July 29, 2019 by Ed Kennedy
Is Commbank’s Pocket a New ‘Killer App’ for Investors?
Disclaimer: This article is informative in purpose and does not constitute financial advice. The author urges you to obtain professional advice before pursuing any financial investment.
Recent days have seen the Commonwealth Bank of Australia (CBA) launch a new micro investing app. Joining apps like Raiz (previously Acorns), Spaceship Voyager, and others that seek to make it easy for everyone to grab a stake in the sharemarket for a minimal investment.
Given the CBA is a household name in Australia, could the Bank’s decision to get into this field make this release a new ‘killer app’? And what does the release of Pocket tell us about the convergence of traditional investment and user friendly digital technology right now?
What Pocket And Apps Like It Do
Put simply, Pocket provides an easy way for investors to start investing. Starting at $50, customers can buy units in an Exchange Traded Fund (ETF). With 7 funds currently offered by the app that range from exposure to tech companies and sustainability leaders, to emerging markets and top 200 on the Australian Stock Exchange.
As an exchange-traded fund (ETF) isn’t an individual stock but a collection of them pooled together, ETFs are generally perceived as more stable than direct investment in individual stocks. The trade-off to this is their capacity for faster growth is smaller.
But for new and young investors like Pocket is targeting, seeing smaller positive returns and avoiding heavy exposure to risk like a total collapse in an investment’s values is ideal. Other micro investment apps are structured in the same way.
Communicating Value to New Clients
Though Pocket and apps like it welcome a wide audience, they do focus in particular on newer and younger investors. Recognising the advantages these groups have in digital literacy have been offset by the comparatively high barriers to entry for many investments in Australia. Some are long enduring, and others emerging.
As unlike other nations such as the U.S where one can invest on the NASDAQ for mere dollars, the Australian Stock Exchange requires a minimum investment of $500 to get skin in the game.
In turn, the median property price across the U.S. is approximately AUD$288,000 (USD$200,000), whereas 2018 saw it hit $460,000 (USD$317,00) in Australia.
And these stats reflect the more affordable prices of U.S. real estate in beyond the coastal markets across the heartland, but don’t truly reflect the median house price of many of Australia’s major population centres such as Sydney. Where the median house price today is still north of AUD$1 million (USD$695,000).
In short micro investing apps offer accessible investing via user-friendly digital technology, and do so alongside a class of other new and emerging investments in the digital era. The factors above show why they have found much popularity in this era among the Aussie market.
But how many seasoned investors would recommend them as a long-term path to wealth creation?
Can ‘Gamifying’ Investment Take Returns to a New Level?
Pocket and other apps celebrate the ease of investment. Someone can now put cash into an ETF as easily as ordering a double hamburger off Uber Eats. An app that has not only become immensely popular in Australia, but is driving a revolution in the food industry just as Uber’s ridesharing did in taxi world.
It also has parallels with other blockbuster apps like Tinder (dating) and Duolingo (languages). The user-friendly nature of these apps is not by mistake, and certainly no programmer or designer would advocate shipping a clunky product. With the digital economy providing a truly global landscape of competition, there’s little room for a product that’s hard to use.
But ultimately the ease in which it can be used may prove an issue for investors looking to grow a portfolio. For even though the prevailing wisdom among financial circles will commonly say EFTs are always a better starting point over individual shares, overtime most investors will cross that path. Not only to up their potential returns, but also to diversify their portfolio to offset risk.
Is Easier Acquisitions Ideal?
A great mobile app makes a previously tedious task easy. It’s sometimes easy to forget the convenience the smartphone revolution has brought to daily life. Until your music streaming app goes down one afternoon and you’re forced to dig through old boxes for a 90’s album. Physically holding an old Powderfinger CD jogs the memory fast, and leave certain songs stuck in your head.
But although these apps have made the process of investing easier, it hasn’t simplified the challenge of investing wisely. No market-based investment is ever a completely sure thing. But experience shows savvy investors can be ‘more sure’ of certain investments over others.
Over a decent period of time that can be classified as long-term (like 7 years of more) real estate typically outperforms shares. Shares in turn typically outperform bonds and interest-based savings accounts. And throughout all forms of investment, active research and the devisal of a precise strategy will outperform scattering some cash around like coins in the fountain.
Making a Real Investment
The popularity of these apps has created a new conversation surrounding investment in Australia and aboard. And the low barrier to entry means its accessible to just about every aspiring investor, and this should be commended.
For new investors kicking off their investment career with an app like Pocket could be a good starting point. But few would say it should be the end of the journey.
After all, every investor knows as time goes on with the right strategy it’s not only a portfolios value that can grow, but also the expertise and insight of its owner. Many investors would say any use of a micro investment app should always have that ultimate outcome in mind.
To recognise great fortunes have been built starting with very small amounts. But a time, history shows financial gains are best continued and grown by via more diversified investments. And the development of an advanced strategy in deciding where to invest.
Ed Kennedy is a journalist and ghostwriter from Melbourne, Australia. Contact Ed via firstname.lastname@example.org on Skype or LinkedIn.