Personal Investing Online
Online access is probably the greatest development in the last century for personal investors. All levels of investing have benefited from this explosion of information and communication, but the personal investor has probably reaped the greater portion of the pie. Information and access to other investors, and investor groups have given the home researcher tools that use to take brokers and advisors decades to create and groom. This isn’t to say that all of the information out there on the internet is “real” or “correct”, but a good portion of it is, and there are more than enough resources to place you in decision making positions. To be accurate, it really isn’t the Information age, but rather the Communication age. The computer started out as a source of information storage and access. Spread Sheets were quite nice to crunch some numbers and databases for notes were good tools. When the computer was connected to the internet and given access to other investors however, it became a tool of communication. Email, news groups, news websites, personal and company blogs, as well as investor forums sprang up give the personal investor access to a huge community of people looking for real information.
Being able to make our own trades online was probably the greatest boon for us as home investors. Thanks to Charles Schwab and many others since, we can sign on to our own discount broker accounts, make a trade, or sell our shares and not have it cost us a bundle in the process. Company press releases hit our inboxes moments after release. Add that to real time investment information; with stock quotes and company news on other websites and we had ourselves a set of genuine investment tools that were far beyond our capabilities only a few short years ago.
Subscription news is a great tool. Websites such as Google News and Investors Business Daily (http://investors.com/), offer the ability to have delivered to our email inboxes the results from particular searches on a daily, weekly or “as it happens” time frame. This gives us the news we need, as it happens. There are many website sources which offer this same service, but I find it so useful I’ll give the details of how to do it on Google for you here.
The website is http://news.google.com. Google’s news area searches through news releases and news services around the world, indexing them using the Google relevance engine. The main page is like most other news pages, a summary of today’s news. Using the search field, search for any topic you are interested. For example, today I’m interested in Google itself, so I just type in “Google” and hit the Search button. In this area, we are only searching “news” sites, not the whole Web. Google’s New search defaults to showing us recent news per Relevance to our search, but allows us to search by “most recent” as well.
Now that I have my search I can scroll to the bottom of the search results page, where it offers to track new stories and send an email alert. Clicking on that link brings you to a simple page where you can choose to have email alerts sent to your address. This is very handy for the serious investor to keep track of what is happening with the companies we have investments in, or are simply keeping track of. Another great tool Google now offers is Google Finance (http://finance.google.com).
Tapping into the news for a company is a great service, but the online experience offers much more than simple timely news bulletins. By making use of the online community you can get in touch with other investors who are interested in the same stocks or companies.
A great example of this is the Motley Fool Online community. Going to the Motley Fool website (http://www.fool.com/), you reach a place full of information for the personal investor. Honestly, you’ve hit the jackpot here. Not only do you find a resource for professional opinions, but a wealth of information from various other investors just like yourself, who are asking questions, and giving opinions. Some of them are amazingly savvy, while others you can do without. It doesn’t take long to filter the wheat from the chaff however. The discussion boards are set up on Motley to be subject by company. So again, if we are interested in Google as a company, we simply search the message board for GOOG, and we are in touch with several hundred other investors all over the world who are interested in the same investment. While the news gives us a great deal of information, these other investors come across tid-bits and factoids we probably would not ferret out any other way. Some of these comments are from people who work at Google, some are from professional fund managers and industry insiders. Others are from the guy down the street who happens to be a really great investor himself. The free flow of data, news, ideas and opinions (even rumors some times) help to make the vital decisions surrounding the personal investor. Honestly, once you go online, you never go back.
Online Brokers
Just because you can do a thing, doesn’t mean you should do a thing. This is one of those philosophical thoughts designed to give us pause for a moment before we do something we really believe we want to do. I’m a firm believer in the online investing experience. Not just in the communities and information websites available but also with the actual trading.
There are some questions you should ask yourself before you get started however. They are basic questions, but never the less, you should pause and really consider them before moving your investment holdings to an online broker.
First, do you feel comfortable conducting business online? Many people don’t, and it will add to the ‘fear factor’ of investing if you do. Have you purchased other items, such as books or movies online?
There is no doubt that online trading will save you money in the trades. Some online brokers are down to $12 to $14 dollars a trade, which is fantastic. Most of these discount brokers however don’t offer any other service besides the trade though. There’s no one to ask advice from, or give you market researcher. You will need to have the time and resources to do your own background research for your trades. Can you do that? Do you have those resources? I’ve introduced already several resources for that information and more are coming on line every day. So, the answer is probably yes, but really ask yourself if you have the time to perform those tasks.
There are also several features from online traders you might want to consider before choosing one. They all have great advertising and are all #1 on some list or other, or give something away “free” when you join. We aren’t talking about a cell phone carrier, however; we are talking about a firm that is going to be holding your future in their care.
Do they allow check writing? How will you get your cash back when you want to spend some of those dollars? What is the hassle factor of doing so? Many discount brokers only send checks through the mail on request. Make sure you know exactly what your options are before signing up. If it takes a phone call then make the call. Might be a good thing to do anyway so you know how difficult it is to get someone on the phone if you need to in the future.
When working with an online broker, not all of your money in your account is going to be invested all of the time. Make sure that your core account is an interest bearing one, and that you money isn’t just sitting there. Find out if there is a minimum balance before interest is paid. Small balances earn less interest than larger balances normally, so make sure you understand the scale and rates. Also check to see if core account balances can be swept into a money marker mutual fund. Find out what your options are for your core balance account.
Most online brokers (at least every one I’ve ever seen) are not insured by FDIC (Federal Deposit Insurance Corporation), but they are typically (should be) insured by the SIPC. The SIPC is a private fund supported by member broker-dealers, which insure cash and securities in accounts up to a total of $500,000 ($100,000 cash). We aren’t talking about being insured for money lost because of market risk here, we are talking about being insured against your online broker going insolvent. If you are planning on investing more that $500k, then check to see that your broker has the insurance to cover you.
There are a number of normal services offered by the online brokers. Check them over and make sure that they have the tools you feel you need. Some of them have different tools, and sometimes they won’t offer something that you have available from another source.
Streaming Quotes. Many of the online brokers offer a little tool that you can install on your computer which gives you a running ticker across the bottom of your screen. These are fairly nice. Not everyone uses them.
Real Time Quotes. This should be a given. I don’t know of any online broker who doesn’t give you free online real time quotes. Yahoo and Google both do it as well, so you don’t really need them from your broker, but if they didn’t offer them, I would certainly want to know why.
Level II Quotes. Unless you are trading in and out of the NASDAQ daily, you probably don’t even know what these are, but they are a common service offered by online brokers. Level II quotes show the amount of shares being offered for purchase and for sale. They show the bid and the ask price. If you know what they are, then you need them, if you don’t, you might need them in the future. It is nice to have them available. Some traders swear by Level II screens, claiming that they give the most complete picture for predicting stock price movements. I’m not aware of any free real-time Level II quote systems, but ActiveTrader.net offers a free delayed Level II display–which won’t help you at all if you are a day trader, but it might be fun to experiment with.
Market News and Research. I’ve already introduced several ways of getting this information, but your broker should not be charging for market news, and you shouldn’t be paying for it either. Having it handing on your broker’s website however can be a convenience you will want. Some that I haven’t brought up yet are Silicon Investor (http://www.siliconinvestor.com/), Raging Bull (http://www.ragingbull.lycos.com/), and Datek (http://www.datek.com/). I personally like the Silicon investor and Motley Fool, those two with the new Google Investor website covers more than I need for my personal research.
Multiple Investment Products. Can you purchase mutual funds, corporate bonds, and Treasuries? Some online brokers don’t, do don’t take it for granted that they do. I don’t know why they don’t, never got a real answer for that, but make sure yours does if you feel that you are, or might be interested in these. Having two or three online brokers doesn’t make any sense. Make sure that is going to cover your needs. Only you know what those needs are, so it may not bother you at all that your broker doesn’t offer a service, such as…
International Trading. Do you do this? Does the broker you are interested in offer this? Again, several don’t. Even if you aren’t currently looking at international trading however, you might want to keep this in mind for your decision making. The world markets are changing. Whether that is good or not is up to you to decide for yourself, but why be in a position of having to have two services in the future?
24/7 Toll Free Customer Service/Trading Telephone Center. That’s a mouth full, but one you want to have around. Eventually, you are going to want to talk to some one. Money brings that out in people. Something is going to happen, something is going to seem odd to you, or you are going to want an answer about something, and email, IM and forum boards are not going to cut it; you will want an accountable human voice on the other end of the phone to answer your question. Some online brokers charge for this service. Some charge by the minute. Make sure what this is going to cost you. The call may be free, but is the talking?
Wireless/Anywhere Technology. Ah, this is my personal favorite service, because sometimes, I just want to know what is going on, and all I have is my cell phone. Some firms offer services for Palm Pilots, cell phones and other ‘connected’ devices, though they are rarely free services. You can get text messages if a stock reaches a certain level, goes down a certain amount. Some send stock news, or notification of trade reports. Some even let you trade with your phone, which is nice. If you are on the road most of the time, or have places in the day that are ‘dead air’ times, it is nice to get something done, and it might even be worth the cost.
Direct Download for Accounting Software. Do you use Quicken? How about Microsoft Money? Most of the online brokers I have seen offer this service, allowing you to download your account information in Quicken or Microsoft Money format. It is a very handy service, and something you will want to have. You might be shaking your head right now but trust me, you will want it eventually. If nothing else, you might want to switch brokers, and you will want all of your records. And don’t forget about tax time. Make sure they offer this.
Local Branch Presence. This is difficult to find, but it might be a decision maker. Knowing that you can jump in the car and go down to a real office and talk to a real person is very nice. The whole idea behind online discount trading is that you don’t have this service, which is why those trades are only $5.00, but I have to suggest that perhaps $20, and a local office might be worth it, again, up to you to decide.
Now let’s talk about some trading features that are normally offered in the online world, and go through some of the trading rates that are available.
Absolute Discount (trades for $0 – $10). Sounds great, you think, as you read the ad. So what’s the catch? The catch is that probably most of the services we just talked about aren’t available. These tend to be bare-bones operations. That is not to say this is not a good thing. As we have discovered there are many services offered out there on the web which may make up for a bare-bones operation’s deficiency. Best thing to do, is to use some of those services such as the forums over at Motley Fool, to find out more about the broker, the website, and any experiences people might have had with them.
Low Commission ($10 – $30). The average commission out there at the time of this writing is about $14. If you had a choice between $14 for commission and $30 for commission but you could talk to customer service for free and have a local office you could visit, what would you take? Commission prices are a major consideration. $15 is … well… $15.00! If you make several trades a week, that commission rate adds up fast. What might change your mind is …
Multiple Trading Channels. This is a must, and well worth a few bucks on a trade commission. You have to have more than one way (website only) to make a trade if you need too. Make sure your broker offers alternatives such as phone-in or Touch Tone trading; something that allows you a connection to your trading service beyond the website. Many offer this service, but find out how much it costs. You will probably never need it, right? (was that a ticking sound I heard on your hard drive?).
Online Option Trading and Short Selling. Do you do these? Check to see that the broker does as well. The service should be through the website, but some online brokers only offer them though a representative (with the added rep-assisted commission attached of course).
Extended Trading Hours. This is a big one. Normal trading hours are from 9:30 to 4:00 PM EST. Some online brokers offer 8 am to 8 pm EST extended trading times. Pre-opening and extended-hour trading is mostly seen on the NASDAQ. After hours trading is not for everyone, but it could be a nice option to have available. The last item to look at is probably obvious, but becomes a major item as time goes on, and that is the website itself. Can you read it? Can you understand the layout, and options? Is the information readily available, or do you find your self hunting for information you feel you should have at your fingertips. Read some of the help files, do they help? Are they well written? Can you understand what they are explaining?
There are currently over 150 online brokers on the Internet today. You won’t be lacking in available alternatives. Not all are created equal, but then neither are all furniture stores, just make sure it’s a place that provides you with the tools you need and the price you are looking for.