How to Invest Online

October 12, 2021

Figuring out how to invest online for the first time? Here’s a look at what new investors need to know.

Once upon a time, investing involved in-person meetings with a financial manager in order to make decisions. These days, investing doesn’t require in-person meetings—or even a financial advisor.

These days, average investors have more power than ever to invest in a way that works for them, all thanks to the power of the Internet.

Figuring out how to invest online? Here’s what new investors need to know.

Can You Invest Online?

In the words of the SEC, online trading is easy, but online investing takes time.

In order to trade online, all you need to do is navigate a few clicks of the mouse. But investing is more than just trading. Investing is an art and a science that requires considerable homework to make the right financial decisions.

In other words, you can certainly invest online, but as with any other form of investing, you need to do your homework.

Before Investing

Picture DIY-ing a home improvement instead of hiring a contractor. When you DIY, you’re responsible for researching, getting the tools you need, and making the right judgment call. The same goes for investing—when you invest online, you take responsibility for all of your investment decisions. Which means you need to make educated decisions.

First, think about what kind of investor you are. For most people, this is a question of risk tolerance, which can be broken down into:

  • Conservative
  • Moderately conservative
  • Moderately aggressive
  • Aggressive
  • Highly aggressive

Conservative investors are the most risk-averse and are often more concerned with capital preservation than gains. At the far end of the spectrum, highly aggressive investors are typically those with the greatest risk tolerance, often because they have extensive knowledge of the market and are willing to take risks at the promise of great reward.

If you’re not sure what your risk level is, think about your investment goal and timeline. If you’re saving for retirement at age 20, for example, you can afford to be aggressive because you have decades to make up for bad investments. If you’re saving for retirement at age 60, however, you have far less time to recoup losses, and should opt for a conservative approach.

From there, you have to choose how much help you want throughout online investing. For example, if you don’t know very much about investing and aren’t comfortable choosing your own investment vehicles (or don’t have time) you’ll want more help. Conversely, if you’re comfortable with investing and feel ready to make your own judgment calls, you won’t need or want as much help.

How to Invest Online

Once you have your foundations in place, you’re ready to start investing online. For most investors, this comes out to two broad options:

  1. A robo-advisor
  2. An online broker

Here’s a breakdown of both options so that you can choose the right one for you. And remember, the option you feel comfortable with is the one you’re likely to keep using, which is critical for investing.

Use a Robo-Advisor

A robo-advisor varies based on the firm providing it, but generally, it’s an online service providing automated portfolio management based on your preferences. These are derived from a questionnaire filled out when you start an account. As the name implies, there’s little or no human supervision—these platforms rely on algorithms to make quick decisions for them.

Some popular robo-advisors include:

  • Acorns
  • Wealthfront
  • Betterment
  • M1 Finance

The beauty of robo-advisors is that there’s no decision-making required, which makes them a great option for hands-off investors, the scatterbrained, and those who wouldn’t know how to make the right decision. On the other hand, you don’t get control of your portfolio, which makes it less ideal for control freaks.

Use an Online Broker

Let’s say you don’t need as much investing help. Let’s say you already know enough to make some good investment decisions and you want to take charge of your portfolio.

If that sounds like you, an online broker is a better fit.

An online broker allows you to set up and self-manage your account. Think of it like being your own personal trader, with the option to buy and sell stocks (and other investments too) at your own discretion, just like a professional trader would.

That way, you still get the DIY aspect, but you get to make the decisions. Plus, you have greater access to diverse investment instruments. Because of this, an online broker is ideal for investors who want to be hands-on and want more diverse options.

Figuring Out How to Invest Online? Make Sure to Diversify Your Portfolio

Here at Masterworks, we believe that investing is truly for everyone. For us, that means more than figuring out how to invest online. It means having access to great investment vehicles and being able to take advantage of expert opinions for your financial future.

That’s why we’re here to make the world of fine art investing accessible for ordinary investors. We take care of the research (in collaboration with Citi Bank and Bank of America) and the auction and buying process. Then, members get to purchase shares in art they love and profit once we sell the piece (usually after a holding period of three to five years). Ready to make your money go further? We’re ready to make it possible. Fill out your membership application today to learn more.

Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.