Advances in technology and instant communication platforms have made a great impact on investing and personal finance. In the nineties, mutual fund NAVs were despatched by post and Value Research updated fund returns every six months. Today, if fund NAVs are out by 9 pm and our subscribers' online portfolios don't reflect this by 10 pm, they get very angry!
For investors in financial products, technology has ushered in three big changes. One, it has greatly eased transaction barriers in buying or selling products. Today, a bunch of AMCs offer savings apps that allow you to sweep your idle savings account balances into liquid funds at the swipe of your smartphone screen. Online trading platforms allow you to set up many varieties of SIPs, not just in funds but also in individual stocks. Direct investing has become easier, too, with direct log in facilities into mutual fund portals and even automated platforms for fee based direct investing.
Two, tech is rapidly changing the rules of the game for financial intermediaries. Today, most IFAs and distribution platforms use technology to give you quick access to your account status and portfolio analytics, with ready made CAGR returns, asset allocation and risk profiling. The VRO platform has leveraged these developments, too. These give the investor the ability to directly monitor and control his investments without the need of an intermediary. Three, robo advisory services that offer everything from goal setting and financial planning to mutual fund advice and solutions have sprung up as an automated alternative to conventional distributors or IFAs.
In some respects, these are welcome disruptions. For savvy investors dealing with financial firms, apps or automated platforms reduce transaction costs and friction. Tech based transaction platforms such as apps also do away with inertia and thus prompt you to act on your investment decisions immediately.
But the flip side of relying entirely on robots is that there is no human intervention to save you from the behavioural pitfalls of greed and fear, which can prove quite injurious to your wealth. Too much information can lead to hyperactivity also, where you churn your portfolio or asset allocation too often to keep up with market fads.
What to do: The decision on whether or not to invest through a human advisor should depend on two things: the time you have to manage your personal finances and your knowledge and ability to rein in bad investing behaviour. If you are blessed with both, you can do without human advice. But having said that, if you are on an automated platform, resist the temptation to check your portfolio too often - once a quarter or once in six months monitoring is good enough. And every time you are tempted to make changes to your funds at the swipe of a mouse, stocks or allocation, log off immediately, sleep over it and then make the change! While the speed of investing has certainly changed with technology, the old fashioned approach to investing still works best - deciding on a set asset allocation, selecting your funds for their long term record and staying the course through market ups and downs.