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How tech has created new opportunities for everyday investors

Posted on 30/08/2018, by Joe Jones

What does the typical investor look like? Is it someone surrounded by screens, following every market murmur to pick their next move? A landlord sitting on a sizeable buy-to-let property portfolio? A retiree with their stockbroker on speed dial?

These days, it’s just as likely to be someone who doesn’t look or behave like a ‘traditional investor’ at all. The reality is that the investment world has democratised in recent years, with new online platforms and asset classes making investment a more accessible option for many more people. It’s no longer the case that you need detailed market knowledge, a stockbroker on the end of the phone, or a large pile of money to become an investor.

Whether you are looking to invest in property, companies, currency or commodities, there are now many different ways to access investments, with lower barriers of capital and expertise required. Let’s take a look at some examples.

Crowdfunding

A popular form of online investing is crowdfunding, where a ‘crowd’ of investors contribute towards raising money for a defined purpose. It’s a bit like someone running a marathon, and raising donations towards their fundraising goal from an extended group of friends and family.

Over the last decade, crowdfunding has become an increasingly prevalent means for companies to raise money and fund their growth. Rather than pitching to venture capitalists or private equity houses, they make their pitch online to everyday investors. In principle, this offers the ordinary punter the chance to take a stake in a company that could turn out to be a significant success. Some investments may also qualify for tax relief via the Enterprise Investment Scheme and Seed Enterprise Investment Scheme.

That said, there are significant risks involved in crowdfunding. Often the companies involved are early-stage, and could well fail, taking their investors’ money with them. An analysis of companies that raised money via equity crowdfunding between 2011 and 2013 showed that 1 in 5 ended up going bust, while only 22% either improved their valuation or delivered a return for investors through a sale or exit.

Equity crowdfunding (where investors take a direct stake in the company, property or asset in question) is an asset class with low barriers (the minimum investment on some platforms is just £10) but notable risks. It’s an interesting way to experience the realities of being an investor, as long as you’re not necessarily expecting to get all your money back!

Peer-to-peer lending

Another ‘crowd’ form of investing is peer-to-peer (P2P) lending. Simply put, this is where companies or individuals looking to borrow money are connected (by specialist online platforms) to investors who act as lenders.

As an alternative investment offering more sense of security than some, P2P has become an incredibly popular alternative asset class in the UK. According to one study, P2P business lending grew by 39.8% in 2016, while P2P property lending ballooned by 88%, to £1.14bn.

With interest rates still low, and some investment classes such as buy-to-let less favourable than they have been, P2P could help investors target a relatively stable option with what might be an attractive return.

It’s arguably less risky than crowdfunding, as your investment isn’t tied directly to the value of the asset. Instead, investors earn a return from the borrower’s interest payments.

Your money is of course still at risk, though, and it’s possible you could get back less than you initially put in. If your loan is secured against property, then it is also possible that it will be affected by a material downturn in the property market, too.

Also, don’t forget that there’s no guarantee you’ll be able to get instant access to your money, and P2P is not covered by the Financial Services Compensation Scheme (FSCS).

One’s a crowd?

Being a digitally-empowered investor doesn’t have to mean being part of the crowd. There are also numerous apps and online services that allow individuals to set themselves up as equity investors, quickly accessing trend and performance data to make investment decisions and build a portfolio. And that’s not to mention the more traditional services available, to invest in funds that track the market, or focus on particular sectors or geographies.

If you’re someone considering investing for the first time – whether that’s in equities, loans or a fixed asset like property – there have never been more options at your disposal. Whether you go it alone, as part of the crowd, or supported by professional advice: it’s your choice. But remember, all those new options don’t change the fundamental gravity of any investment: your money is at risk and you can always lose what you put in. Investing digitally doesn’t take away any of the necessity to invest wisely.