Online Investing—Dabbling

Online investing a.k.a. Do It Yourself investing has been gaining in popularity. You might even feel left out if you're not into it. But is it for you? This week we'll explore the basics of online investing.

Yesterday I pointed out that online investing isn’t for beginners. That doesn’t mean that you should steer clear. If you’re the type who would rather brave the water by jumping in you can learn a lot while still playing it somewhat safe in the shallow end. But remember people can drown in just a few inches of water. Nothing is a safe bet. To be more direct—you can lose money.

Before you dive in make sure you’ve got the basics down. Investing is full of specific terminology and keeping it all straight can make your head spin in the beginning. Two great online resources are The Motley Fool and Investipedia.

But knowing the terminology won’t make you an expert. That’s when you’ll learn more by doing. Like I mentioned yesterday there are several free online trading playgrounds. Personally, I think this is a good way to learn, but some may prefer to do it for real.

First Step: Pick a Broker.

Yes, you need a broker. Online trading is often thought of as “do-it-yourself” trading—and it is, however, you need a broker to transact the sales. Just like you don’t walk in to Hewlett Packard and buy a computer, you have to use a sales outlet to purchase stocks. Tomorrow we’ll take a look at the various online brokerage firms.

Next: Research

Fortunately most brokerages have tools to help investors research stocks. For example, Fidelity provides free third party analysis. They also have a nice knowledge base to help you brush up and get beyond basic understanding. It’s important to know more about the company than just name and product.

Then: Place an Order

Here’s where it really is as easy as the Etrade baby makes it look. Buy a stock that you like, hold onto it, if it’s really tanking sell. Simple, right? Maybe. Again there is a lot of terminology regarding different types of buys. But don’t worry this part is fairly easy to catch and not only will your brokerage have info, you can always access other sources.

And wait: Watching Your Portfolio

Now you’ve place an order or orders and you’ve got a portfolio. As a beginner, you want to let it ride for a bit. The nice thing about online investing is that you can watch your portfolio anytime and signup for alerts. Once you get past this you’ll be listening to analysts, watching trends and trying to out-think the market—but that comes later. Right now we’re just getting started.

The beautiful thing about online investing is that you can dabble and learn. Sure you can do this with a live broker as well. But online investing gives you a little more hands on feeling.