Investing 101: How Technology Has Changed Investing

Technology has had a profound impact on most every aspect of our lives. Investing is certainly no exception. In fact, technology has democratized investing in the last several decades and also exerted significant downward pressure on fees.

Buying and selling securities

Years ago, if you wanted to make a trade you would need to call your stockbroker and place an order. The commission rates to buy or sell stocks was pretty much fixed and high due to a lack of information and alternatives. Investors wouldn’t know how their investments were faring until they received their account statements in the mail.

Today investors can search the web to see which brokerage firm has the lowest transaction fees and buy and sell securities themselves at the click of a mouse. Fidelity started a new price war in the cost of trading stocks and ETFs by lowering their transaction costs to $4.95 per trade. Schwab quickly lowered their price to match Fidelity, while TD Ameritrade also reduced their trading commissions.

Many brokerage firms and other custodians offer apps to allow investors to track their investments using their phones. Alerts can be established on various holdings and so much more.

Technology has also armed both individual investors and investment advisors with the tools to perform cutting edge research and analysis on investments and to help manage portfolios.

Robo advisors

One of the biggest innovations of the past ten years has been the advent of the robo advisor. Firms like Betterment, Wealthfront and others have used technology to allow them to construct and manage client portfolios using algorithms. Most robo advisors invest in low cost ETFs. Taking the human element out of the investing equation can drastically lower the cost of investing.

Robo advisors have been adding additional services as well. Both Betterment and WealthFront offer tax loss harvesting for taxable accounts. Betterment offers a 401(k) product and has a version that partners with financial advisors as well.

Bigger players like Schwab, Vanguard and Fidelity have taken notice and have started their own robo services, sometimes augmented with human advisor. This technology promises to continue to revolutionize the investing landscape in the years to come.