If you think you’re the only one around who’s not trading stocks, mutual funds and other investments via the Internet, relax. You’re not.
At least for now.
To say that online investing has grown extraordinarily fast over the past decade is akin to describing Marilyn Monroe as reasonably attractive. First introduced by Charles Schwab in the mid 1990s, online investing grew to more than 7 million accounts by the end of 1998. Even more impressive, estimates hold that there will be some 18 million online accounts by the end of 2001.
Admittedly, online investing sports an array of advantages. First off, it’s cheap, particularly when you compare e-trade commissions with those levied by traditional brokerage houses. Buying 100 shares of a well-known stock costs about $10 online, whereas the same purchase at a conventional brokerage house could run a couple hundred bucks. Moreover, it’s fast and convenient. Instead of playing telephone tag with a broker, you hop online to a brokerage Web site, place your order and receive confirmation of your trade within minutes.
Online investing has also imbued investors with a sense of control and hands-on involvement that the investing community could never have imagined a couple decades back. Most online brokerage Web sites are loaded with research and analytic tools that allow clients to do their own investing legwork. In that sense, the online investor is more involved and perhaps better informed than his or her predecessors.
But there are drawbacks and caveats to consider when thinking about taking your investing online. First and most important is deciding what sort of an investor you are. If you prefer to do your own homework and keep your own counsel, online investing may be just the thing. If, however, you’re not comfortable with being that autonomous—if a broker’s advice and guidance are important in your decision making process—the independence of online investing may be unsettling. After all, investing online means making your own calls.
The growth of the online investment industry has spawned a hybrid service designed for investors who want to go online but don’t want to make the trip by themselves. Traditional houses such as Merrill Lynch now offer accounts where you work with a live broker to map out strategy—then you execute and track your trades online. The service is more expensive than other online commission structures—it’s based on a per transaction arrangement or an annual fee—but it offers the sort of hand holding that other online brokers don’t.
If you decide you want to go it alone, try to ignore all the advertisements about super low commissions at certain brokerage houses. These days, the cost of online investing is so low across the board that a dollar or two difference in commission really shouldn’t influence which broker you select. Instead, investigate other elements of an online broker. Visit a site and have a look around. Is it easy to navigate? If the site offers a stock or fund buying demo, check it out to see if it’s simple to use. Does the site’s research and news tools seem helpful or will they simply wash over you with a lot of confusing information?
Consider other elements of an online broker’s service. Make sure they offer telephone backup if the system goes down. A great way to investigate this is to try calling customer service in the heart of a busy trading day. If the system seems to move with the speed of a Florida vote count, that’s a fair indicator of poor reliability. By the same token, email a question to the brokerage house and see how long it takes to get a reply.
Other issues to check out:
* How expensive is it to get started? Some brokerage houses have no minimum, while others require $10,000 and even more to open an account.
* Is the commission consistently cheap? Certain brokers change their prices considerably depending on the size of the trade, so make sure that the bargain basement rate applies for the sorts of trades you’ll likely be making. Likewise, see if other types of services such as placing an order on the phone or up-to-the minute ticker quotes are free or if you have to pay extra to get them.
* Can you work with investments other than stocks? Some houses offer thousands of mutual funds while others only deal in a handful. Additionally, see if the broker is a mutual fund supermarket—sites where you can buy mutual funds without any sort of transaction charges.
