James Johnson scoffs at the idea that investing should be left to professionals. “We all have at our fingertips, via the Internet, 80% to 90% of the tools the professionals say they have,” says the 54-year-old economic development official in Oklahoma City.
Johnson should know: He was a stockbroker back in the 1970s and ’80s before changing careers. A self-proclaimed do-it-yourself investor, Johnson says he can compete with professionals: “If you compare the results of a pro against a do-it-yourselfer who has studied and done this thing for a while, you’ll find pretty comparable numbers.”
Johnson says he has seen a return of more than 15% a year over the past few years on his $50,000 stock portfolio. The S&P 500 index, by comparison, has averaged about 11% over the past five years. Of course, at the same time, many unseasoned investors have waded into the stock market only to sink like stones.
Yet, for those who have resolved to make their capital work harder for them this year-and who meet a few key criteria-online investing offers one route to success. At the very least, it’s a way to avoid the steep commissions that full-service brokers can charge.
Making the Commitment
The stock market’s recent troubles should not scare you off-quite the opposite, says Harry Domash, publisher of Winning Investing, a stock and mutual fund advisory newsletter, and a columnist for the San Francisco Chronicle. “I think it’s less dangerous to start buying stocks when the market is down than when it’s up,” he says.
There’s a huge caveat, of course. Unless you have a cool head, a strong stomach, and a commitment to invest time as well as money, it’s probably wise not to be your own broker. After all, successful investors must not only pick and monitor their investments, they also have to study constantly to make sound decisions. “You have to love it,” says Allen Boyce, a 75-year-old retired New York City school principal who now runs a jewelry business with his wife, Joan, 66. Boyce spends at least 12 hours a week monitoring his $1.5 million investment portfolio, reading investing newsletters and magazines, and surfing Websites.
The first step to online investing is choosing a discount brokerage. Many of these outfits have merged over the past several years and, in the process, lowered commissions to $7 to $10 per trade. The prices vary depending on whether the brokerage offers independent research and other features, such as access to business newswires and other investor education resources. Still, paying $10 or so to buy stocks, mutual funds, or exchange-traded funds (ETFs), and another $10 to cash out, can dramatically cut into gains or compound losses on small investments.
Generally, stock traders should place at least $1,000 per trade to keep their gains from being eaten up by commissions. There may be occasions when investors have reason to invest in one particular stock, but keep in mind that one stock isn’t a portfolio.
“You have to invest enough so you can buy at least half a