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Q: In two years, I will be 25 and graduating college with a B.S. in Nursing. What are the advantages of online trading or investing vs. going to a big or small investment company when you’re a novice investor?
–S. Clement , via e-mail
A: It would probably do you good to review the four-part investing series that appeared in BLACK ENTERPRISE from November 2001 to February 2002 (see Investing 101, 201, 301, and 401). We addressed your question and many others that beginners have about investing.
The advantages of online trading and investing are that it generally saves you money on brokerage fees, you can get started with small sums of money, you have the freedom to make trades when you want to, and it’s a great way to help you understand the financial markets. The disadvantages are that you have full responsibility for your trades, especially the ones you don’t make because you may not have enough time to watch the market closely. You have to do hours of research so that you know when and what to buy and sell. And if you don’t know what you are doing, you could suffer a tremendous loss. There is less guidance when investing online, and if you aren’t comfortable navigating your way through websites, you may become frustrated.
The advantage to using an investment firm is the higher return you should get from having a professional manage your money. If you have a great deal of money, that expertise could make a major difference. The downside is that you have to pay commissions and higher per-trade costs to get that expertise, and if you don’t have more than $25,000 to invest, your advisor may not take the time to answer all your investing questions.