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Online Trading Apps – Why You May Want to Proceed with Caution

Online Trading Apps – Why You May Want to Proceed with Caution

Many young Americans have taken to online investing with flashy trading apps that make the act of trading feel like a game. However, inexperienced investors may be exposing themselves to trading risks they are unaware of.

New investors considering opening up an account on one of these apps may encounter potential pitfalls associated with app-based trading. However, there are other options available that may help them meet their financial goals.  

Proceed With Caution When Investing Online

Apps touting fee-free investing have attracted many new investors into the market in recent years. Even though these apps make investing simple and fun, there may be few safeguards in place and users may not be thoroughly vetted for knowledge and experience before making important financial decisions. This has led some users to experience large losses and the stress of trying to dig out of the hole they got themselves into. Seeking riskier investments to try and maximize return or curtail these losses can put an investor in a relentless cycle of catch-up.

Such apps make it fairly easy to trade quickly and easily whenever the market changes, and some investors may emotionally trade based on the daily news cycle. However, when it comes to technical analysis of the market vs. emotional analysis, technical usually wins. Throwing caution to the wind and trading on emotion may be detrimental to your financial plan.

What a Financial Advisor Might Tell You About Investing

Trading apps remove many of the barriers associated with investing, such as fees or account minimums. They provide an easy entry point to encourage “newbies” to dabble in the world of trading. While this in itself is not a bad thing, too few investors may be fully aware of the risks involved or how day trading may negatively impact a portfolio.

Generally speaking, if someone can’t define things like securities, tax lots, options and margin accounts, it’s probably a good idea to speak with a financial advisor before investing in the market. Every investor is different, and a financial advisor may be able to help tailor a portfolio that is suited to your budget, goals and lifestyle.

Of course, when it comes to the stock market, there will always be volatility. There’s a common saying that the only guarantees in life are death and taxes. Market volatility should be added to that list.

Markets react to any number of factors on a daily basis, and every portfolio may fluctuate in value. Some days, market swings are mild, while on other days, a double digit rise or fall may occur. This has been particularly true lately as we battle our way out of the COVID-19 crisis.

When looking at market volatility in conjunction with investing, there are three things to keep in mind.

  1. Focus on the long-run. While there are no guarantees, history has shown that markets—although cyclical—are resilient during multi-year periods, and long-term investors are generally rewarded for riding out storms. In fact, the eventual upturn is often stronger than the downturn.
  2. Avoid checking balances daily. Since volatility is inevitable, it doesn’t make sense to stress about daily fluctuations if you are invested for the long term and your portfolio is appropriately aligned to your goals. Again, this is where a financial advisor may help by making periodic portfolio adjustments and diversifying your trading in a way that may reduce risk.
  3. Avoid using necessary funds. Investors should only be investing surplus cash, not funds needed to pay for expenses, such as bills, rent, food or even recreation.

Additionally, keep in mind that investing can become quite emotionally charged. Since many lifestyle choices are based on finances, it’s easy to make rash decisions during periods of market instability. This is where having a financial advisor can really help.

Advisors may help to see past the day-to-day market frenzies to what the fundamental data is really showing. While advisors can use this information to help you gain a clearer perspective on your investments, they may also serve to settle the panic by reminding you of your long-term goals and how your current strategy will help you reach them.

However, perhaps more important than support during turmoil, is the assistance advisors provide beforehand to lessen the blow of market downturns. Market pullbacks can occur multiple times during an investor’s lifetime, so having some checks and balances in place may help curb any decline. A financial advisor is continuously working to keep your portfolio strong to better withstand volatility.

It’s key to remember that investing is just one piece of an overall financial plan. Utilizing a financial advisor can help you establish a solid framework for success. A financial advisor can help you with the many aspects of your financial plan, including investing, retirement planning, education, legacy planning, insurance needs, business planning and debt analysis. A financial advisor can help make sense of these intricacies and how they impact one another; an invaluable service that may not be available on free trading apps.

Looking for an experienced financial advisor? FNBO’s team is here to help.

About the Author

Bri is a Financial Advisor with First Investments & Planning. She works with high net worth clients to help them achieve their overall wealth management goals.

Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC, and are: • NOT a Deposit or Other Obligation of the Bank • NOT Insured by FDIC or Any Other Government Agency • NOT GUARANTEED by the Bank • Subject to Risk and May Lose Value

First National Bank of Omaha and First Investments and Planning are not registered broker/dealers and are independent of Raymond James Financial Services.  Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not consisute a recommendation. Any opinions are those of the author, and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or less regardless of strategy selected. No investment strategy, including the use of a professional advisor can guarantee your objectives will be met. Individual investor’s results will vary. Past performance does not guarantee future results.

This material does not constitute legal, tax, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material.