Log On and Profit

A beginner's guide to online investing

their offline trading peers.

  • Convenience is the biggest draw for online traders. About 45% of them have switched brokerage firms in the past. Almost one-quarter of them did so because they could not trade online.
  • Clemmer says the findings show how fast online trading is growing and why it will continue booming and keep making up a larger percentage of all stock transactions. Indeed, business is brisk. The number of online accounts reached 5.4 million and assets jumped to $374 billion in 1998 according to Forrester data. But those figures are projected to swell to 13.7 million accounts and assets of $309 trillion by 2003.

    TRADING FOR EXTRA CASH
    As a relatively new online investor, Sylvia Thomas, 52, could fall between the retirement by the book and aggressive affluent categories. She manages the office for her husband’s business, Lanny’s Hobby Shop, an auto body shop in Los Angeles.

    Thomas first invested in stocks with cash she accumulated in her 401(k) and defined benefit retirement plans at Pacific Bell Telephone. When Thomas left the utility four years ago to help her husband, she was determined to build up her portfolio. At that time, she moved her money into a Merrill Lynch IRA, investing in blue chip stocks like Disney (NYSE: DIS) and AT&T (NYSE: T) and avoiding risky investments.

    But when she didn’t get the returns expected, she decided about two years ago, to be more aggressive and subscribed to Merrill Lynch Online. Using the online brokerage service allowed her to research and trade stocks on her own while maintaining her relationship with a professional Merrill Lynch broker.

    The transition also allowed Thomas to expand and diversify her portfolio, which today includes Microsoft (Nasdaq: MSFT), Qualcomm (Nasdaq: QCOM), Home Depot (NYSE: HD), the John Hancock Small Cap Growth Fund and the Federated High Income Bond fund.

    The move is paying off: Thomas’s portfolio is now worth about $450,000, up 37% from $328,000 nearly two years ago. Using Merrill’s online service gives her a one-stop financial trading, research and information center, where she can access the latest market news, read analysts’ stock picks and learn when companies are initiating stock splits and paying dividends.

    Separate from her retirement money, Thomas maintains an E*Trade account, worth less than $10,000. She feels freer to take risks on more volatile sectors with this account.

    An avid reader, Thomas uses “downtime” at work to research stocks, giving her decision-making authority on which stocks to buy instead of just relying on her broker. But she also likes getting her broker’s advice on decisions that will affect her long-term goals.

    “I’m investing for the long term, hoping to retire by the age of 59,” says Thomas. Although she considers her E*trade account secondary, she hopes to use the profits to augment her retirement fund.

    Her efforts have given Thomas cash for such things as remodeling her living room and making other home improvements. Also, she is helping to pay for daughters Alicia and Chanelle’s college education.

    CHOOSE CAREFULLY
    Experts say there are several factors to consider before choosing an online broker.

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