Bridging the Gap: How Wealthtech Breaks Down Financial Barriers
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Bridging the Gap: Wealth Isn’t Just for the Wealthy

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In the UK, money is the #1 cause of stress—ranking above physical health, work, or family.

When people begin investing, they see immediate emotional benefits compared to non-investors. In fact, investors are 16 percentage points happier, and 23 percentage points more positive about their well-being.

However, only 37% of Brits hold market-based investments. So why aren’t more people taking steps to invest? Today’s infographic from BlackRock outlines the barriers people face, and how wealthtech can help address these issues at scale.

wealthtech

The Wealth Problem

A variety of hurdles keep people from taking control of their finances.

  1. Lack of Resources: 59% of Brits feel they don’t have enough money to invest.
  2. Lack of Knowledge: 39% say a lack of knowledge holds them back.
  3. Fear of Failure: 34% are afraid of losing everything if they invest.

All of these factors culminate in insufficient investing. In fact, 50% of the €26 trillion European wealth market is currently in uninvested cash, earning zero interest.

What’s the Current Solution?

Traditionally, investment advisers helped tackle these issues. However, investors have faced challenges accessing professional advice in recent years.

A shortage of UK advisers is a main contributing factor:

  • There are only 26,700 advisers, who can service an average of 100 clients each.
  • This leaves over 51 million adults without professional advice.

Among available advisers, many impose investment minimums or fees that create barriers for lower-income populations. Financial advisers charge an average of £150/hour, and half of all surveyed advisers turned away clients with less than £50,000 to invest.

With so many hurdles to overcome, how can Brits take charge of their investments?

A Modern Solution

Wealth technology—or simply wealthtech—helps address these issues at scale, offering four main digital-first solutions:

  1. Helps investors build better portfolios.
    Gone are the days of rudimentary spreadsheets. With the help of algorithms and machine learning, investors can now automatically build sophisticated portfolios.
  2. Helps advisors scale their services.
    The automation of time-consuming processes allows advisers to service more clients.
  3. Reaches more people.
    Wealthtech is accessible for all, not just the wealthy. For example, micro-investing apps allow investors to make small, regular contributions without paying a commission.
  4. Modernises infrastructure.
    Wealthtech updates old legacy systems with more streamlined, automated systems. As a result, paper-based processes are replaced with mobile transactions that can be done with the click of a button.

These benefits can be applied across various branches of wealth management.

The Wealthtech Ecosystem

Investors can choose one of three main paths, based on their level of knowledge and interest.

“Do It Yourself” Investing
Confident investors who enjoy managing their own money can trade securities through self-directed online platforms.

“Do It For Me” Investing
Novice investors can use platforms that execute trades on their behalf, such as micro-investing or robo-advisers.

“Do It With Me” Investing
For investors in the middle of this spectrum, certain platforms offer a hybrid of digital transactions and professional advice.

With a wide variety of solutions available, investing has never been easier.

Inclusive Wealth-Building

It’s clear Brits are open to the shift: 64% say new technology would help them be more involved in their investments.

As wealthtech evolves, it will be seamlessly integrated into daily life as part of a holistic financial services offering. Traditional barriers will be broken down, empowering individuals to take charge of their financial future.

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Investor Education

The Best Months for Stock Market Gains

This infographic analyzes over 30 years of stock market performance to identify the best and worst months for gains.

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The Best Months for Stock Market Gains

Many investors believe that equity markets perform better during certain times of the year.

Is there any truth to these claims, or is it superstitious nonsense? This infographic uses data gathered by Schroders, a British asset management firm, to investigate.

What the Data Says

This analysis is based on 31 years of performance across four major stock indexes:

  • FTSE 100: An index of the top 100 companies on the London Stock Exchange (LSE)
  • MSCI World: An index of over 1,000 large and mid-cap companies within developed markets
  • S&P 500: An index of the 500 largest companies that trade on U.S. stock exchanges
  • Eurostoxx 50: An index of the top 50 blue-chip stocks within the Eurozone region

The percentages in the following table represent the historical frequency of these indexes rising in a given month, between the years 1987 and 2018. Months are ordered from best to worst, in descending order.

RankMonth of Year Frequency of Growth (%)Difference from Mean (p.p.)
#1December79.0%+19.9
#2April74.3%+15.2
#3October68.6%+9.5
#4July61.7%+2.6
#5May58.6%-0.5
#6November58.4%-0.7
#7January57.8%-1.3
#8February57.0%-2.1
#9March56.3%-2.8
#10September51.6%-7.5
#11August49.3%-9.8
#12June36.7%-22.4
Average59.1%n/a

There are some outliers in this dataset that we’ll focus on below.

The Strong Months

In terms of frequency of growth, December has historically been the best month to own stocks. This lines up with a phenomenon known as the “Santa Claus Rally”, which suggests that equity markets rally over Christmas.

One theory is that the holiday season has a psychological effect on investors, driving them to buy rather than sell. We can also hypothesize that many institutional investors are on vacation during this time. This could give bullish retail investors more sway over the direction of the market.

The second best month was April, which is commonly regarded as a strong month for the stock market. One theory is that many investors receive their tax refunds in April, which they then use to buy stocks. The resulting influx of cash pushes prices higher.

Speaking of higher prices, we can also look at this trend from the perspective of returns. Focusing on the S&P 500, and looking back to 1928, April has generated an average return of 0.88%. This is well above the all-month average of 0.47%.

The Weak Months

The three worst months to own stocks, according to this analysis, are June, August, and September. Is it a coincidence that they’re all in the summer?

One theory for the season’s relative weakness is that institutional traders are on vacation, similar to December. Without the holiday cheer, however, the market is less frothy and the reduced liquidity leads to increased risk.

Whether you believe this or not, the data does show a convincing pattern. It’s for this reason that the phrase “sell in May and go away” has become popularized.

Key Takeaways

Investors should remember that this data is based on historical results, and should not be used to make forward-looking decisions in the stock market.

Anomalies like the COVID-19 pandemic in 2020 can have a profound impact on the world, and the market as a whole. Stock market performance during these times may deviate greatly from their historical averages seen above.

Regardless, this analysis can still be useful to investors who are trying to understand market movements. For example, if stocks rise in December without any clear catalyst, it could be the famed Santa Claus Rally at work.

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Investor Education

A Visual Guide to Stock Splits

If companies want their stock price to rise, why would they want to split it, effectively lowering the price? This infographic explains why.

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A Visual Guide to Stock Splits

Imagine a shop window containing large pieces of cheese.

If the value of that cheese rises over time, the price may move beyond what the majority of people are willing to pay. This presents a problem as the store wants to continue selling cheese, and people still want to eat it.

The obvious solution is to divide the cheese into smaller pieces. That way, more people can once again afford to buy portions of it, and those who want more can simply buy more of the smaller pieces.

cheese and stock splits

The total volume of the cheese is still worth the same amount, it’s only the portion size that changed. As the infographic above by StocksToTrade demonstrates, the same concept applies to stock splits.

Like wheels of cheese, stocks can be split a number of different ways. Some of the more common splits are 2-for-1, 3-for-1, and 3-for-2. Less common splits can take place as well, such as when Apple increased its outstanding shares by a 7-to-1 ratio in 2014.

Why Companies Do Stock Splits

Of course, stocks aren’t cheese.

The real world of the financial markets, driven by macro trends and animal spirits, is more complex than items in a shop window.

If companies want their stock price to continue rising, why would they want to split it, effectively lowering the price? Here are a some specific reasons why:

1. Liquidity
As our cheese example illustrated, stocks can sometimes see price appreciation to the point where they are no longer accessible to a wide range of investors. Splitting the stock (i.e. making an individual share cheaper) is an effective way of increasing the total number of investors who can purchase shares.

2. Sending a Message
In many cases, announcing a stock split is a harbinger of prosperity for a company. Nasdaq found that companies that split their stock outperformed the market. This is likely due to investor excitement and the fact that companies often split their stock as they approach periods of growth.

3. Reducing Capital Costs
Stocks with prices that are too high have spreads that are wider than similar stocks. When spreads—the difference between the bid and offer—are too large, they eats into investor returns.

4. Meeting Index Criteria
There are specific instances when a company may want to adjust its share price to meet certain index requirements.

One example is the Dow Jones Industrial Average (DJIA), the well-known 30-stock benchmark. The Dow is considered a price-weighted index, which means that the higher a company’s stock price, the more weight and influence it has within the index. Shortly after Apple conducted its 7-to-1 stock split in 2014, dropping the share price from about $650 to $90, the company was added to the DJIA.

On the flip side, a company might decide to pursue a reverse stock split. This takes the existing amount of shares held by investors and replaces them with fewer shares at a higher price. Aside from the general stigma associated with a lower share price, companies need to keep the price above a certain threshold or face the possibility of being delisted from an exchange.

Stock Splits Happen, but are not Inevitable

Alphabet will become the most recent high profile company to split their stock in early 2022. The company’s 20-for-1 stock split aims to make the share price more accessible to retail investors dropping the price from approximately $2,750 to $140 per share.

Conversely, Berkshire Hathaway has famously never split its stock. As a result, a single share of BRK.A is worth over $470,000. Berkshire Hathaway’s legendary founder, Warren Buffett, reasons that splitting the stock would run counter to his buy-and-hold investment philosophy.

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