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 launch of Pocket, a new micro investing app by the Commonwealth Bank of Australia (CBA). Pocket joins Raiz (previously Acorns), Spaceship Voyager, and other apps that seek to make it easy for anyone to grab a stake in the share market for a minimal investment.
Given the CBA is a household name in Australia, could the Bank’s decision to get into this field make Pocket’s release a new ‘killer app’? And, what does this app’s release tell us about the convergence of financial markets and user-friendly digital tech?
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). 7 funds are currently on offer. The various funds offer exposure to groupings such as tech companies and sustainability leaders, and emerging markets and top 200 on the Australian Stock Exchange (ASX).
An exchange-traded fund (ETF) isn’t an individual stock, but a collection of them pooled together. Due to this, ETFs are generally perceived as a safer bet than direct investment in individual stocks. The trade-off is their capacity for fast growth is typically smaller.
But for many new and young investors that Pocket is targeting, seeing smaller positive returns and avoiding heavy exposure to risk (like a total collapse in an investment’s value) is ideal.
Communicating Value to New Clients
Though Pocket and apps like it seek to appeal to a wide audience, as aforementioned, they do focus in particular on newer and younger investors. The advantages these demographics have in digital literacy are commonly offset by the comparatively high barriers to entry of many investments in Australia.
Unlike other nations such as the U.S where someone can invest on the NASDAQ for mere dollars, the ASX 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.
These stats reflect the more affordable prices of U.S. real estate beyond the coastal markets and across the heartland. But, they don’t truly reflect the median house price of many of Australia’s major population centres such as Sydney. The median house price in Sydney today is north of AUD$1 million (USD$695,000).
Yes, there are other aspects that should be factored into any deep comparison of the Australia and the U.S. in this area. For instance, the cost of health insurance in the latter can typically be expected to be far higher than in the former. But, it’s also the case many fields can attract far higher wages in the U.S. too. Thus, it can indeed be said the barrier to entry for many investments is lower in the U.S. than in Australia. This still applies even if an in-depth comparison of an investor’s life in each would paint a more complicated picture of wages versus expenses.
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 typically say EFTs are always a better starting point than individual shares, overtime many investors will dive into direct ownership of shares. Not only to up their potential returns, but also to diversify their portfolio.
Are 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.
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 a long-term period (such as 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 development of a precise strategy will outperform simply scattering some cash around like coins in the fountain.
Making a Real Investment
The popularity of micro investment apps has created a new conversation surrounding investment in Australia and aboard. The low barrier to entry means they’re accessible to just about every aspiring investor. 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.
Every investor knows as time goes on, with the right strategy, it’s not only a portfolio’s value that can grow, but also the expertise and insight of its owner. Many investors would say it’s those benefits that will represent the greatest ROI from the use of a micro investment app.