Five FAQs around technology in investing
Technology is evolving at a rapid pace, but humans aren't always comfortable with change.
Here we answer five frequently asked questions around the impact of technology in investing.
1. Where are we heading with technology for investors?
Through 2022 and beyond we will see investment platforms start to incorporate more sophisticated, investor-focused technology. This will provide user-friendly tools that deliver greater insights into different asset classes.
As investors, we've never enjoyed so much choice - or faced such a wealth of research information. The challenge now can be processing that research and making a personal choice.
That's where technology comes into play. It will help us digest information on one platform - or digest information on our behalf, to drive better decisions.
2. What's the biggest change you see coming around technology and investing?
The next big innovation will be platforms that use sophisticated technology to help us manage our money - not just parts of it, but all of it.
Platforms will soon offer a 360-degree picture of all our investments including superannuation, putting a holistic view at our fingertips.
We're already seeing this with the likes of neo-bank 86 400. Its app connects with over 100 financial institutions, giving the customer an all-in-one view of their bank accounts - even those held with other banks.
Another neo-bank Douugh has listed on the ASX, and is set to officially launch a 'financial super app' in 2022, which will monitor users' spending habits and provide feedback on their financial health.
3. Artificial intelligence is not something I'm completely comfortable about - how can it benefit me?
Most people don't realise how much they already interact with artificial intelligence (AI) on a daily basis. It can be surprising to learn for example, that AI drives what you see in your Facebook feed. Once investors understand what's involved with AI they tend to be less fearful of its use in investment platforms.
By way of example, Jaaims uses AI to make stock recommendations based on three types of data.
Firstly, fundamental analysis, which looks at a share's value against its peers, the industry and the company's own balance sheet and announcements. Secondly, technical analysis used to understand the momentum of a share. And finally, Jaaims determines market sentiment by capturing data from news feeds and social media that talk about a specific stock.
It's far more information that any of us could process as individuals. However, the central benefit is not so much the breadth of information the algorithm draws on, but rather the platform's ability to make stock recommendations free from human biases.
4. Does the use of AI mean investors have less control over their portfolio?
Not at all. What AI does is take the emotion out of investment decisions. That matters because emotions can see us make poor choices such as holding onto a poorly performing stock for too long in the hope it will pick up.
Or sometimes we invest in a company just because we are familiar with the name through marketing and advertising. That familiarity doesn't mean it's a good investment.
5. I've heard blockchain will impact investing. How will that work?
Blockchain looks set to be a big disruptor. It's already driving what is termed 'Web 3' - the next phase of the internet's development.
We know the ASX is preparing to retire its CHESS clearing house system, and replace it with a decentralised ledger. This will speed up the pace of trades. So, instead of having to wait days for a sell trade to clear, investors can have their money sooner.
We'll also see blockchain disrupt the way funds are transferred internationally. At present, if money is sent from a bank account in the US to an account in Australia, the transfer is executed through the Society for Worldwide Interbank Financial Communication (SWIFT). It's a slow-moving and expensive way to move cash around.
A decentralised ledger will drive faster payments at lower cost, potentially with funds cleared in minutes instead of days.
The common thread is that we'll enjoy improved liquidity, and that means being able to take advantage of investment opportunities without lengthy waits to access our cash.
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