By Roger Baird on Tuesday 21 May 2019
Fintechs offer saving and investing options ranging from digital piggy banks to trading in cryptocurrencies. Here is a guide for those new to fintech investing.
Savers, fed up with more than a decade of low interest rates, might think it time to look at investing as a way of making their money work harder. But it pays to enter this area with your eyes wide open.
Investing - however much research you do - is a gamble. It is a world away from putting cash into a bank or building society account, and earning guaranteed interest. That is why the returns are higher, but the other side of that risk is that you can lose your entire stake, and more than this if you leverage your investment.
There are three rules worth remembering throughout all types of investing. Higher returns, usually means accepting higher risk. Diversifying your portfolio, lessens your chances of being wiped out. Review investments regularly, making sure you are comfortable with its assets and your exposure to risk.
Round ups
App Moneybox popularised this savings and investment idea in the UK. The app connects to your bank account or credit card and rounds up the digital spare change from transactions to the nearest £1.
This means after spending £2.80 on your morning coffee, the app would take a further 20p out of your account and put it into a previously designated savings or investment account.
Moneybox said its users make around 30 transactions per week with an average round up of about 28p. This results in a total of £8.41 a week accrued from round ups alone.
Digital bank Monzo, which this week notched up 2 million users, also uses round ups. It sends this digital change to previously set up savings pots. It has a deal with Investec, and pays 1 per cent interest on cash deposited in these pots.
Robo Advisors
A robo-advisor is an online investment service, which typically asks between 10 to 15 basic financial questions and then allocates you to a suitable basket of investments, which it manages.
The big plus for less confident investors is that you don't have to pick the individual investments across individual savings accounts, pensions and other products - they do it for you.
It's still a small and growing market and many of the players are new and brands, such as Nutmeg, Scalable Capital, Fountain, Tiller and Exo Investing. However, larger banks have entered this market such as Fidelity’s Fidelity Go, Vanguard’s Vanguard Personal Adviser Services and Merrill Lynch’s Merrill Edge Guided Investing.
Robo-advisors have lower minimum investments and lower fees than human financial advisors. An online advisory service charges around 0.25 per cent fee, compared to 1 per cent charged by a human. But in a troubled market a robo-advisor is not able to calm your nerves, or tell you to cut your losses. It also not fully aware of changes in your circumstances in the same way a human advisor would be following a conversation.
Stock trading apps
For more confident investors stock broking apps are available, such as Freetrade, etoro, AvaTrade, or IG Markets which trade shares, bonds, commodities, forex, cryptocurrencies and everything inbetween. Costs are low on these sites, and are often advertised as commission and fee free. However, it should be noted that most sites levy charges in other areas, such as for instant orders, or for outgoing bank transfers.
The range of trading options across these sites is great, so it’s important to choose a site that clearly lays out features such as charting tools, stop-loss elements and withdrawal and deposit buttons. Most of these apps offer demonstration periods, use them to see if you can get around them easily.
