In the past, investing was seen as an activity reserved for the wealthy and financially savvy. But thanks to technological advancements, regulatory changes, and a proliferation of online brokerages, investing has become more accessible than ever for beginners. With just a small amount of money, a computer or mobile device, and an internet connection, virtually anyone can open an investment account and start putting their money to work in the financial markets. In this article, we will explore how barriers to investing have come down over time, making it possible for ordinary people with no specialized training to take control of their financial futures by investing.
Lower minimums have opened the door to first-time investors
One of the biggest obstacles preventing regular folks from investing used to be high minimum balance requirements. In the past, many investment firms required initial deposits of $5,000 or more just to open an account. This put the stock market off limits for those without thousands of dollars ready to invest. Today, however, mainstream online brokers like Charles Schwab, Fidelity, and Vanguard allow investors to open accounts with zero dollars upfront. Others have minimums of just $1 or $100. This makes investing accessible even to those just starting out with limited savings.
Trading commissions are a thing of the past
Before online brokerages emerged in the 1990s, investors had to rely on traditional, full-service brokerage firms to execute stock trades. These firms charged commissions – often $20 or more – for each trade, eating into returns. With the rise of discount brokers that let clients place trades themselves online, commissions began to drop significantly. Then in October 2019, several major brokers like Charles Schwab and TD Ameritrade eliminated commissions on online U.S. stock, ETF, and options trades. This was a game changer, allowing small investors to trade frequently without worrying about transaction costs.
Robo-advisors automate investing for novices
Robo-advisors are a new category of automated digital investment platforms that have made investing even simpler. With a robo-advisor, users provide some basic information about their goals, time horizon, and risk tolerance. The robo-advisor then recommends a suitable portfolio of low-cost ETFs, rebalances periodically, and even handles tax loss harvesting – all without the investor having to make any day-to-day decisions. Opening a robo-advisor account can take just minutes with no investing knowledge required. Top firms like Betterment and Wealthfront offer services starting with no minimum balance. This makes hands-off investing available to total beginners.
Investment apps allow fractional share purchases
One potential roadblock for new investors is that many stocks have share prices of $100 or more, meaning you would need a decent amount of money to buy even one share. Investment apps like Robinhood, Stash, and Acorns solve this by offering fractional share purchases. This means you can invest just $1 and acquire just a slice of a share. Now high priced stocks and ETFs are accessible to people who want to invest only small dollar amounts at a time. Fractional share investing has brought the markets within reach of millennials and Gen Zers starting out.
Financial education creates empowered investors
The investing landscape has also changed from one dominated by financial advisors to one where ordinary people feel empowered to take control of their own investment decisions. This shift has been driven by an explosion in financial education resources from blogs, podcasts, YouTube channels, forums, and books aimed at novice investors. Armed with information on investing basics, strategies, and best practices that was not easily accessible in the past, many first-timers now feel knowledgeable and confident enough to start building their own portfolios without professional help.
The barriers keeping the average person on Main Street from investing in the financial markets have steadily come down over time. Lower minimums, zero commissions, robo-advisors, fractional shares, and financial education have now opened the door for anyone to invest regardless of wealth, experience, or specialized skills. Investing is more democratic and accessible today than ever before in history.