As with everything else these days, the stock market has gone online.
If you can shop, pay bills, and do your banking online, why not invest
too? Investing online is not as big of an ordeal as some people make it
out to be. The key is to know what you want before you start.
When opening a new account, investors need to answer the regular
questions, such as the type of account they want and how it will be
funded. When selecting an account type the kind you choose will depend
on whether or not the account is taxable or tax-deferred, and also
whether it is for just you or you and someone else.
You will also have to decide whether your account will be “cash” or
“margin.” A cash account means you are only able to place trades for
investments with money in your account. A margin account gives you a
credit line from your brokerage firm. You can also have a “margin
account with options,” which means you are purchasing the right to buy
and/or sell a stock at a specific price. Options are quite complicated
and usually only purchased by traders with experience and large
portfolios.
After choosing the type of account money must be deposited. The initial
deposit can be sent to the firm by check or an automatic transfer from
a bank account. Another option is transferring an account from a
different brokerage firm, but the process is quite lengthy and can take
months to complete.
If you are trying online investing for the first time, start small.
Don’t put every penny of your life savings into an online account. A
smaller sum is easier to handle and easier to keep track of. When you
feel confident and are ready, then you can expand your online account.
Another good thing to do when investing online is to try and stay
diversified, in other words don’t concentrate all of your portfolio on
just one thing, instead develop a well-balanced portfolio of stocks,
bonds, and cash.
Many brokers will encourage you not to bail out on mutual funds. The
main reason most investors are in mutual funds are because they don’t
have the experience to make their own calls on stocks. They are also
occupied with other things beside just watching the stock market.
Keeping your mutual funds can be a wise decision instead of prematurely
“playing the market” in individual stocks.
It is important to remember that online brokerage firms add fees and
charges that need to be looked at closely. Before buying and selling
large scale stocks online, look at what the tax results are of such
trading. The average online brokerage costs are lower than full-service
brokers, but fees can still add up.
Remember that just because you are investing online, the Internet is
not foolproof and you are bound to run into some problems. There will
surely be times when you are unable to gain access to your account.
You’re connection could be down, the brokerage firm’s server could
crash if trading is overly heavy, you could experience a software
glitch, or you may be away from your computer when there is a major
market move. Always be prepared for these things and keep in mind the
available alternative trading options such as phone trading.
When investing online it is your responsibility to say as informed as
possible. Don’t just settle for what you hear. Instead do a little
research on a company before investing in them. There are services that
send you automatic e-mail messages over news about your stock; take
advantage of these. Remember in online investing everything is up to
you and knowledge is power.
