Why fintech is making investing easier for beginners

Fintech for beginner investors has meant the world of investment has been opened up to a much broader and more diverse audience than ever before. Tech-enabled investing has changed how many people look at investments, and capital markets in general, and irrevocably changed the power relationships at play. For a long time the only way to invest was through financial services giants that were part of an entire ecosystem that was both incredibly complex and frightfully expensive for the public to engage with. For example, if you wanted to invest in an equity fund in the 1990s you would have to sign up with a financial adviser or get hold of a fund management house directly, filling out numerous forms and co-ordinating the transaction yourself. Both options are time-consuming and expensive.

This has changed with technology and the fintech impact on investing has opened up investing to everyone. Now, you can quickly download one of many low-cost investing apps, enter your details and be up and running in no time. These apps are design to make investing easy with fintech, with a fluid user experience.

This has shattered perceptions. For a long time people assumed investment was only for the ultra-wealthy, or those wearing pin-striped suits and working in the city. This is a world of graphs, numbers flashing on screens and confusing jargon. It can be easy to shy away from it! Fortunately, investment is quite simple, and the fundamentals never change. Warren Buffet, one of the world’s richest men and most successful investors ever, famously follows a few simple rules. He uses common sense and is known for his rules of thumb such as “you don’t get paid for activity, you only get paid for being right” or “price is what you pay, value is what you get”.  In this spirit fintech simplifies investing, often with a much smaller minimum amount that encourages micro-investing and removes barriers to entry.

The benefits of robo-advisors

Of course, people don’t just invest for the sake of it. A huge part of the success of beginner-friendly investment tools is their ability to align with people’s wider circumstances. A growing subset of these apps, known as robo-advisor platforms, have emerged which essentially help guide people’s investment decisions based on their goals.

While this isn’t financial advice (which we covered in our blog on money management apps) these robo-advisor apps are able to influence people’s investments in a few simple ways. When people open accounts with these apps, they can be asked various questions in a quick questionnaire about their financial situation, income, appetite for loss and goals.

The app will then give them options based on their answers, and this can include constructed portfolios for different risk profiles. For example, if you’re in your mid-twenties with no children and a comfortable income an app may suggest you invest in a portfolio that is 75% equities, 20% bonds and 5% cash. These kinds of apps can also provide numerous other functions and features to help people manage their investments and stay on top of their budding portfolios.

Fintechs changing investment today

Here are some of the most popular apps DIY investors are turning to:

eToro

Number of users: 35.5m

Trading Fees: Zero (on certain assets)

Minimum deposit: $100

Investments: Stocks, indices, ETFs, currencies, commodities, crypto

AJ Bell

Number of users: 542,000

Trading Fees: Zero (on certain assets)

Minimum deposit: £500

Investments: Stocks, funds, trusts, bonds, ETFs

Interactive Investor

Number of users: 400,000

Trading Fees: Zero (on certain assets)

Minimum deposit: £0

Investments: Stocks, funds, trusts, warrants, ETFs

Nutmeg

Number of users: 200,000

Trading Fees: 0.25% to 0.75%

Minimum deposit: £100

Investments: Investment funds

Moneyfarm

Number of users: 130,000

Trading Fees: 0.25% – 0.75% (Annual average investment fund fee 0.15%)

Minimum deposit: £500

Investments: Investment funds, stocks, ETFs, mutual funds

What’s next for tech-enabled investing?

The success of beginner investing apps has already opened an entire new audience up to markets. In 2023, 117 million people around the world were using these apps which helped this sub-industry generate revenues of £20.6bn.  These numbers are set to grow and, importantly, the technology is continuing to break down barriers and demystifying capital markets for an entire new generation.

This is already having impacts and DIY investors are able to move the dial. In 2021, social media helped a growing community of app-enabled traders to buy up GameStop shares – pushing the price from $17.25 to over $500 in a few days! This rocked markets and even sparked a regulatory investigation. Beyond doubt, this also proved to the financial services world that the public can invest and want to engage with markets, which poses a very exciting picture for where this technology can continue to go from here.

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