Online Investing and the need for Change…

For online investing to be treated seriously as a viable option the companies involved need to demonstrate commitment to investors.

When online investment programmes first started they quickly gained a bad reputation as many of them were revealed as scams. This severely damaged the public view of these opportunities and that perception still exists.

I believe it is time for things to change. The global economic crisis has shown that even well respected financial institutions care little for their small investors with the result that interest rates on savings accounts are now derisory.

This is a golden opportunity for online investing companies to attract these disillusioned people but they must do it in a credible and honest way.

Is regulation the answer?

Nearly all online investments make it abundantly clear that their dealings fall outside any existing regulatory framework as they want to avoid members running to the authorities at the merest hint of a problem.

There are many horror stories where online investment companies have fallen foul of regulators (especially in the US) and the result has virtually always been losses for investors. So, I don’t believe online investing companies would currently welcome regulation under current legislation. Ultimately, this may be an aspiration as authorities learn and understand more about how these companies work.

Where to Start

So if formal regulation isn’t viable what alternatives exist? Some companies may argue that their industry is currently being regulated by the myriad of online monitoring sites as these demonstrate whether programmes are paying or not.

Personally I don’t believe this is the answer as monitoring sites can only work in a reactive way and are not that useful for predicting whether an opportunity is viable to start off with.

To my way of thinking there are two options to consider:

1. An independent group of investors could be set up to undertake due diligence on a programme that wishes to offer online investing services. They would need access to the company to be able to verify the claims that are being made on how funds are generated and the people involved
2. A self regulating body set up by the companies themselves which would define a code of practice that companies would need to adhere to if they wish to join. This should also include investor representatives as this is a key element of trust building

 Time for Change

For too long online investors have suffered poor service, patchy communication and untrustworthy programme administrators. As I look at some of the online programmes today I can see that things are changing but we are still not at a point where the ordinary investor would consider an online investment as a viable alternative to basic savings accounts for example.

Clearly there will always be greater risk involved in online investments but I don’t think programmes should hide behind that as an excuse for poor service. If the risks are explained fully and clearly, if programmes communicate often and honestly then I believe the industry would reap great rewards both in terms of their own reputations but also in the number of people that would trust them with their investments.

Isn’t it time online investors were offered a better and more reliable service… 

Does online investing take us for mugs or are we just risk takers?

Over the years that I’ve been investing online I’ve noticed that those who use vitriol to discourage others generally believe they are doing something for their benefit. They are quick to call any online investment a scam and warn everyone to steer clear.

Their arguments often centre around the belief that many of the returns offered online are impossible to achieve, hence untrustworthy. The question of course is what qualifies them to make statements like this and what, if any, notice we should take of them.

Of course everyone must come at this from a personal perspective and my own stimuls for being involved is as a reaction to the abysmal interest rates available from the major banks and financial institutions. It always seemed odd to me that the pittances you are offered to leave your money in a savings account earned such a poor return and I was convinced that more profitable ways must be available.

As I’ve learnt more about the field of online investing I’ve even more convinced that good returns are possible and accept that to achieve them you must be prepared to take more risks.

However trustworthy an online investment demonstrates themself to be there is always the potential for unforseen circumstances occurring that make it difficult for the online programme to function whether that is just for a short time or for ever.

Many investors who see the allure of higher interest rates don’t fully appreciate the sort of problems that can occur. This lack of awareness can create panic if something they are not expecting happens. If the programme Admin does not respond quickly the result could well be a fall off of confidence and ultimate demise of the programme.

I still see too many people using online investing as a source of funds for short to medium term bill paying and that is not what it is designed or sensible to use for. Yes, higher interest rates are possible but the returns are not necessarily ATM fodder. Investors need to plan things on a longer term basis and give the programmes time to use the funds in the most efficient manner.

At the time of writing there are several programmes that if they payout will provide large sums of money to their members for relatively small investments. These are especially targeted by sceptics and whilst I do understand why they may see them as scams it doesn’t give them the right to dictate to others whether to invest in them or not.

Online investors are adults who are never forced to partake in these types of investments and choose to do so of their own free will. To me that suggests they are risk takers rather than being duped by scamsters. Of course some of the programmes may fail and fund lost but that’s the risk we decide to take.

Warnings about the Madoff crisis weren’t rife before the collapse and many people lost their life savings to a so called respectable investment advisor. Personally I would never put all my investment funds in one place and perhaps the world of online investing has reinforced that maxim over the last few years.

I don’t consider myself a mug but I do know I’m taking calculated risks and am happy to do so.