As the investment industry pushes towards increased access for consumers, one outlet of change has been the introduction of investment apps, placing client’s portfolios in the palm of their hands.
Many of the investment apps offer a variety of services, including secure messaging systems and increased access to investment information. However, they also allow for easy access to viewing performance, which can create unease for users as short-term volatility shifts markets, and could lead to clients pulling funds.
Generally, the investment industry advocates for a strategy of ‘investing and forgetting’ to most clients in order to get the best returns instead of attempting to time the market. Adages such as ‘invest in May and go away’ have largely been disproven by the market.
According to data from Morningstar Direct, a £10,000 investment in the S&P 500 made on 31 December 2003 would create an end value of £103,902.84 by 15 August 2024 if the funds were left in the market throughout. However, if £10,000 was invested throughout the same time period and removed each May until the end of October, the end value would be just £36,395.84.
Chris Justham, managing director of intermediary solutions at 7IM, said that more frequent viewing of performance could add risk that investors would pull money out more often.
“Our thirst for information is manifest in 24hr news and social media doom-scrolling. The trouble with this in the world of investment is that short-term fluctuations are more frequent than a traditional quarterly or annual report indicate,” Justham said.
“Whenever we see falls, we’re inclined to act. To take control. The trouble is, emotions hurt and selling whenever there is a fall is proven to damage your investment journey.”
While investment apps were introduced relatively recently, Lee Wild, head of equity strategy at interactive investor, pointed out that access to market information is nothing new.
“Investors have had 24/7 access to oodles of market data and share prices for years, so I don’t think dedicated investment apps can be blamed for premature, bad or wrong decisions. Investors are all built differently, and behaviour during a market downturn is largely driven by experience and emotion rather than too much information,” Wild said.
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Despite the benefits of tech in investing, such as transparency and flexibility, Joe Wiggins, investment research director at St. James’s Place, believes the tool “comes at a potential behavioural cost” that he believes could be encouraged by investment apps.
“The stress of short-term market volatility is in part a consequence of how frequently we check our portfolios. If we don’t see it, we don’t feel it. When our horizon is 20 or 30 years, the fluctuation of financial markets on any given day really doesn’t matter that much – but our emotions will make it feel like it is the most important thing. Adopting a long-term approach to investing is one of the greatest advantages any investor has and although investment apps can help us in many ways, if we are not careful, they can also encourage the most damaging behaviours.”
“In an age when you can check the value of the portfolio whenever we like, the urge to do so every day – or even more frequently – can be overwhelming. The problem with this is that it can inhibit our ability to withstand incessant market noise and remain invested for the long-term,” Wiggins said.
Instead of constant check ins, Wiggins recommended deploying a familiar strategy for many households: “Much like we might limit our child’s screen time, most investors should do the same with their investment apps”.
Justham also recommended putting limits on visiting the apps, calling a monthly check-in “more than enough”.
The Schroders Benchmark team recently introduced a new mobile app for its clients, but Benchmark CEO Ed Dymott said the team is aiming for “impactful engagement” over regular usage of the technology. He said they are best used in conjunction with personalised advice from advisers, who can offer guidance through times of volatility.
“Ultimately, we are here to help people manage their long-term finances and discourage clients from feeling the need to check their app every day due to short-term volatility,” Dymott said.
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“Our adviser conversations instead focus on the significance of staying invested and maintaining a longer-term perspective.”
Beyond the scope of investing apps, Wild warned of what he sees as a bigger problem for investors, incorrect or poor investing information and advice on social media. Justham brought up a similar concern, and called for more financial education for the public.
“This isn’t the job of the platforms, but everyone,” Justham said.
“Explaining what investment is and why it’s needed at school age would be a good start. We cannot allow TikTok to be the dominant voice for a generation in this space and until we sort this from the root, we will perpetually be trying to own a narrative that is far less sexy and interesting than the latest crypto darling. We owe it to everyone to sort this out.”
