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 November 19, 1999

Is ease of online trading dangerous?

When Coloradans were deciding whether to allow gambling in Central City and Black Hawk, there was fear that easy access to slot machines and games of chance would turn people into a bunch of bankrupt gambling addicts.

With the advent of online trading, the same question arises. Will the ease of being able to click a mouse and buy a stock lure investors into throwing away their pensions or IRAs?

The answer is the same as it was in the Central City case. Local investment advisers agree: The compulsion to make quick money will hit some, but the majority will remain prudent with their savings and retirement funds.

Tom Ritzdorf, financial adviser with the Louisville office of Edward Jones, says he recently met with a couple who wanted to start a retirement fund. The man admitted that he liked to dabble in the stock market and take a few chances.

“I put two piles of money on the desk. I told them one’s our play money and one’s our serious money,” Ritzdorf says.

“I think most people have that orientation. They have dabbling, gambling, play money, but they’re probably not willing to risk their life savings.”

Ritzdorf says he gets the sense that the great bulk of serious online traders are more day-trade oriented, self-service type of investors. But even those traders are generally not willing to gamble with their savings or retirement funds.

“Time, temperament and talent. You need all three to trade online. It’s not the Internet that’s unknown; it’s making one’s own investment decisions,” he says.

Ritzdorf believes the majority of people who invest in the stock market are financially illiterate, which makes the services of an investment adviser important.

“Nine out of 10 of all day traders lose money,” says Ritzdorf, citing a recent New York Times article that polled regulators who had examined the books of day traders.

Arguably, Ritzdorf has a bias. He says “the chances are one in a million that we’ll allow online trading on (Edward Jones’) Web site.”

But Jack Ramsey, senior investment specialist at Charles Schwab, which has an active online-trading division, also agrees that people aren’t likely to risk their retirement funds by going gaga over Internet stocks.

“I don’t see much of that at all. People who trade on the Internet are probably a little more conservative with their retirement monies. There’s not a lot of that constant trading.”

Ramsey, who says he makes all his trades online, believes that Internet investing is here to stay.

“The Internet makes it easy for people who can’t get into (investment firm) branches. A lot of people are on computers all the time, so it’s easy to click over and check your stocks.”

People also like to trade on the Internet because it’s cheaper to buy stock than going through a brokerage. Also, Ramsey points out, it gives a sense of control.

Ritzdorf believes both online trading and traditional brokerage house trading will thrive.

“It’s like servicing one’s car – plenty of people like to change their own oil and tires, plenty like to use discount services and plenty like to go to a full-service dealership.”

When Coloradans were deciding whether to allow gambling in Central City and Black Hawk, there was fear that easy access to slot machines and games of chance would turn people into a bunch of bankrupt gambling addicts.

With the advent of online trading, the same question arises. Will the ease of being able to click a mouse and buy a stock lure investors into throwing away their pensions or IRAs?

The answer is the same as it was in the Central City case. Local investment advisers agree: The compulsion to make quick money will hit some, but the majority will remain prudent…

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