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Digitalization drives retail investment, allowing small savers to invest their money safely and autonomously
Our collective imagination is riddled with images of big investors managing vast amounts of money, from movies like Wall Street to the great stories about investors like Warren Buffett, which have become myths. This has pushed us to believe that the investment market is outside everyone’s reach. However, the digital transformation that our society and economy have undergone in recent years has forever shattered this image, opening a path for the consolidation of retail investing.
The possibility of accessing a vast amount of information through the Internet, the emergence of financial web and mobile apps, the emergence of FinTech, the rise of alternative financing, and people’s growing concern about the environmental crisis are currently driving retail investment.
But what are we talking about when we use the concept of retail investment? What can be the impact of retail investment on society and the productive fabric?
What is the retail investment?
Retail investment refers to those who are not professional or large investors but who use their money to invest in financial products and obtain a return on these investments.
Traditionally, investments were made by highly qualified professionals, and investment products required large amounts of money.
The emergence of innovative projects such as Inversa Invoice Market, a platform where you can invest with as little as 20 euros, has broken this paradigm, betting on the democratization of investments in such a way that retail investment can make its way with all the guarantees and that savers have within their reach all the tools they need to design their investment strategies.
The European Union is designing a strategy to encourage retail investment, offering greater security and information to small savers about financial products.
This scenario is evidence of the starting hypothesis of our article: retail investment is destined to play a critical role in the future of the productive fabric and, therefore, of our society.
Why is retail investment booming?
The United States has a long tradition of retail investment. However, in Europe, savers have, in the past, been more cautious about the financial market. Many citizens have invested in the stock market or pension funds, generally through the intermediary of financial advisors and bankers, who manage the investments.
As we noted earlier, the digital revolution has transformed this scenario. In such a way, retail investment is emerging in Spain and the European Union as a driving force to boost the economy and contribute to transforming and strengthening the productive fabric.
Today, savers have within reach a wide range of investment products offered by traditional financial institutions and innovative alternative financing projects.
People who opt for retail investors to make the most of their hard-earned money can obtain all the information they need to design their investment strategies, maintain control over their money and know precisely where their savings are invested. And in some cases, as with the Inversa platform, they can do so without leaving their living room.
The importance of financial information
The key to any investment is the information available when deciding whether to invest.
In the analog era, access to information was a barrier to retail investing. Vital data was not available to all citizens.
However, in the Internet age, the wealth of information available to us at the click of a button is immense.
Moreover, cutting-edge technological developments and the use of advanced algorithms have enabled many institutions to make all the information on each product or investment available to savers.
For example, in Inversa Invoice Market, investors can consult all the information about the invoices in which they can invest their money. Assignor company, drawee company, invoice amount, repayment term… And the critical financial statement: the profitability and credit quality of the company that is to pay the invoice, based on an external credit report, an internal financial analysis, and using Big Data to analyze the behavior of the companies involved.
Thus, at a glance, investors can know when they will get their money back, what the risk level of the operation is, and how much the return amounts to.
Moreover, Inversa has a calculator that allows savers to make projections of their investments to know precisely how much money they will earn.
In addition, investors can conduct their research, analyzing the transferor and transferee companies and studying the economic sector in which they operate.
Investing in products that are easy to understand
The 2008 financial crisis highlighted the dangers of needing all the information on financial transactions and the risks of retail investment focusing on complex products that are difficult for people without advanced knowledge to understand, such as derivatives.
The boom in retail investment is therefore associated with the possibility of consulting all the financial information, but also with the availability of investment products that are easy to understand.
For example, factoring or, in its alternative financing modality, crowdfactoring, are straightforward investment mechanisms linked to companies in the real economy. In Inversa’s marketplace, a business that needs to obtain liquidity makes available to investors an invoice it has issued but has yet to collect from a client company. Savers can invest in this invoice up to the amount of the invoice. In return, they receive an immediate return on the money they have invested, and when the company pays the invoice, they recover the investment.
As we said before, this product is simple to understand, and the investor also knows precisely which companies are involved in the process. Businesses in the real economy that he can get to know, learn about and understand.
The way forward for retail investment is undoubtedly to bring savers closer to the companies that benefit from their investments. After all, we are talking about people investing in people.
Taking into account profitability, risk, and social and environmental impact
Profitability and risk are the two pillars on which investment decisions are made in general and, of course, concerning retail investment in particular. But in recent years, another factor has been gaining weight in decision-making: what is the purpose of the money being invested? What is it going to be used for? What impact is the investment going to have on the economy and society?
The climate emergency, rural depopulation, the impact of digitalization on employment, and other socio-economic issues are becoming increasingly important not only on a societal level but also in terms of investment.
The rise of retail investment appears associated with people’s desire to know what their money is being used for when they invest it and even their willingness to use their savings to impact the world positively.
For example, through crowdfactoring, investors can make their savings profitable and help companies in the real economy obtain financing. Since they have all the information about companies at their fingertips, they can decide which economic sectors they want to invest in and even research companies to find out how they operate, what their business model is, or whether they meet ESG (environmental, social, and governance) criteria.
Retail investment can become a key player in encouraging corporate sustainability and moving towards an economic model that respects the environment and is socially responsible.
Millions of people contributing to the financing of the productive fabric
Companies need financing channels throughout their life cycle. If they lack mechanisms for obtaining liquidity, they may encounter problems in growing, consolidating, and successfully managing adverse events that cannot be foreseen.
Until now, businesses have relied exclusively on traditional financial sector entities and large investors. However, online alternative financing platforms have become additional financing channels to the classic ones.
On these platforms, companies can obtain financing through the collective investment of thousands of people.
Thus, a saver can make a small investment that, added to those of other citizens, becomes a robust investment capable of helping a company obtain the liquidity it needs to meet its objectives.
For a democratic society to function correctly, it needs to have a solid, productive fabric that generates wealth and employment. And this fabric needs to attract investment. Through retail investment, millions invest in companies that employ thousands of workers, are committed to innovation, and contribute to the country’s wealth.
It is more than just professional investors who can invest in business projects, and small savers can do the same. And in an autonomous way, without having to delegate decision-making and being able to follow the whole process with maximum transparency.
Automating investments while retaining decision-making power
While professional investors spend their time planning and implementing investment strategies, retail investors need this time in their hands.
To ensure that time does not become a handicap for retail investment, people must be provided with tools that make it easier to manage assets in the shortest possible time without relinquishing decision-making power.
With this in mind, Inversa’s platform has developed an option to automate investments and help facilitate retail investment.
Savers can set all the essential parameters of their investment strategies: the money they wish to invest, return terms, expected profitability, level of risk they can assume, and type of companies in which they are going to support… And Inversa’s software makes investments that perfectly match the investment strategies designed by savers.
In this way, investors make their investment decisions without the need to consult every day about which bills are available and which might interest them.
This automation allows retail investors to make their savings profitable, bet on companies in the real economy, and participate in the financial market without having to use temporary resources that affect people’s daily lives.
In short, the time has come for retail investment. The possibility for small savers to use their money to earn a return, boost the economy, and build a more sustainable world is now a reality. The digitalization of finance and the consolidation of projects such as Inversa contribute to democratizing investment and allow retail investors to make their way as an agent of transformation that can make a difference and contribute to the success of companies in the real economy.