Log On and Profit

A beginner's guide to online investing

The main considerations: commissions and fees; advice and information; and, channels and accessibility.

Clemmer suggests that fees probably matter most because they hit investors’ wallets every time they do a transaction. “Consumers should get a sense of how often they trade and what they buy,” he says. He also says active traders should be more sensitive toward commissions than less frequent traders. The reason: a $20 difference in commissions is negligible for one transaction, but compounds quickly after 10 to 20 trades.

Clemmer says the level of advice and information is another crucial factor in determining which online broker to choose. He says some self-directed investors need little more than stock quotes. Conversely, less self-directed investors might want to read analysts’ research reports, recommendations and even consult with an advisor. “Consumers need to select the firm with the right amount of hand holding, if need be,” he says, either from a financial planner or a broker.

Another element to consider is the relationship between investor and broker. He says some firms with online brokers have great customer-service call centers and even brick-and-mortar branches. “Some people will be OK with only using the Web, while others will want to know [that] there’s a person they can call.”
< BR> Active traders should consider online brokers with low-cost trade fees and fast execution capabilities. Those attributes are less significant for those who trade less. “Both novice and experienced investors might find any combination of these important,” Clemmer says. “The key question is not experience, but investing style.”

For Ledyard, the fact that he trusts himself the most with his money drove his decision to trade online. That, coupled with not having the pressure of a broker telling him what stocks to buy or sell, meant he could educate himself about the market and make a profit.

He says convenience and price were also big factors. Ledyard spends about $30 per transaction with Charles Schwab investing online, compared to at least $50 per trade if he used a full-service broker.

An online investor since March 1998, Ledyard typically buys stock in blocks of 50 to 100 shares and makes about two to three transactions a quarter, up from one a quarter in the beginning. “If I didn’t have to pay the capital gains taxes, I’d trade more often.”

Ledyard describes himself as an “aggressive investor with a long-term view,” indicating he balances buying volatile investments with the potential to make decent returns over time. His best performer: JDS Uniphase. The stock has split 2-for-1 three times since he bought it last June, providing him a 500% investment return.

He also likes doing the transactions himself and finds trading on the Net fairly simple: enter the number of shares to buy, type in the company’s ticker symbol and indicate if you want the dividends reinvested. The broker will confirm your order and view your account. “It’s that easy,” he says. “I figure why pay someone else to do that when I can do it myself. It allows

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