Personal Financial Planning


Internet Investing Is Getting a Bad Name

It’s hard not to get caught up in the hype surrounding online investing. After all, you can’t turn on the television these days without seeing clever advertisements from Internet trading companies exhorting would-be investors to “get rich quick” by trading stocks online.

The SEC, however, has drawn a line in the sand. In a recent speech, SEC Chairman Arthur Levitt warned investors about the allure of online trading.

“For most individuals, the stock market is best used for investing, not trading,” he said. “Online trading may be quick and easy, but online investing requires old-fashioned elbow grease, like researching a company or making the time to appreciate the level of risk.”

In short, online trading does not equal online investing.

On the other hand, Robert K. Doyle, CPA/PFS, of Spoor, Doyle and Associates, PA, in St. Petersburg, Florida, said he thinks online trading is great. It is bringing competition to the brokerage industry by giving people an alternative to high-commission trading. The increased competition means greater value for investors.

“But online trading is not for everyone,” Doyle said. Agreeing with Levitt’s comments, he advises those who invest online to be diligent about their research and to be prepared to deal with the service shortcomings of fast-growing online trading companies.

“For people who make their own decisions, don’t need to pay for advice, don’t trade frequently and want deep discounts in their commissions, I’d say online trading is a good idea,” Doyle said.

To help investors navigate the sometimes stormy seas of Internet stock trading, the Securities Industry Association (SIA) has published On-Line Investing Tips. According to SIA President Marc E. Lackritz, the publication is a users’ guide designed to help individual investors understand the advantages as well as the disadvantages of online investing.

“Online investing is a growing phenomenon, and we want investors to know the basics for using it,” Daniel Michaelis, an SIA spokesman, said.

The publication, which echoes Levitt’s advice to investors, gives online investors the following tips:

  • Consider the credibility of information obtained from online sources.
  • Anticipate delays and crashes with the Internet.
  • Avoid risky online trading techniques.
  • On-Line Investing Tips is available at www.sia.com .

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