Traditional investing and financial planning are starting to become outdated. Before the age of the internet, investors would hire licensed brokers and financial planners to guide them toward making the right choices with their money. That way, an investor didn’t have to worry about managing their own financial portfolio or doing research into possible investments they could make. Instead, they had experienced professionals make all these decisions for them. However, the only catch was that these professionals charged a lot of money for their services.
Just to have a broker manage your investment assets, it could cost you thousands of dollars per month. On top of that, the broker would get a percentage of whatever profits were made from the investment they made on your behalf. On the other hand, you can now use an online broker to trade with for as little as $1.50 per trade. There are no percentages of the profits that you must hand over or anything like that. Reputable online brokers like E-Trade or Scottrade do not charge monthly fees for their brokerage services either. They only charge you a small fee for each trade that you place through them, whether you’re buying or selling. And, of course, there is the added convenience for the investor to perform these trades from any location with an internet connection. And since investing can sometimes depend on trades being placed quickly, it is a lot faster to trade through an online broker versus a traditional broker that you’d have to call up on the phone.
Now for the downside of online brokerages. Although they are affordable, fast, and convenient to use, they can also spell trouble for a novice investor who doesn’t know what they’re doing. You see, the online brokerage companies leave it up to investors to figure out their own trades. These companies may provide tools, platforms, and information to help investors make decisions, but those decisions ultimately must be made from the investors. Most of the time, these investors are just ordinary people with no brokerage licenses or trading experience. This can make it very easy for them to lose money if they don’t make wise trades for themselves.
The best thing to do is to get educated on investing before you place any trades. If you already have a financial planner, ask them questions about investing and see if they can help you transition from the traditional brokerage setting to an online brokerage setting. If you can learn to become a good trader, then trading online will be the best decision you ever make. The only investors who would still benefit from traditional brokers are those who have huge asset portfolios worth millions of dollars and no time to manage all them. Chances are, that is not you.