You’ve seen the ads: Anyone could trade online! Sometimes it’s a talking baby, sometimes it’s an airplane flying through the air pulling a banner telling you to invest online. The baby shows you how easy it is to trade just with a click of your mouse, at $9.99 per trade—what a deal! When you check it out, you find that you could get even a cheaper deal, if you make 150 trades per quarter (600 trades a year). It looks like your trades become more affordable, at $7.99 per trade. But ignore the online trading hype!
Here are three things that are wrong with online trading:
1. Picking stocks is a loser’s game. How are you going to pick what to trade?
No one knows the future of the market. The market is random. You must depend on someone, or guess. Professional stock pickers check their charts, read their firm’s recommendations, and then guess. If they knew what was going to be the best stock picks, why aren’t they multimillionaires? Why are they still working? Why would they tell you and others, unless they are making money while hosting a TV program or selling their newsletter or magazine? Picking stocks is gambling and speculating! It breaks all of the rules of successful investing:
Purchase equities for growth, to stay ahead of inflation.
Diversify your portfolio with shares of sixteen to twenty dissimilar asset classes of small and large companies in forty-plus countries, as this is what gives you ninety-one percent of your investment returns.
Rebalance quarterly and hold your portfolio for your lifetime.
2. Trading is emotional and expensive.
Losing money is frustrating. Just like the casinos, the house always wins! The trading firm is taking in billions, whether your stocks do well or not. As quoted in Bloomberg.com in 2010, Goldman raked in more than $7.39 billion in profits from trading in the first quarter of 2010, while investors lost on seven of the nine recommendations made by the firm. They want you to keep trading! The annual trading costs for 600 trades (150 trades per quarter x four quarters = 600 trades to qualify for the cheaper price of $7.99) in a $100,000 portfolio would be $4,794, or 4.79 percent (600 x $7.99 = $4,790)! That’s expensive for getting such a poorly diversified portfolio of 600 stocks, compared to a globally diversified portfolio of 13,000 stocks and bonds.
3. Will you rebalance your portfolio quarterly?
A successful portfolio needs to be rebalanced at least every quarter to make sure it holds dissimilar asset classes and the target percentage of each asset class is maintained, no matter what the random market does.
Your Free Market Coach could fix your $7.99 Online Trading Portfolio and also teach you how to save money, eliminate stress, and become a successful investor with a globally diversified portfolio that is rebalanced quarterly. You will never need to change your investments again!
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, Free Market Wealth & Stewardship Coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and could be reached at 616-460-6518 or at [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013. Photo: stock.xchng