Comparing Online Investing to Traditional Investing

Online investing reduces the money you have to pay a broker
to trade securities. You can also react to market conditions
more quickly because you don’t have to contact your
broker to execute a trade. However, when you take charge of
your own investing strategy, you need to start doing your own
homework to substitute for the research and advice you get
(or are supposed to get) from a broker.
What’s different about online investing?
Both online investing and traditional investing are supposed
to make you money. You have to decide for yourself whether
you profit more handsomely from doing your own online
research and trading or from the services of a broker. Table
1-1 helps you compare the online investing medium to traditional
investing.
Table 1-1: Comparing Traditional Investing and
Online Investing
Traditional Investing Online Investing
The phone is your most The computer is your most
important investment tool. important investment tool.
Investors buy and sell Investors buy and sell
makes the purchase on securities themselves by
the investor’s behalf. using a computer to access
the brokerage’s Web site.
Investors pay their brokers a Investors pay their brokerage
commission on each trade. a fee that’s normally a fraction
of a full-service broker’s fee.
Brokers monitor your portfolio You monitor your own portfolio
all day long, sometimes calling by using a variety of online
to inform you of a danger methods.
or opportunity.
Careful research and planning Careful research and planning
is necessary. is necessary.
Evaluating the role of the broker versus
the computer
Before you give your broker the boot so that you can go
online, evaluating the services you actually get for the cost of
your broker’s commission is a good idea. You may decide that
you’re getting some benefits from using a broker that you’re
not ready to forgo.
You may feel more comfortable, for example, relying on the
advice of an experienced broker who monitors the market all
4 CliffsNotes Getting Started in Online Investing
day (while you’re away from your computer doing other things).
And your broker has the lines of communication to gauge what
other brokers are feeling and advising their clients to do.
Sometimes dealing with a broker is more practical than using
a computer. For example, you may like to pick up the phone
occasionally to ask a question and talk to the same person
each time. Or, if you travel frequently (particularly overseas),
you may not always have access to a computer.
Online investing and traditional brokerage services aren’t
mutually exclusive. You may even consider maintaining more
than one kind of account, giving you access to differing levels
of service.
Brokers are licensed and registered with the Securities and
Exchange Commission (SEC) to regulate the quality of the
advice they give you. Brokers have to pass a rigorous test to
receive a Series 7 license. The SEC can discipline brokers who
fail to follow SEC rules and standards in giving advice. The
SEC cannot discipline you for failing to properly research
your own online investments. By investing online, you
assume the responsibility and the risk.