In less than 20 years, the internet has transformed the world of stocks and shares. The online investor now has access to instant trades and a wealth of information once only available to a few
There are moments when, to quote Lenin, there can no longer be any doubt the revolution has succeeded, although the father of the USSR would no doubt be dismayed to learn that it is the investing class which has been storming the barricades. Picture, if you will, an elderly widow tapping away at her computer. She grew up in a world where things followed certain very definite protocols. Men asked women for dates. Gentlemen wore hats. And if you wanted to trade securities or take a position in the property market, you did so via an intermediary.
It was the way things worked and, truth be told, it had to change, no matter how much the all-but-vanished breed of small-account stockbrokers objected. The widow makes that point. Several years ago she moved the management of her modest portfolio online, and while her trading volume is by no means large, she would never go back to the days of letters, forms and delayed executions. When even grandmas are tearing down the barriers to investor empowerment, the old norms are just that - outdated, outmoded and, from the perspective of today's liberated investors, quite outrageous. Good one, Mum. Well done.
The revolution that has now reached into the broadest and, one might say, the most unlikely demographics began when opportunity met innovation. That happened in New York in 1994, when the venerable brokerage house of K. Aufhauser & Company informed clients that they were now able to go online and cut out the middle man by subscribing to the firm's new WealthWEB.
This small concession to modernity struck Wall Street as a neat idea - a handy and, by the standards of those pre-Google times, relatively easy-to-use platform. Initially, all but a handful of visionaries saw little to it when first launched, preferring to believe that it was more of a courtesy to existing clients than the birth of investor empowerment. Almost 20 years on, K. Aufhauser has been absorbed by Ameritrade, as have most of the paper-shuffling order-placer's former counterparts and rivals. They say revolutions eat their children, but this one consumed its parents.
By 1998, empowerment had come to Australia in earnest, with the Australian Securities and Investments Commission noting in its first survey of the industry that 29 separate online brokers had been launched in a little over 18 months. In January, 1999, ASIC estimated 1.5 per cent of trades were being done online. By June of that same year, the estimate had topped 7 per cent, and 12 months later it was at 20 per cent. L
Last year, when ASX conducted its share-ownership surveys, participants were asked how they traded and through whom. Some 60 per cent of those surveyed nominated self-directed online trading as their staple, with more than 30 per cent using both online and full-service brokers. A mere 2 per cent admitted to clinging to the old ways. That's an awful lot of investors charting their own courses, sifting the wealth of research and analysis readily available online, be it commentators such as Marcus Padley and Roger Montgomery or the finance pages and websites of the mainstream media. To be approached with a greater degree of caution are the many investor bulletin boards, where common sense dictates tips and touts be filtered through further research. Just like the factors that determine choices about the nature and duration of investments, the selection of an online broker will depend very much on individual needs, preferences and priorities. It's true that it takes all sorts to make a world, but online brokers fall into three rough categories, each catering to different market segments.
Finding the best fit for building a portfolio is going to depend on how actively you trade and how often. At the least complicated end of the market are the smallest fry, usually defined as those who make fewer than 10 trades per year - the average is eight, according to Canstar Research - with a typical value, again on average, of $10,000 apiece. Simple trades mean simple needs, with less emphasis on urgency to dig into the wealth of research materials so valued and explored by the two other investment categories, the so-called "active investor" and the habitual "trader". Solid support and the prompt resolution of technical difficulties are the twin keys to those in this category, as is an easy-to-use format. When you do something only every so often, it is reassuring to have a trouble-shooter ready and available to offer a helping hand.