartial advice and not to sell proprietary products to their clients. It's an approach that has served them well, as they were voted number one in Barron's list of the top independent wealth management firms in America in 2017, and were featured twice as the number one independent wealth management firm in the US by CNBC, in 2014 and 2015. While the modern age has blurred the boundaries between broker and advisor, the smart investor should definitely separate the two and take advice from a firm that only has your interests at heart.
Big data and algorithmic trading have also completely changed the investment field. Far closer and more detailed analysis of trends and market movement is now possible, and this information is used for portfolio management, trading and regulation, as data analysis can be used to identify fraud that much easier. The use of algorithms meanwhile has massively speeded up trading and allows it to be transacted in small or huge volume. Trades can also be made more accurately, while the use of artificial intelligence (AI) to manage portfolios is sure to become even more widespread as technology in that area improves still further.
Social media has given investors a new way to track market sentiment and keep abreast of world news. It may not seem significant, but it's been shown that a flurry of tweets or Facebook posts on a world issue can have a drastic effect on financial markets. Social media and investing have become even more closely entwined in the rise of social trading, whereby investors on trading platforms can communicate informally with each other, swapping news, advice and strategies. Closely linked with this is copy trading, where new investors can simply copy the moves of more experienced traders, learning the ropes while hopefully making a profit at the same time.
The world of investment management is just as affected by new technology as every other aspect of our lives, perhaps more so as it is the business of the investor to stay one step ahead of current trends. It has opened up the field and made investing both simpler to do and at the same time more complex in its sophistication. Furthermore neither technology nor investment ever stands still, so the pace of change looks to continue for the foreseeable future.