In many ways, when I look at the modern investing landscape, I sometimes think that things are more straightforward than ever before: the age-old investment basics of buying low and selling high remain, but the number of options for making this happen are hugely increased.
However, I can completely understand why modern investors still make mistakes, choose the wrong opportunities or take on too much risk, even given the amount of information that’s available to them. Here’s my take on what I think is going on in the minds of many modern investors.
They’re struggling with too much choice
This increase in options represents a huge challenge – the amount of choice available to investors now (and the amount of data and information available to allow them to make those choices informed ones) is truly mind-boggling. The problem, as I see it, is two-fold. Investors now have an incredible range of financial products to choose to invest in, from relatively straightforward stocks and bonds to crypto currencies and ICOs, peer-to-peer lending opportunities and other alternative investment types.
This is great, but it also requires far more research on the part of the investor – or reliance on expensive brokers. The second issue follows on from this – the wealth of data. Again, having this information so readily available online – everything from past performance figures to future projections of growth – is good news for investors, but it can also be overwhelming. Information is now available so quickly, and in such vast quantities, that rather than liberating us to make our own decisions, it can sometimes force us back into the arms of experts who we then need to pay to make sense of it all.
Simple user interfaces make complex decisions too easy
Trading apps, smartphones and increasingly simple, user-friendly online interfaces are great. They make everyone’s lives easier – they create less friction in every interaction we have with our financial products, make it easier to manage our portfolios, and the information we need to make decisions is readily at hand and can be accessed quickly and easily.
But I also feel that sometimes these new ways of investing and trading – for example by using an online crypto-currency exchange like Binance – can make investors think that the decisions they are making are in themselves simple, just because the process of acting out those decisions is also now so straightforward. Ease of use then can have a detrimental effect on the way we trade – we’re more likely to break one of the cardinal rules of investing, like chasing short term gains by buying and selling too quickly – if buying and selling in itself becomes too easy to do.
They believe the hype
Advertising plays a huge and influential role in investing today. And of course, it always has done to a certain extent, but now, as with every other aspect of modern life, technology and social media in particular has only increased its power. Investment products are now marketed in the only way that advertisers know how – as a full-on assault, that builds hype and excitement around a particular product or commodity in a way that would have been unimaginable a few years ago.
I think that a big part of this is that advertisers can pick and choose the particular features of a product to promote, emphasising the benefits of one aspect over another, without taking into account the individual needs of an investor. And of course, I wouldn’t expect them to do anything else – it’s their job after all – but sometimes that kind of marketing can cloud an investor’s judgement, affecting their motivations and dulling their sensitivity to risk. Crypto currencies are a great example of this – riding on the back of the Bitcoin bubble, rival players are currently booming and their popularity is sky-high – for how long remains to be seen.
Ultimately, my investment experience over the years has shown me that the fundamentals really don’t change, however much the processes, products and trading mechanisms move on. It’s now easier than ever to manage your own investment portfolio in an informed and intelligent way – which is great news. Just don’t forget the basics.