investing

Should you invest with an online brokerage?

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Highlights
  • Traditional brokers are great for those seeking personal attention.
  • The ability to do research takes some of the stress off investing.
  • Online brokerages also can assist with your retirement planning.

Online brokerages represent a powerful medium where you can manage your investments. Indeed, for the average investor who has some time to put into researching and handling his or her investments, an online brokerage may be all that's required.

"If someone needs their hand held, a traditional broker or bank can be helpful," says Mick Heyman, a financial adviser in San Diego who uses online brokerages for himself and his clients. "But for the average person, I think an online broker is great. Online brokers have caught up to and maybe even exceeded what a traditional broker or bank can offer."

The trading services offered by an online brokerage are comprehensive. You can trade stocks, bonds, options and currencies. You can even buy foreign stocks on their native exchange in their native currency.

You can have access to graphs, charts, fundamental research, and streaming, or live, quotes. And you can track your own holdings in numerous ways.

Impressive trade architecture

Thomas Hoebbel, who has a photo and video business in Ithaca, N.Y., likes the trading architecture provided by his online brokerage. "It tracks your investments, and you can look into others (investments) and compare them," he says. "It's great to have it all in one place. You can link to news stories and charts. My own account is there, so I can jump back and forth for everything I need."

Heyman is impressed with the advancements online brokerages have made recently in allowing users to see the performance of their portfolio. Traditionally, you could just compare the price of your assets to the previous day and to your cost basis.

But now you can check your returns over different periods, such as quarterly and year-to-date, and against different indices. "That's just like how institutional money managers are evaluated," Heyman says. "Banks will give that to you if you yell and scream. I don't even know if a regular broker will give it to you. The online guys are moving faster in improving their services."

Hoebbel says he likes the research tools on his online brokerage site. He has listened to webcast courses on stocks and looked at publications on the website. He now invests in only stocks, but he plans to use the site's educational tools for bonds and futures as he diversifies his portfolio in the future.

Stress reliever

Steve Solomon, a freelance editor in Deerfield Beach, Fla., is impressed one of his online brokerages -- he has accounts at two -- offers the full version of Morningstar research for free. It normally costs $185 a year.

"My online brokers give me an opportunity to do research and pick up some good extra change with little stress," he says.

Heyman finds online brokerages to be stress-free as well. He likes being able to use his to shop for certificates of deposit, compare their rates to corporate and municipal bonds, buy the CDs, and even sell them. "You have everything on one screen," Heyman says.

He also appreciates having the ability to call a representative for assistance. "Say you've never bought a bond or a CD; you can call up and get information. The ability of people to educate you without trying to sell anything is big," Heyman says.

"Wouldn't it be nice if you could buy a car or insurance that way? It's very relaxing."

IPO opportunities

Solomon has found that his two online brokerages provide him ample opportunities to purchase shares of initial public offerings, or IPOs. He has four accounts at one online brokerage -- three retirement accounts and a nonretirement account -- and two accounts at another brokerage. He rotates his IPO bids through the different accounts to enhance his chances for receiving shares.

Solomon also uses an online brokerage for some banking services. The brokerage gives him an ATM card and reimburses him for any fees he pays to use it. He also gets free checks. And if he wanted to, Solomon could pay his bills online through the brokerage.

An online brokerage also can assist your retirement planning with a variety of tools to figure out your spending, income and investment needs to live the lifestyle you choose during your golden years.

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