By Oleg Giberstein, Coinrule
Not long ago, I attended an event in the City of London. Suave bankers had come together for a discussion about Fintech. “Normal people should not be trading” was the general agreement in the group. With a slightly disgusted look on his face, one of them told me straight out: “these people don’t know what they are doing, they will just lose money if they get their hands into the market”. Given the track record of banks, this seemed slightly out of touch, but one way or another, the message was clear.
I am recounting this anecdote because it fits a narrative that has become widely accepted: ‘normal’ people are too stupid to make money investing. They should just put their funds into a so-called robo-advisor like Nutmeg or Wealthify which will put their hard-earned cash into index-tracking passive investment funds.
This investment approach looks backwards to a past when investing was for the elite only. However, today is different and investment is being democratised.
How can the everyday person get the most out of the markets?
Side-stepping Robo-advisors
Robo-advisors are a class of financial advisers that provide advice or investment management online with moderate to minimal intervention from humans. Their advice is based on mathematical rules or algorithms alone. And management fees can be 1% of your funds.
Although passive-investing has worked while the markets have been going up, this won’t go on forever. Michael Burry who predicted the Subprime Mortgage crisis which led to the financial crisis of 2008/09 has warned that Index Funds are the next big bubble.
Next Step:
With some research, anyone can create their own long-term, low-cost multi-asset fund held via a platform, with total costs below 0.5%. Explore platforms like eToro or IG Index to buy an index fund that holds a range of stocks directly, or create your own.
To spread your risk, pick stocks from different industries and decide what percentage of your portfolio you want to allocate. If that percentage becomes higher or lower, you can buy or sell to balance it out.
Having a strategy rather than chasing trends
When the dotcom Bubble (https://en.wikipedia.org/wiki/Dot-com_bubble) collapsed, those left holding worthless stocks were mostly the retail investors who’d gone for the ‘trend-of-the-day’. Today’s trend is passive investing into index funds.
Next Step:
I use a ‘Barbell strategy’ by keeping the majority of my funds in safe, liquid assets with only about 20% of my portfolio invested in high-risk high-reward assets, like cryptocurrencies or certain tech stocks.
Cash in a 0.1% rate savings account may not seem attractive, but having the majority of your money in cash, bonds, or gold means you’re protected. When others are in a panic and selling during a market crash you’ll have cash available to buy.
Using advanced trading tools
Robo-advisors give you average annual returns in normal times. But when times are bad, I wouldn’t want to be sitting in an index fund when everybody is trying to get out at the same time.
Those who get out first are the ones who won’t suffer. In March 2020, when markets dropped over 30%, Hedge Fund Pershing Square reported $2.6 billion in profits in less than a month.
Next Step:
Hobby investors tend to shy away from anything more complicated than buying and selling. However, a simple ‘Put’ option can act as an insurance that allows you to sell a certain financial asset at a predetermined price: perfect when you want to protect yourself against a market drop.
Automated trading rules allow hobby investors to use algorithms to trade like professionals. Platforms like Coinrule provide the tools to build strategies that protect against losses and help catch market opportunities. By designing and then automating the strategy you don’t need to sit by the computer all day. Innovation is starting to provide access to the markets for more and more people.
Learning is key
Most of the problems holding normal people back are related to access. Access to the right trading instruments, the right knowledge and the necessary experience. If you just put your money into a passive fund, you never learn and are forever victim to whatever crisis hits the market.
Next Step:
Study the markets. Books like “The Intelligent Investor” by Benjamin Graham “What I Learned Losing a Million Dollars” by Paul and Moynihan and others provide great introductions. Free resources and communities allow normal people to get up to speed quicker than ever.
Deciding for yourself
Platforms like Robinhood, Freetrade or Revolut have made waves in the retail online investing market. But they don’t go far enough when it comes to financial inclusion.
The need for a market that, at least has the potential for full transparency, fast learning and large opportunities, is there. Cool tech is making this a reality.
Next Step:
Do your own research. Learn to make your own judgements. Use the platforms and tools offering full transparency and which have the ethics you value. Companies like Luno, eToro, Coinrule, Kraken, and TradingView stand out as frontrunners in making exciting investment opportunities accessible to normal people.
Trading involves time and risk. However, with the tech now available opportunities abound for the non-professional. Democratisation is with us.
