Thursday, June 26, 2008

Online Investing—Is it for you?

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.

So you’ve had a tiny glance at online investing. Are you ready to take the plunge? Consider the following from Investopedia:

Studies have demonstrated that the track record for individual investors is not encouraging. One famous study released in 2003 by DALBAR, a leading financial services marketing research firm, revealed that over the preceding 19 years the unmanaged S&P 500 Index earned an average of 12.22% annually. Over that same period, the average equity mutual fund investor earned a paltry 2.57% annually!

But don’t get discouraged. Take this quiz to see if you’re ready.

What About a Traditional Broker?

There is a reason that traditional brokers are still popular. Yes, the person-to-person exchange is part of it, but a seasoned broker can also help you learn the whole game. Plus, a good broker gets to know their clients and can make recommendations specific to your risk tolerance.
By working with a traditional broker you can also learn about choosing a type of buy, navigating fast-moving markets, buying and selling strategies and terminology.

Easing Into It

Another strategy for entering online trading is to supplement your traditional broker investments with a few stocks traded online. Instead of selecting an entire portfolio you can pick a couple of stocks that interest you, research them and throw a little money into them. As you learn the ropes you add some more stocks. Eventually, you could even break away from traditional investing.

Self directed online trading does have a steep learning curve, but if the idea of researching and choosing your own investments sounds exciting you should probably give it a try. There so much to learn and that in itself can either be overwhelming or enticing.

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