Half a century ago, investing in the stock market was a relatively difficult endeavor, only accessible to people of significant means with significant existing knowledge of how financial markets work. Thanks in part to faster, better internet, the stock market has been democratized. But what exactly does that mean for investors?
The Influence of the Internet
The internet, and the billions of pages of web content associated with it, have changed all of our lives forever. We work differently and communicate differently. Additionally, we entertain ourselves differently. And of course, we manage our finances differently.
In today’s era, learning about the stock market or investing are trivially easy tasks. Thanks to powerful stock data APIs, it’s possible to get real-time information on all stocks and exchanges to any number of apps and platforms that rely on such information. With the click of a button or a spoken phrase, you can generate a detailed quote on any institution, asset, or currency you want.
On top of that, thanks to available brokerage services online and competitive pressure that reduced trading costs, it’s possible for anyone to trade stocks as easily as they can buy groceries. At any time during active hours, brokerage account users can issue trades, often for low or no fees. Additionally, they can analyze the results of their past trades.
And thanks to high-publicity events, like the controversial subreddit WallStreetBets and its influence on the GameStop short squeeze, more people are aware of the stock market – and investing in it actively.
This has led to a handful of mutually influential consequences:
- More individual people are investing. Unsurprisingly, the open democratization of the stock market has led to more individual people investing. Stocks are easier to understand than ever before. There’s more information and advice available than ever before. And all you have to do is download a simple app if you want to start trading. You may not even have any commission fees to pay. And you may be able to open an account with just a few hundred dollars (or even less).
- Different types of people are investing. It’s also worth noting that different types of people are starting to invest. Demographics that typically don’t invest in the stock market are starting to gain more interest in it. And people who used to feel like the stock market was too complex or too intimidating for them are starting to change their minds.
- Competitive pressure is forcing companies to remain accessible. Thanks to a large potential user base and hot competitive pressure, organizations and institutions are mutually forcing themselves to remain as accessible as possible. When Robinhood came onto the scene and offered $0 commissions, dozens of other brokerage players followed suit. Because of this, we will likely see further changes and improvements to make brokerage apps and platforms even more accessible to more people.
- The stock market has become gamified. Some professional investors and economists fear that the democratization of the stock market has, in some ways, “gamified” investing. Instead of focusing exclusively on fundamentals and doing exhaustive due diligence on each trade, people are treating this stock market like a glorified casino, making bets with the hope of striking it rich. While individual investors don’t influence stock market action as much as major stakeholders, it’s clear that this still has some effect.
- Volatility is rampant. There are many factors making the stock market exceptionally volatile in this era. This includes the COVID-19 pandemic, supply chain issues, and global economic uncertainty. But the democratization of the stock market could also be partially to blame.
What It Means for You
So what does this mean for you as an individual investor using the bounty of the modern internet to learn about and invest in stocks?
- Get involved. If you’re not already actively investing, consider getting involved. You don’t need to be a financial guru. Nor do you need to be a math wizard to learn how to do basic due diligence and make your first trades.
- Diversify your holdings. Every investor should intelligently diversify their portfolio. One of the best ways to maximize your returns and minimize potential losses is by holding many different types of assets simultaneously.
- Take advice with caution. More people actively investing and talking about the stock market means there are more self-proclaimed experts and more lucky people with amazing stories to sell you. Not everyone who gives advice on the internet is worth listening to, so always take advice with caution. Do your own research. Look for counterevidence. And think critically before making any financial moves.
- Plan for the long term. If you want to maximize your chances of success, try to plan for the long term. One of the worst aspects of the democratization of the stock market has been increased volatility. But volatility means very little if you plan on holding your assets for many years. If you’re investing for long-term value, rather than gambling for short-term gains, the market should eventually work in your favor.
The democratization of the stock market has been slow, but revolutionary. Thanks to greater accessibility, more information, and better tools, more people can use the stock market to their advantage.
While not all trends associated with this change have been positive, we can be grateful that the stock market will only grow more democratized from here.