It can be intimidating to get started trading stocks online. So many things can go wrong, it seems. How do you avoid the pitfalls? What should set off the alarm bells? What are the advantages to trading with a discount brokerage? What about over the phone? Personal finance writer Gail Bebee will took your questions reader questions in a live discussion.
Gail Bebee is the author of No Hype - The Straight Goods on Investing Your Money and president of The Ganneth Company. She has mastered the finer points of investing through years of practice in the investment trenches and extensive personal study. Her academic background includes undergraduate studies in biology and a Master of Environmental Engineering. She is an honours graduate of the Canadian Securities Course. Her book drew on her experience as an independent investor.
Pauline: Through a consolidation I have stocks that are less than a lot (1,000 shares turned into 250). Since I can't sell less than a lot with my discount broker I was wondering if you have any suggestions on what I can do with these. Do I have to open an account with a full service broker to get rid of them or is there an other way?
Gail Bebee: Pauline, I'm surprised you can't trade shares which are not board lots at your discount broker. There could be an extra cost for the odd lot, but you should be able to trade it. If you can't enter the non-board lot amount online, give your broker a call. If they still don't allow the trade, you could open an account at another discount broker who does allow you to buy and sell odd lots.
Dennis: I have an "Itrade" account with Scotia Bank. How do I avoid trading fees for currencies when I buy U.S. stock in my RRSP account. I sometimes request that they "wash" the trade but this is a pain.
Gail Bebee: Dennis, If you buy/sell U.S. investments frequently in your RRSP, you could open an account with Questrade or virtualbrokers. Both let you hold US currency in an RRSP.
Andrew: I am of the opinion that, for a novice investor, unless you have $20,000 to devote to equities (or $30,000-$40,000 total investable assets including fixed income), you should stick to index mutual funds or index ETFs, rather than try to pick individual stocks. Reasons include: (1) learning about your risk tolerance while facing only market risk and not individual-stock risk, (2) allowing you to test you stock-picking skills on a paper portfolio against the market, and (3) being able to reasonably diversify (100 shares each of Royal Bank, Encana, and RIM will take up $20,000). Please comment.
Gail Bebee: My approach is somewhat similar. In my book, No Hype - The Straight Goods on Investing Your Money, I suggest that you start off with mutual funds, maybe bought at your local bank. These funds are good for small amounts of money invested regularly. At $25,000 you open a discount brokerage account and try out ETFs and mutual funds not available at your local bank and ones with higher minimum purchase amounts. When your account reaches $50,000, you start to buy equities directly as part of your portfolio. At that point, you have enough money to diversify with direct purchases and have hopefully taken the time along the way to learn the investing basics.
Carolyne: I just want to know, how do you start?
Gail Bebee: A good place to start is to read to see which brokers offer what. As a beginner, you probably want a broker who has good educational tools. In the survey, RBC and TD Waterhouse had the best tools. Learn the investing basics before you dive in and start buying. Practice accounts are a good idea. RBC Direct has them if you open an account and BMO Investorline will let you test drive an account if you give them a call.
Monty: I have my RRSP and RESP invested through BMO. My account manager changed and I was not even informed. I was pissed of with the lack of communication from the bank, that I asked the new account manager to park my current year's contribution into money market funds. I also asked him to provide me with an update on RESP contribution. It has been 1 month and he has not even called back. The RRSP and RESP funds are invested in BMO Lifestage accounts, do you think I should just transfer them to my online brokerage a/c since I don't intend to sell them and loose my principal amount.