Log On and Profit

A beginner's guide to online investing

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Brandon Ledyard buys and trades stocks such as JDS Uniphase (Nasdaq: JDSU), TriQuint Semiconductor (Nasdaq: TQNT) and Ariba (Nasdaq: ARBA) online. The profits from his investments have afforded him certain luxury items, without tapping into the family budget.

The 28-year-old school psychologist and self-directed investor paid $3,000 for a 1982 granite BMW with only 60,000 miles, which he bought from a friend. “The stock market has given me that extra cushion to get fringe benefits I couldn’t get before,” he says.

As an online investor for the past two years with Charles Schwab, Ledyard expects his passion will continue to pay off. Already, Ledyard’s investments have helped allow his wife, Barbara, to stay home and care for their three-year-old daughter, Lauryn, and 14-month-old twin sons, Zavier and Zion.

Ledyard’s is just one of a growing number of American households joining the burgeoning ranks of online investors. The number of North American households involved in online trading is expected to grow to 4.3 million by the end of this year, up from 3.5 million in 1999 and just 500,000 in 1996, according to a 1999 report from Forrester Research in Cambridge, Massachusetts.

Thanks to a bullish stock market in recent years and the Internet’s growth, a stampede of consumers is logging on to turn a quick profit or realize the potential of retiring with a hefty nest egg.

There are several critical factors potential online traders should consider before choosing an online broker, such as continuing to do business with a professional broker or trading with both online and offline brokerages. Investors need to carefully evaluate their investment styles as well as short-term and long-term financial goals.

Though personal advice is a big priority with most online investors, most trade electronically because of lower fees, greater convenience, real-time access to accounts and research capabilities, says Kenneth Clemmer, an analyst at Forrester who did an in-depth report, “Investors Grade eBrokers,” for the research firm. Clemmer surveyed about 100,000 North American households, plus 10,000 online consumers. The survey was conducted from late December 1998 through mid-January 1999.

The study found that out of all investors with Internet access, most fit into one of these categories:

  • Retirement by the book. These are online investors who follow reasonable strategies to obtain a comfortable retirement, making up 13%. Their investments on average are a modest $49,235.
  • Aggressive affluent. This group makes up 32% of online investors. They take risks, trade almost 10 times a year on average and have a mean net worth of more than $320,000.
  • Portfolio cruise control. The most risk-averse, comprising 11% of Internet traders. They trade moderately and only to maintain their considerable investment portfolios, which average more than $320,000.
  • Get rich quick. These investors are typically the 20-somethings, day-trading crowd, representing 15% of online traders, and another 13% use both online and offline brokers. They trade frequently despite their modest net worth of $38,277.

Among the study’s other findings:

  • Online traders tend to be young, educated and wealthy professional men. They trade twice as often as
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