Amid COVID-19 online investing craze has brokerage firms competing for investors

By Leo Gutierrez

We’re in the midst of a Black Swan event. When most are trying to survive the most distressful event of our lifetime, it’s shameful that those who control the money aim to make more through deferrals on payments in response to COVID-19. Few will be able to cope unless they quickly facilitate change in their lives.

Change is the common denominator here. No, it’s not the “hope and change” that was fed down the throats of those who sought a different demeanor from big business. The world is changing at an ever-increasing rate whether we like it or not; luckily, the internet coupled with information technology (IT) has made change a more bearable aspect of life.

IT and globalization have torn down that which constrains capital allowing money to flow to where it makes the dearest returns, simultaneously enabling those of all backgrounds and means to invest and participate in the global economy. This has been especially fortuitous for the Baby Boomer and Millennial generation in North America. As investing is one way to facilitate income during this crisis, those hoping to achieve or save their retirement in the wake of COVID-19 are turning to investing online.

Consumer Benefits of Online Brokerage and Advisors

The world of online investing is at an interesting juncture.  Twenty years of stock market gains were wiped out in about a month. Now out of a job, many do not know from where or when their next source of income will be short of government help. People are adhering to social distancing guidelines and stay-at-home orders, and in the meanwhile investing online has experienced a surge in interest in order to supplement income or one day to make up for what was lost.  Around the world, people lost their retirement nest egg and debate whether to try and reinvest or hope the market rebounds. Many are naturally hesitant, especially since it pertains to something scarce right now like their money.

This rise in searches for recommended online brokers competes with brick and mortar firms who in the past had the market cornered. This is welcomed relief by consumers who need to slowly climb back up the investing ladder as we all navigate this crisis. 

One of the most visible benefits that consumers notice is the dramatically lower costs associated with operating their investment accounts. This is due to the naturally lower operating costs of online investment accounts. With specific regards to online brokerages, whether in the United States or Canada, traditionally there had been a hefty sales charge or commission that was levied onto any purchase of stocks or bonds.

This was largely because of higher operating costs incurred by traditional brokerage firms. This implies a certain cost to investing through a traditional brokerage. With online brokerage accounts, many of these costs associated with a physical place of business are no longer; this lowers the charges online brokers need to pass on their customers.

In the long run, this provides an increase of net returns, which hopefully will continue to compound the longer an investment is given to accrue gains.

The Convenience of Online Brokers

Another massive benefits to switching from a traditional to an online brokerage is the sheer convenience aspect. With traditional brokers, investors are mostly confined to operating office hours. This proves difficult for those with busy or unaccommodating schedules.

With an online brokerage firm, investors have access to make changes to their portfolios whenever and wherever works best for them. All that is needed is to access accounts using any electronic device in order to initiate the purchase or sale, and the system will take care of the rest. While this might still be constrained by whether the market in question is open or not, this takes less time to execute a trade when time can make a serious difference.

The Democratization of Finance

Because of information technology, the financial services industry has been made dramatically more accessible than it was even a few short years ago. As the industry has been transformed by information technology, the barriers to investing have come down along with it.

This has been the case with just about any industry transformed by the mass proliferation of information technology. The infusion of information technology allows for processes to be optimized at a lower cost than before. In turn, this makes whatever the product may be more accessible to the consumers. Financial products and services from online brokerages are no different.

As society is less sure about the future than we were just a few months ago, it is important to diversify in case of another Black Swan event. Everyone needs to be able to chart a proper course for their financial future. Dependent upon one’s financial situation, perhaps with the cash on hand, instead of making payments and going broke, one might be better off investing in hope of riding out this wave of unsurety. Retirement planning and investing does not have to be something confined to those of wealth.

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