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    January 2013
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    The Benefits and Perils of Online Investing

    Gerald Trites, FCA, CPA

    Now that RRSP season has arrived, many people are considering making their contribution for 2012 before the deadline at the end of February. There are many options in terms of how to do it, including opening an RRSP account at a bank, insurance company or other financial institution, employing an investment advisor, or opening an online investment account.

    The idea of using an online investment account is one that presents some unique challenges, but also can offer some decent returns, provided the investor is prudent and careful. There are numerous plans available for the investor. All of the big banks offer them, such as BMO Investorline, RBC Direct and TD Waterhouse.

    The use of online investor accounts offer the advantage that there are no management fees. Also, the cost of trades is mere pennies, compared to offline brokers. Of course, the absence of management fees means you are on your own when you invest. And those who are not comfortable with that should avoid online investment accounts.

    On the other hand, there are basic guidelines included in the online services that can help considerably in making investment decisions. Most of the services provide model portfolios based on different levels of risk tolerance. All you need to do is to decide your own level and then select the appropriate portfolio, which can then be varied according to your taste. In addition, there are analyst reports, research and financial summaries available that can be read before making the final decisions. Finally, all major companies offer a wealth of information on the investor relations sections of their websites. Spending some time on these sites can greatly inform you about prospective investments.

    One of the mistakes many investors make is to try to “play the market”. In other words they try to buy stock at a low price with the expectation that it will rise to a high level in a relatively short period of time, and make a killing. This is not investing, but gambling. If you do make a killing on a trade, chances are you will lose it on the next attempt. Research shows that investors who invest for the long term in quality stocks, preferably with a good dividend yield, will normally outperform the frequent traders.

    Quality stocks in blue chip companies with strong financial statements, superior dividend yields and decent growth patterns will generally outperform the market and form a sensible basis for your RRSP or other investment portfolios. Using an online service is the least expensive way to make it happen. it can also make the investment process a lot more interesting and fun.

     

    The MONEY® Network