Serial portfolio. (online securities trading)(includes listing of products and services)
by Rosalind Resnick
If you've ever played the market, you've probably experienced the exhilaration of spotting an under-valued stock, playing a hunch, and reaping a tidy profit--on paper, that is. But if you're like most small investors, chances are that you've also experienced the shock and disappointment of seeing your stock market winnings whittled down to size by the hefty fees and commissions your full-service broker charges you.
Make and Save Money
There's another way. If you have a modem and a home computer, you're already way ahead of the game. These days, anybody with the financial savvy to buy and sell securities without a broker's advice can trade stocks, bonds, options, certificates of deposit, and mutual funds online, cutting out the broker's fee and saving big bucks.
You can play the game two ways: Either place your trade through the online service to which you already subscribe--PRODIGY, CompuServe, GEnie, America Online, and Dow Jones News/Retrieval all offer online brokerage capabilities--or invest in an off-the-shelf software program like Reality Technologies' Smart Investor by Money Magazine or MECA Software's Fidelity On-line Xpress, both of which sell for under $100.
The savings can be substantial--as much as several hundred dollars on a single trade, depending on the size of your order. For example, Personal Control Financial Network (PCFN), the online brokerage service offered on PRODIGY, charges commissions as low as $45 for a trade of 200 shares priced at $25 a share. That's $81 less than you'd ordinarily pay a full-service broker who might try to sell you stocks you don't want to buy. Plus there's no monthly service charge. Some brokerage services that also take orders over the phone--such as Fidelity and Charles Schwab--offer 10 percent off their already discounted rates to customers who trade by modem.
"Online trading is more objective," says Bruce Lowry, 62, a retired North Hollywood, California, MIS (Management Information Systems) director who switched from a full-service broker to PCFN about a year ago. "It's also about half the price."
A good deal? You bet. But there's a catch. Though the online services often charge lower rates than telephone brokers, most of them tack on some sort of access fee--either to dial up the brokerage service, to log on to the online system that offers it, or to download the financial data needed to make an intelligent trading decision in the first place. When you phone in an order (assuming it's a local call or an 800 number), accessing your broker is free. Plus, even though mistakes are less likely when you type your orders directly into your PC than when you place them verbally, foul-ups can happen online, too, some users warn.
Timing Is Everything
"I've [earned] a Ph.D. cum laude in the school of hard knocks when it comes to [online] brokers," says Sandy Schupper, from Venom, Pennsylvania, an experienced user of online trading services who now sticks to offline brokerage firms. "When they make an error, you eat it. This has cost me thousands of dollars. In one case, I called in an order at 6:14 a.m. Pacific time, and they entered it at 6:39 a.m. Then, they refused to make it good, saying this was a reasonable period of time [in which to execute the order]." Delays can happen with full-service brokers, too, but one of the selling points of online brokerages is that they are supposed to be fast.
Despite experiences like Schupper's, online trading seems to be catching on. Richard Brueckner, managing director of Donaldson Lufkin & Jenrette Securities, the New York brokerage firm that manages PRODIGY's PCFN service, concedes that online trading got off to a slow start in the 1980s but estimates that today more than 100,000 people trade stocks online. Though this represents only a tiny fraction of the roughly 20 million Americans who buy and sell securities each year, the number of online traders is growing fast. PCFN has grown eightfold over the last two years and now handles about 1000 trades a day, according to Brueckner.
Besides low prices, "there's also the element of convenience," Brueckner says. "This is the kind of service where you can make an investment decision after reading Barron's and the New York Times on Sunday afternoon and then forget about it."
Even so, Brueckner concedes, online trading is not for everyone. "This is designed for people who want to make their own investment decisions," he says. "The people who would not be well suited to this service are the people who need the help of a financial professional of some kind."
Some degree of computer adeptness is also essential, adds CompuServe member Ben Black, 25, of Nashville, Tennessee, a veteran online trader. "I would only recommend online trading for someone who is skilled in using a computer," Black warns, "because it's just as easy to call the order in to your broker."
Perhaps. But these days, some online services are nearly as goof-proof as automated-teller machines. To buy 100 shares of Apple Computer through PCFN, for example, simply log on to PRODIGY, call up your PCFN account, and choose Stocks from the menu. The easy-to-follow menu that appears will then prompt you to enter the company's stock symbol or name, the number of shares you wish to buy, the price at which you want to purchase them, and other necessary information. Or click on the Trade Assist button at the top of the screen, and a series of pop-up windows will explain each choice and describe each step as you go along.
If you want to change an instruction before submitting the order, simply move the cursor up to the item and make the new selection. When your order is ready, choose Recap to open a window with a summary for your review, then choose Send to PCFN to execute your purchase or sale. Once your trade is completed, an online execution report will show you the price quoted, the number of shares traded, the commission cost, the total amount to be settled, the settlement date, and any funds that are due.
Here's a sampling of what's out there and how much it costs: * For the same $12.95 a month you'd pay to subscribe to PRODIGY, you can access online brokerage services, too. There's no monthly charge to trade stocks, bonds, options, mutual funds, or CDs through PRODIGY's PCFN, and there are no hourly connect charges, either. PCFN is simple to use--it shares PRODIGY's user-friendly interface--and offers instant, online trade confirmation and market analysis from the Wall Street firm that runs the service. Rates are low, too: $40 for a stock or option trade of under $2,500, and $50 for most Treasury bonds. Heavy traders can qualify for frequent-trader discounts by racking up $1,000 or more in PCFN brokerage commissions over a 12-month period. * CompuServe offers three online trading options: Quick & Reilly, Spear & Rees, and E-Trade Securities. All are discount brokers, though E--Trade charges the lowest rates by far--$29 on any trade of 100 shares or less, and there is no additional connect charge beyond what you normally pay to be on CompuServe. The other two brokerage firms charge $14 an hour on trades made during the day and $4 an hour for trades made in the evening. That's on top of the $12.80 an hour you pay to connect to CompuServe at 2400 baud. * Both Genie and America Online, two smaller online services, offer online trading, too. With Genie, you can trade stocks, bonds, options, and mutual funds through Charles Schwab, one of the nation's leading discount brokers. Though Schwab offers the convenience of over 110 branch offices nationwide, trading via modem lets you save time and money by accessing realtime quotes from the trading floor, checking trade confirmations online, and, best of all, reaping an additional 10-percent discount off Schwab's already low rates. America Online offers online trading through Quick & Reilly, a discount brokerage service also available on CompuServe. * Dow Jones New Retrieval offers Fidelity On-line (which will be covered shortly) but is an investor's first source for information about companies and investments. It's the only major online service devoted to providing the information people need in order to make money. * Smart Investor by Money Magazine ($99.99) is a new software program by the people who brought you Wealth-Builder. It's ideal for the investor who wants the convenience and cost savings of trading online but also wants some hand-holding and portfolio management. Using a four-step approach to investing, the program builds a personal financial profile based on your responses to a series of questions, then identifies the best investments based on your needs and lets you buy the appropriate stocks, bonds, mutual funds, CDs, and money market funds online. If you prefer to have mutual funds, CDs, and money markets suggested, it will identify investments that match your profile. Once you've built your portfolio, the program alerts you to changes in the market, investment performance, and new investment opportunities every time you log on. Smart Investor also gives you a choice of discount brokers--PCFN, which PRODIGY offers, or Quick & Reilly, which is also available on CompuServe and America Online. There's a $9.95 flat monthly usage fee for the basic service, which includes updates to the mutual fund, CD, and money market databases as well as unlimited access to online brokerage and other services such as stock quotes, investment alerts, and portfolio updates. The first month of online service is free. For $8 more per month, you can get stock and bond updates plus historical pricing charts and graphs. * Fidelity On-line Xpress ($89.95), another new software product, was created by Fidelity Brokerage Services, the giant Boston brokerage house, in conjunction with MECA Software, the publisher of the popular Managing Your Money program. With Fidelity On-line, you can place orders direct to the exchanges, access real-time quotes, track the market with research, news updates, and screening services from Dow Jones News/Retrieval, Telescan, and Standard & Poor's MarketScope, and download your investment, income, and tax data into Managing Your Money for further analysis. To make trading easier, the program also offers pull-down menus, a Windows-like interface, mouse support, and help screens. As with the Schwab service, there's also a 10-percent discount on Fidelity's already discounted commissions. There are no hourly access fees or monthly charges.
Which One's for You?
Which online brokerage option you choose will probably depend on how often you trade and how comfortable you are with making your own investment decisions. If you're market savvy and already subscribe to an online service, it's probably a good idea to use the broker offered by that service rather than pay extra fees to save a few dollars elsewhere. Investors who want soup-to-nuts portfolio management may be better off with one of the new software programs or simply staying with a full-service broker, while heavy traders who know their way around a computer ought to consider CompuServe's E-Trade.
Another advantage to online trading is the wealth of information you can get just by logging on. If you've got a modem hooked up to your personal computer, there's a treasure trove of financial help and information as close as a phone call away--stock quotes, company balance sheets, financial analysts' reports and predictions. Depending on what you're looking for and how much you're willing to spend to get it, you can download data that's the envy of any Wall Street pro. And, like the financial professionals, you can use this information to spot a hot stock, plan for your retirement or just keep track of how your money's doing.
If, on the other hand, you trade only rarely and feel more comfortable talking to a human being, it's probably less trouble just to call your broker on the phone. Personal attention is your broker's stock in trade. That's why you pay the big bucks.
Remember, the risks you take trading online are your own. Never invest money you can't afford to lose. And if you need expert advice, you need a professional portfolio manager. Still, with all the user-friendly options out there, now may just be the time to tap in, log on, and kiss those full-service brokerage commissions goodbye.