Should I Buy Stocks Online?

With that question comes the presumption that you have an interest in or have some experience with owning stocks as an investment. If that is the case, buying stocks on line provides you with a viable and, perhaps, and economical way to invest, but it is important to consider doing so only in the context of your overall investment strategy.

Investing in stocks makes sense for any investor who has the ability to properly diversify among a broad range of equities and other asset classes. Online investing makes sense for those who prefer to forgo the services of a broker, and depending on the level and type of investing, it can also be more economical.

Online brokers emerged in the late 1990s and, within a relatively short period of time, attracted the attention of investors with their low, flat commission structure and ease of investing. As with all things on the Internet, the proliferation of online brokers made it easier and cheaper to buy stocks which led to an explosion in the number of stock investors. Should I Buy Stocks Online?

With nearly the same access to real time market information, research, investing tools, and trade execution as the full-service brokerage firms, online stock investors can enjoy the full benefits of stock trading from the comfort of their bedroom. But, it is not for everyone. As inexpensive and simple as it is, it doesn’t create the same advantages for all investors. You know you could benefit from online stock investing if you meet the following criteria:

You have a sound foundation of knowledge and experience in stock investing.

Stock investing is not for the feint hearted or the ill-informed. The markets are dominated by vast networks of traders from institutions with access to information and technology not available to most investors. While this doesn’t preclude small investors from benefiting from the stock market, it is important to know what drives stock prices, how the market functions, and how to identify opportunities. Most importantly, you should have a clear understanding of the risks of investing. If you’re new to stock investing, see our Guide to Stock Investing.

You have at least $25,000 to invest in a stock portfolio.

Buying individual stocks holds a lot of potential for upside growth, but it also entails downside risk. The only way to reduce your risk and temper the volatility of stock prices is through diversification. Unless you can put together a portfolio of at least 10 different issues of stock across several industry or regional sectors, you could expose your investments to greater risk.

You have clearly defined investment objectives.

It’s one thing to have the knowledge and the money to invest in stocks, but, without clearly defined investment objectives you will be shooting in the dark. The biggest mistake most small investors make is that they chase the stock market returns, trying to jump on the big movers. They end up buying high and selling low, ensuring poor returns on their portfolio. If, instead, they were to focus on their own objectives and what they need to achieve financially, there would be no need to chase the performance of the market.

You are willing and able to do your own research.

It used to be that research on companies and critical market data was only available to the big institutions. The Internet has leveled the playing field somewhat by increasing transparency in the financial markets and making institutional level research available to small investors. But, it requires time and diligence to find the right information that will impact your portfolio and investment decisions.

For more information on who can benefit from online investing, see The Many Faces of Online Investors.