Democratising investment: how technology lowers the barrier

Over the last few decades, the figure of the investor has changed significantly. Whereas in the past, due to the costs and difficulty of accessing financial markets, investing was an almost elitist activity, reserved for a select few who could count on large amounts of capital, today virtually anyone can invest, obviously assuming the associated risks.

All you need is a computer or mobile device connected to the internet to trade, build an investment portfolio based on stocks and shares ISA with a robo-advisor, buy gold bars and coins, and more.

Technological innovations are profoundly transforming the investment sector. Mobile apps, online platforms, educational tools, and AI advisors are making this complex world increasingly democratic and accessible to a diverse user base.

In this article, we will explore this topic in greater depth and discover the technologies involved and the effects of this lowering of barriers.

The technologies that are democratizing the investment sector

Many technological innovations have contributed and continue to contribute to making the investment sector increasingly accessible. Among these, the internet stands out in first place. Although certainly not a new technology, it has laid the foundations for the democratization of this and other sectors and has enabled the emergence of online platforms and apps that are now used to find investment solutions in a matter of seconds and to buy and sell securities, fund shares, and more.

Other technologies in the financial sector that are making a difference—and which also owe their success to the web—are robo-advisors. These are software programs based on sophisticated algorithms that analyse investor data and help them build and manage well-diversified portfolios in line with their objectives and risk profiles.

Alongside these are investment tools based on yet another technology, namely artificial intelligence. Capable of offering even more personalized advice and support, they can take the form of chatbots or virtual assistants and work alongside real-life financial advisors.

Finally, we cannot fail to mention the technologies behind predictive analytics and big data, used to analyse large amounts of data and make more informed and accessible investments, as well as blockchain and cryptocurrencies.

How tech is impacting investing

The introduction of these and other technological innovations in the investment sector has led to:

- a reduction in the costs associated with financial advice and portfolio management: those who rely on robo-advisors or AI consultants to build and manage their investment portfolios can generally expect lower advisory and management costs than those incurred when using professionals.

- a reduction in the capital required to make investments: those who wish to invest today do not necessarily need to have large amounts of capital. By taking advantage of online platforms, mobile apps and searching for the most suitable solutions through robo-advisors and AI advisors, it is possible to start investing with just a few tens or hundreds of pounds.

- constant accessibility: technology does not impose fixed locations or times for checking your capital and investment performance, and, in the case of some financial instruments, not even for making transactions. This allows investors to always have everything under control and to be able to buy and sell securities wherever they are.

- increasingly accessible financial education: to invest wisely, even when relying on industry professionals or advanced advisory tools, it is essential to have some basic knowledge of finance. Knowing, for example, what the relationship between risk and return is, how to assess the level of risk, what “asset allocation” means, what compound interest is, and so on, can help you make informed decisions and avoid mistakes that could cause problems not only financially but also psychologically. Technology has also democratised this aspect of the investment industry, making information materials, guides, articles, eBooks and basic courses increasingly accessible, sometimes even free of charge.

All these elements contribute to lowering the barriers to entry and enabling more people to invest large or small amounts of capital.

Technology and investment: transparency and support

In addition to those just mentioned, which are responsible for the democratisation of investment, technological innovations have brought further changes to this sector.

They have been able to increase the levels of transparency of movements, transitions and costs, and have enabled all entities offering investment services to provide their clients with diversified support channels, which are useful for targeted, rapid and continuous assistance.

More accessible investments, but no less risky

Those who decide to enter the world of investment and take advantage of this lowering of barriers to entry to make a few small investments must bear in mind that accessibility and democratisation do not translate into lower risks.

Investing, even if you decide to do so with small amounts of capital, is always risky and can lead on the one hand, to the failure to achieve your financial goals and, on the other, to the loss of some or all the capital invested.

For this reason, it is always preferable to avoid doing it yourself and to rely on professional financial advisors or robo-advisors or AI advisors designed, managed and supervised by industry experts.

In this way, although risks cannot be eliminated, you will still be able to build an investment portfolio in line with your objectives and risk profile.