The pros and cons of being a retail investor

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The idea of investing seems intimidating at first. While you might get the general gist and know that it can pay off in the long-term, actually committing your finances can feel like a bridge too far.   

But the fact is that more and more ordinary Africans are overcoming this hurdle and investing their money in various markets. Factors such as enforced lockdowns and record unemployment have driven many to look for alternative ways to spend their time and boost their income through online platforms such as webtrader MT4.

Known as retail investors, these individuals have no formal education in investing and don’t do it as a career. They’re investing in stocks, bonds, mutual funds and various other securities in their spare time, without professional guidance.

While African economies are predicted to rebuild following the COVID-19 pandemic, the immediate future remains uncertain for many industries. So if you’re considering your options or simply want to improve your financial knowledge, read up on the pros and cons of retain investing below.

Advantages of being a retail investor

A key benefit of retail investing, and one that’s certainly helping drive the uptick in public interest, is the sheer accessibility that modern platforms allow. Buying and trading stocks in a favoured business or sector is as easy as signing up online and making a few clicks.

This accessibility extends to investment sizes too. While professional investors are generally required to operate with prohibitively high sums of money, retail investors can put smaller amounts of money into markets of their choosing. Any failed investments are also less likely to threaten someone’s livelihood if investing is not their primary source of income.

Finally, retail investing allows a great deal of flexibility in that it’s relatively easy to sell stocks quickly when needed. This is a potential advantage over real estate investment for example, which involves tying up funds in a long-term project in the hope of generating returns in the future.

Risks to factor in before investing

It’s easy to see why retail investing is becoming an increasingly attractive proposition for the general public. There are still significant risks involved, however.

Professional investors have usually spent years researching investment strategies and getting to know different markets. Without this grounding of foundational knowledge, retail investing can be disastrous if you’re acting on ill-thought-out hunches.

Another factor to be wary of is fees. Retail investing usually comes with higher fees and commissions than those paid by professional investors, especially given professionals can secure discounts by buying in bulk. While fees on small individual investments rarely add up to much, it’s still worth bearing in mind.

 

When done right, retail investing makes a lot of financial sense. While retail investors are unlikely to ever significantly affect markets, new platforms and learning resources are making it easier for people to manage their own investments and grow their wealth.

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