Trade Share by Yourself

Money for the Long Run: Learn About Online Trading

When you're starting out in your career, it's smart to invest in your employer's 401(k) plan or a mutual fund.
Another option is to dabble in the stock market. Stephen Rapp, 23, of Avon, a recent graduate of Roberts Wesleyan College who works for Rochester Broadway Theatre League, has decided to take that gamble. And rather than doing business with a local financial firm, he's relying on E*Trade, an online discount brokerage firm, to make his trades at a significant cost savings.

The price of cutting costs

Online discount brokerage firms, such as E*Trade or Ameritrade, allow you to conduct business on the Web or over the phone using a toll-free number. You'll pay less in commission fees for trades than you would if you used a standard brokerage firm.

For example, Rapp pays a flat rate of $9.99 to make five to 49 trades per month. He'd pay a $50 minimum commission fee if he used a full-service firm to make such trades, says Antonio Porretta, 30, of Irondequoit, a financial adviser with Brighton Securities.

Low commissions are what attracted Rapp to E*Trade. While he's saving on fees, however, he doesn't have one-on-one contact with a personal financial adviser, which could cost him in the long run.

"A lot of people outside of our business think, 'You must hate service vehicles like E*Trade, because they're taking business' from us. But that's not necessarily the case," Porretta says. The financial adviser says his focus is more than just trades; he cares about creating client relationships.

"The No. 1 reason investors fail is emotion versus a rational decision. An adviser takes emotion out of the equation," he says.

While discount firms provide a lot of historical information about individual stocks, they won't guide you in making investment decisions. And although Rapp does a lot of research before ordering a trade, he admits to making some blunders.

"There are some stocks that I take a dive on, but I have to look at it as part of the learning process," he says.
Another tricky element of online trading is timing. Stock prices can shift while orders are being routed and change before transactions are final.

Is online trading for you?

Researchers have long studied investors' trading habits, and it seems that women do better using online firms than men.

"The assessment is that the men suffer from significantly more overconfidence than the women, provoking them to trade much more, burning up more in trading costs," says Dan Burnside, a certified financial planner and lecturer at the William E. Simon Graduate School of Business Administration at the University of Rochester.

Burnside adds that, in general, online investors tend to buy too few stocks, when experts say that diversification - buying a range of stocks, bonds and mutual funds and participating in a 401(k) plan - is the key to successful investing.

Remember, you can afford to take some risks and make mistakes when you're young, but, in the long run, your goal should be a portfolio packed with all kinds of investments.

7 deadly sins of financial planning

Financial planning is a critical necessity for each one of us who seeks financial control of our affairs and wish to create wealth. Then why is it that most of us do not have a Financial Plan or have not even given a thought to it?

Why is it that we keep trudging along and feel that all will become right one day? Why is it that we always think of how to earn more but hardly give a thought to what our earned money is earning for us? Most of us have not even thought of having a dual income stream – one from our work and the other from our investments.

Whether we accept or not, each day or each time we think about creating wealth we are imprisoned by what I call - the seven deadly sins.

Pride:
Caused by excessive belief in one's own abilities, Pride happens because in school we were taught to believe in ourselves. But that belief was with knowledge. This sin is committed when we believe in ourselves and choose to act without adequate knowledge. All we want to have is only some idea of what is the best investment. And believing it to be the best for us, we commit that sin forever under the pretext of “I know how this works.”

Envy:
You've just seen someone make a killing. And you think, that is reason enough for you to take the plunge as well! But then what if you have taken the plunge at the wrong time. We all know the old age wisdom, “Do not break your own hut by seeing someone else's palace.” Then why is it that we change our asset allocation and bet on something that has worked for another?

Gluttony:
Have you incurred credit card debt? Well...in that case know for sure that you are committing a sin each day. Have you taken a loan for a depreciating asset? Now that’s an example of financial gluttony. But then, if you're able to manage the installments of that depreciating asset from your investment returns you're a smarty.

Lust:
Whatever you do you are driven by money only. And if you're prepared to move from one job to another for a 20 per cent rise without considering the credentials of the company and the nature of job, you're far from being smart. What if you've just missed on the stock options there. Besides you could have always had the opportunity to create a niche for yourself no matter how large the organisation.

Anger:
This is widely seen when you are dealing with an agent to who comes to make a sales call and objects to your knowledge or when your broker did not sell when the markets were falling. In both the cases, you were to take the decision. You recall that with anger and/or arrogance you commanded that nothing be done without your consent. Know that in financial management there are two choices – either you take all decisions yourself or let your advisor take that for you. Of course given that you trust his skills and knowledge.

Greed:
I hardly need to say anything here. Most people rush to invest in the stock markets when they touch an all time high. Others think markets will go up forever. Surely you cannot time the market but when the goal is achieved why not sell? After all, that's precisely the reason why you invested in the first place. Now if there is no goal and no plan to manage that goal, it is quite likely that this sin will keep revisiting you from time to time.

Sloth:
This is the one that I love to talk about. The bible says, “Whatever we do in life requires effort” so if we wish to ask for tips and then act, it is a sure way to disaster. Either we must take effort to do all the hardwork ourselves or take the effort to search for a trusted advisor and outsource our efforts. Finding a trusted, knowledgeable and skilled advisor is not a very easy task to do.
Sins that were spoken of centuries ago are still so relevant. Needless to say, it is up to us how much we wish to cleanse.

5 common investment mistakes

Retail investors tend to be burdened with information on how they should go about investing their monies. Distributors, agents and fund houses all play their part in “educating” investors on this front. Our experience with investors suggests that apart from the aforesaid, there is also a need for investors to be aware of a few common and frequently committed mistakes. We present a checklist of 5 common investment mistakes that investors need to steer clear of.

1. Not setting an investment objective

A large number of investors are habituated to carrying out their investment activity in a haphazard and sporadic manner. Very often they fail to set an investment objective which is a basic tenet of financial planning. Investors should adopt a more systematic approach to investing by creating distinct portfolios for all their needs i.e. short-term (planning for a vacation), medium-term (buying a car) and long-term (planning for retirement) needs respectively. Setting of investment objectives also incorporates a degree of discipline which is a vital ingredient for the success of any the investment activity.

2. Not doing your homework

Investing like any other serious activity needs a fair degree of preparation at the investors’ end. Investors need to gather information and acquaint themselves with all the options available to them. Investing in a given asset class (for example fixed deposits) simply because you have conventionally done so is inappropriate. Investors have a plethora of options ranging from mutual funds, fixed deposits, and bonds to small savings schemes to choose from. After getting the facts in place, investors should select instruments that are best equipped to fulfill their investment objectives.

3. Succumbing to the “noise”

Every time the equity markets hit a purple patch, investors come face-to-face with a lot of “noise”. Fund houses go on an IPO (Initial Public Offering) launch spree and distributors do their bit by convincing investors that the recently lunched scheme is the place to be. For example recent times have seen a surge in interest in funds of the flexi cap and mid cap variety. Investors tend to succumb to the noise and get invested simply because everyone else is doing so. The trouble is that investors could discard their pre-determined asset allocation and make investments contrary to their risk appetite.Investors must exercise a lot of discretion and resist falling prey to the herd mentality, especially at a time when everyone around them is busy painting a rosy picture of the investment scenario.

4. Getting attached to investments

Investors must remember at all times that investments are a means to achieve ends (financial goals) and not goals by themselves. If investments have failed to perform their requisite task, then investors should be flexible enough to act on the same. Investors should never get attached to their investments and stubbornly cling on to them. Assess at regular intervals how well your investments have performed and initiate the necessary corrective measures.

5. Timing the markets

A large number of investors like to believe that they can time the markets; nothing could be farther from the truth. If this notion was correct, we would have experienced a surfeit of fund managers and investment gurus. Instead of trying to outsmart the markets and failing in the process, adopt a more scientific approach. Use the SIP (Systematic Investment Plan) route and invest regularly to benefit from the markets. Don’t try to beat the markets, join them instead

How retail investors lose money

The reason is simple - a retail investor is driven by greed or fear. Never logic.

• Retail investors are always the last to enter a bull run
• "Smart money" enters markets long time back when markets are at its bottoms, there is frustration all around and no one wants to discuss markets
• When markets start booming and indices make new peaks, the retail investor "wakes" up. At this stage, he is still not sure and is a fence sitter.
• Lastly, there is optimism all around. Every one is bullish and talking markets. Stocks which were never traded in a year, suddenly start moving and start reaching "new highs"
• At this time, the retail investor starts buying as he does not want to miss out the "action"
• The retail investor will display a marked preference for "low priced" stocks because these are "cheap". He will stay clear of index stocks as these are "expensive"
• This is also the time when "smart money" starts moving out
• When a correction happens, it is usually quite severe
• The retail investor does one of two things. He either decides to wait (the optimism is still there) or he starts "averaging" his costs. Averaging is nothing but trying to "catch a falling knife"
• At some time or the other, panic sets in. The retail investor will then sell off all holdings as a distress sale.
• Sometimes the retail investor will do nothing but wait for the markets to rise
• When the markets do rise, he will sell off all his holdings at the first available opportunity and thus miss out on the new bull run

Interesting facts you may not be aware of

• About 80% of retail investors in public issues sell their allotments within a week of listing. No one will wait and let their investment appreciate
• In a bull run, the retail investor is usually the first to sell off his holding. This investor seldom waits for the bull run to continue
• Those who have never participated when the rally started will invariably jump in towards the end of the bull run
• Whenever a fall happens, the retail investor is the first to buy as he does not want to "miss this chance" to buy a stock
• Retail investors hate to take a loss. Circumstances eventually force them to take a bigger loss sometime or other
• Lastly, retail investors rely on tips or broker advise and sometimes, company research when buying. This never works because the market has already discounted this news

Conclusion

Follow the trend for profitable investing

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