Investing online

One of the big developments in recent years is the possibilities that have been opened up to individuals wishing to invest their savings more effectively.

Traditionally, investing your life savings would have brought with it costly fees, but now there are a number of online brokers who will make the investments on your behalf for a fraction of the cost.

For many people, investing money would simply just be a case of taking a trip to a bank or building society, but the internet has opened up doors for the less savvy investor.

When asked about the key benefits of investing online, Claudia Philips, managing director of investment dealing at Alliance Trust, said: “For me the key benefit is that you as the customer are in the driving seat and you can sell shares whenever you want and wherever you are.

“Most providers now offer all encompassing services on one platform with complementary products that provide customers with a one stop shop.”
But before venturing onto the World Wide Web to buy, sell or trade stocks, make sure you do plenty of research. Online trading can offer a self-directed investor an easy way to manage their portfolio, but can also wipe out years of hard saving.

Start small

If you are new to online investing, don't put your entire life savings into an online account.
Start with a smaller sum, which will be easier to handle and keep track of and then once you feel confident, you can add more money to your online account.

Stay Diversified

Once online, many investors tend to concentrate on stocks, specifically large-cap domestic stocks and while these stocks should make up part of your portfolio, they shouldn't be ALL of it!
Take into account your time horizon and risk tolerance to develop a well-balanced portfolio of stocks, bonds, and cash.

Don’t discard mutual funds

Most investors are in mutual funds for a good reason - they don't have the expertise to make their own investment calls on individual stocks. They are often also too preoccupied by work, family and other concerns to spend every minute watching the market.

So keep your mutual funds; it probably is an unwise move for you to cash out your long-term fund holdings so that you can start ‘playing the market’ in individual stocks!

Problems are inevitable

Trading online is not foolproof. There will be times when you can't access your account.

You could be away from your computer when the market makes a major move. Your Internet connection could be down. The online brokerage firm's server could crash due to heavy trading, unexpected software glitches or a natural calamity.

Know about the firm's alternative trading options. This could include automated telephone trading or calling a broker.

Costs and risks

Most providers don’t impose a maximum investment limit, but market makers may impose a maximum number of shares you can buy or sell in one trade depending on the stock you are trading in.

It’s worth noting that transaction costs vary from provider to provider. Most online share dealing providers now offer a flat rate commission charge and some will charge an annual management fee for some of their products.
So what are the risks of turning your hand to online investing?

Philips explained: “The risks are no different to if you were share dealing over the telephone, in fact the risk is probably less as it is immediate and in most cases if you are trading during market hours you will know the price at which you have traded as soon as you submit the instruction.”
As always, Philips points out, there is risk involved when dealing in shares in that they can go down as well as up.