By Simon Crookall, founder of low-cost wealth manager InvestEngine. Simon is a highly experienced digital entrepreneur and wealth manager who previously co-founded Gumtree, the classified ads website. He is also a board director and member of the investment committee at Ramsey Crookall, the biggest independent stock broker in the Isle of Man.
How would you sum up 2020 for investors?
2020 was a rollercoaster ride for investors: the pandemic triggered a stockmarket plunge which was then followed by a very rapid recovery. It showed the importance of investors holding their nerve and sticking to their long-term plan, rather than panicking and selling up when markets fall — which crystallises losses.
With the Nasdaq — the US technology index — up 40%, it was also a year of the hot stock. The stellar share price growth of Tesla, the electric car company, attracted a stampede of novice stockpickers using free mobile-based investment apps. The concern is that many of these newbies don’t understand the risks of investing in hyped-up individual companies, whose shares can come down as fast as they go up.
What are your thoughts as we look ahead to 2021?
Most people have too much of their savings in cash and too little in stockmarket investments. With interest rates on the floor — and staying down for the foreseeable future — savers need to consider investing in the stock market for the chance to earn a worthwhile return on their money.
Low interest rates are also a challenge for those businesses fortunate enough to have built up cash reserves. As with personal investors, business owners are increasingly aware of the poor deal they are getting from their banks and are looking for alternative solutions for higher returns. At InvestEngine, we are seeing a growing number of enquiries for our Business Accounts as business owners look to invest their company’s cash — a trend we expect to continue in 2021.
Meanwhile, the surge in sign-ups to trading apps in 2020 shows that people are prepared to put their money in the stock market even in a time of uncertainty. However, it has also increased the number of inexperienced investors, unwittingly taking on too much risk and placing too much emphasis on individual stocks. Going forward, investors will need more guidance on how to create and manage a diversified stockmarket portfolio — rather than just taking a punt on the latest Tesla and hoping for the best.
Currently, few apps and online investment services provide the tools for effective portfolio management. There’s a huge gap in the market waiting to be filled by a new generation of investment platforms.
What are the trends investors should be looking out for?
Investors can expect more competition and transparency around costs from investment services. With any of these services, it’s important to think carefully about what you’re getting for your money. Simply put, the more you pay in costs, the more of your investment returns you’re giving up.
Investors should be wary of banks ramping up their efforts to sell stockmarket investment accounts as interest rates remain low. All too often, big bank equals big cost and limited investment choice — a low-cost service from a dedicated investment specialist may be a much better bet.
Mobile apps for investing are definitely here to stay. Convenient, cost-effective and powerful: they’re at the cutting edge of investing for individuals and business owners.
They’re also set to get better at helping investors build diversified portfolios and manage risk. At InvestEngine, we’re planning to launch a free “DIY service” for investors to build and manage portfolios for themselves. We’ll be offering a range of easy-to-use, innovative portfolio tools that will help people invest better — without the need for a professional.