Most young adults know the value of not only saving money but also investing for the future. Investing puts a portion of your spare cash to work and can bring a better income than money left sitting in your bank savings account. It is key to know what you are doing before starting to invest though. When considering where you will put your money, you need to decide whether to trade as a retail investor or to use an institutional brokerage.
Retail vs institutional investing – What is the difference?
Retail investing is used by individuals who use their own cash, do not trade huge volumes and are not working for a company in the professional finance sector. They instead use online trading platforms to place orders. As this eToro trading review shows, there are some trustworthy and honest retail investing platforms to sign-up with. For more advice on the best platforms to use and retail trading in general, AskTraders is a great source of information to check out.
Institutional investing is actioned by finance professionals who work for large organizations, such as investment brokerages. They invest their clients’ money and give advice on portfolio management. Retail investors can choose to hand over their investing completely to institutional brokerages if they prefer.
Retail investing – what are the pros?
Investing money to build wealth is one of the top financial planning tips for millennials. For many younger adults, retail investing is a popular option. While you could choose an institutional brokerage to invest on your behalf, many people choose to handle it personally. But why can that make sense?
To begin with, it comes down to control. By choosing to a retail investment route, you stay fully in charge of your investments and remain the only person involved with your portfolio. Institutional brokerages will always need your permission to do anything and having someone else involved can make it feel you are less in control.
A difference in opinion between you and your broker could also make you feel less confident in following your own trading instincts. Being in full control also means you can be sure of honesty and transparency with your investments.
What other benefits does retail investing bring?
Retail investing can also be much quicker and easier than using an institutional brokerage. To place trades, review your portfolio or close a losing investment fast, you just simply log in and do it. There is no third party involved to slow this process down. In the fast-paced world of investing, this can save or make you money.
Retail investing can also be better because it educates you about the market and gives you personal knowledge of how to invest successfully. This is not the case if someone else is doing it all for you. Using online investment platforms can also be less expensive in terms of commission/fees than letting an institutional brokerage handle your trades.
What cons does retail investing bring?
For any young adults looking to invest in the world’s financial markets, the cons of retail investing must also be discussed. As you will be handling your investments personally, you will have all the pressure this brings. This can be hard to deal with if things do not go well! Investing in this way also means you do not get the personal, expert advice of a professional broker to rely on. While all top retail platforms will have plenty of resources to help investors (such as trading FAQs or copy trading), it is not always as convenient as asking a pro broker for guidance.
The speed of retail investing can also be a double-edged sword. The speed with which you can place or close trades can sometimes lead to rash decisions being made. Some traders may also find that retail investing is just too involved and time-consuming. In this instance, they prefer someone else to do all the hard work for them.
Retail investing is good for most traders
As with most things in life, whether to invest as a retail trader or via an institutional brokerage comes down to personal choice. If you are a young person looking to put your spare money to work, it is important to think about what retail investing offers. Factoring in the above advice will also put you in a good position to make a fully informed choice on how to proceed.