Smartphones have changed the way we work and live, playing a pivotal role in the rise of the platform economy, which has revolutionised the way we bank, shop, order food, hail a ride and trade and invest.
Previously called the ‘Uberisation of everything’ trend, app-driven innovation disrupted almost every market. The financial services sector was an early adopter, with the banking and insurance industries pioneering these direct self-service models.
Launch of online trading platforms
It wasn’t long before the investment sector got in on the action, launching online platforms that completely changed the complexion of the industry by democratising investing and trading for retail investors and ushering in a new era of do-it-yourself (DIY) or self-direct investing.
Offering a glimpse into the massive growth in self-directed investing, a Charles Schwab study released in 2022 shows that individual US investors held a record 33.2 million accounts at online brokerages, up from just 6.6 million in 2000.
The online value proposition
The new kid on the block
There are numerous reasons behind the growth and popularity of DIY investing. Online platforms reduced the friction normally associated with accessing local and global stock markets, offering an easy, lower-cost entry point to the market with very low or no minimums.
Offering access to a wider investment universe put the DIY retail investor squarely in the driving seat with affordable access to numerous markets, giving them the freedom to invest by themselves by expressing their personal investment strategies and flair.
Over time, these platforms have broadened access to other asset classes like foreign currency trading, bonds and real estate.
Additional innovations, like the emergence of part share ownership, further reduced the barriers to entry and broadened market access by creating opportunities for investors to buy a portion of a share, enabling them to invest in the world’s most valuable companies.
Today, easy access to data, insights and analyst research via online trading platforms, coupled with innovations like demo accounts, help investors hone their skills, building greater confidence to develop and execute their investment strategies, which has supported the boom in adoption.
Clarity, by Investec is the latest in a growing number of self-managed, high-tech, low-touch standalone trading platforms for the hands-on investor.
The online and app interfaces are designed to make it easier for retail investors and traders to allocate extra disposable income towards discretionary DIY investment strategies to get their share of the markets.
Clarity, by Investec gives registered users access to over 700 local and international shares and exchange-traded funds (ETFs), with the option to trade on their own with or without margin and buy parts of shares.
Low minimums make it possible to start trading with as little as R25 with no brokerage fees. Users can trade in South African rands (ZAR) or US dollars (USD) using Contracts for Difference (CFDs) to generate income, diversify their investment portfolio and access global markets to grow their wealth their way.
DIY investing guidelines
However, as DIY investing does away with the advice and guidance of a professional financial advisor, it is important to consider several factors before investing.
A vital consideration for every DIY investor involves determining how much capital to allocate to their discretionary trading portion of their portfolio, and how much should go towards their long-term investments.
The recommendation is typically a conservative allocation of 5-10% of an investor’s total investment portfolio for trading and DIY investing.
Manage your risks
Relying solely on a DIY strategy can increase risks, such as a high concentration in sectors or assets like stocks, which negates the benefits associated with diversification. As such, retail investors who implement self-directed investments and trades via online platforms must have a clear risk management plan in place.
DIY investors, especially those who are inexperienced or lack sufficient knowledge, can also fall foul of psychological and behavioural biases that can impact their decision-making, which can deliver returns that underperform market benchmarks.
DIY investors must understand the potential risks associated with trading stocks and currencies by acquiring in-depth knowledge and a comprehensive understanding of the economic and financial factors and global geo-political dynamics that can impact financial markets.
In this regard, it is vital to research and select investments that align with your financial goals and risk tolerance. Investors who choose to use leverage to trade with margin must also understand the potential risks, as they can lose more than their initial investment.
In an effort to support investment and trading decisions and minimise risk, online platforms are increasingly integrating advanced digital technologies like artificial intelligence (AI) and machine learning, which users can access and leverage to help make better decisions and formulate strategies that maximise returns and minimise losses.
When investors and traders start to combine these data-derived insights with their own experience and knowledge, they will grow in confidence, which should support increased trading activity and grow the number of active DIY investors.
