How to Invest and Make Money Online with E*TRADE

In today’s digital age, investing and making money online has become more accessible than ever. ETRADE, a leading online brokerage platform, offers a gateway to the stock market and various investment opportunities. With its user-friendly interface and comprehensive tools, ETRADE enables individuals to invest in stocks, bonds, mutual funds, and ETFs from the comfort of their homes or on the go.

This article delves into how to invest and make money using ETRADE’s platform. It covers the basics of online investing, explores ETRADE’s investment products, and guides readers through building a solid investment strategy. The piece also examines ETRADE’s research tools, explains how to execute trades, and discusses portfolio management. Additionally, it sheds light on ETRADE’s automated investing solutions, providing readers with the knowledge to start their investment journey confidently.

Understanding Online Investing Basics

Online investing has revolutionized the way individuals participate in financial markets. To navigate this digital landscape effectively, it’s crucial to grasp the fundamental concepts that underpin successful investing strategies.

Types of Investments

The investment world offers a diverse array of options, each with its own characteristics and potential benefits. These investment types can be broadly categorized into equity, fixed-income, and cash or cash equivalents ^[1].

Stocks: Also known as shares or equities, stocks represent ownership stakes in publicly-traded companies ^[1]. When an investor purchases stocks, they become partial owners of the company and may benefit from its growth and profitability.
Bonds: These are debt instruments issued by companies, governments, or municipalities ^[2]. By purchasing a bond, an investor essentially lends money to the issuer for a specific period, with the promise of repayment at a certain interest rate ^[2].
Mutual Funds and ETFs: These investment vehicles pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other assets ^[2]. Mutual funds trade once daily at the net asset value (NAV), while Exchange-Traded Funds (ETFs) can be traded throughout the day like stocks ^[2].
Alternative Investments: This category includes assets like hedge funds, commodities, and real estate ^[2]. These investments often have a low correlation with traditional stocks and bonds, potentially helping to minimize market volatility and enhance portfolio diversification ^[2].
Cryptocurrencies and NFTs: These emerging digital assets leverage blockchain technology ^[2]. However, they are highly speculative and volatile, requiring careful consideration before inclusion in a portfolio ^[2].

Risk vs. Reward

Understanding the relationship between risk and reward is fundamental to making informed investment decisions. The risk/reward ratio, also known as the risk/return ratio, measures the potential reward an investor can earn for every dollar risked on an investment ^[3].

Key points to consider:

A lower risk/return ratio is often preferable, as it indicates less risk for an equivalent potential gain ^[3].
Many investors aim for a risk/reward ratio of approximately 1:3, meaning three units of expected return for every one unit of additional risk ^[3].
Risk can be managed through various tools, such as stop-loss orders and derivatives like put options ^[3].
It’s important to note that when the risk/return ratio is unusually low, it may indicate that the investment is riskier than it appears ^[3].

Market Dynamics

Market dynamics are the forces that impact prices and behaviors of producers and consumers in an economy ^[4]. These dynamics play a crucial role in shaping investment outcomes and strategies.

Key aspects of market dynamics include:

Supply and Demand: These fundamental forces create pricing signals that influence market behavior ^[4].
Economic Theories: Supply-side economics and demand-side economics offer different perspectives on what drives economic growth ^[4].
Price Elasticity: This concept measures how sensitive consumer demand is to changes in price, helping businesses and policymakers understand market behavior ^[4].
Market Structure: The degree of competition and resulting market structure significantly influence firm behavior, pricing strategies, and innovation rates ^[4].
Seasonality and Market Cycles: Recurring patterns of fluctuation in economic activity and market behavior can occur over various time frames, affecting investment decisions ^[4].

By understanding these basic concepts of online investing, individuals can make more informed decisions about their investment strategies. However, it’s important to remember that investing always carries some level of risk, and past performance does not guarantee future results. As the investment landscape continues to evolve, staying informed and adapting to changing market conditions is crucial for long-term success.

Exploring E*TRADE’s Investment Products

E*TRADE offers a comprehensive range of investment products to help investors pursue their financial goals. The platform provides access to stocks, options, ETFs, mutual funds, futures, bonds, and CDs, catering to both novice and experienced investors ^[5].

Stocks and ETFs

Stocks represent ownership shares in publicly-traded companies. When an investor purchases stocks, they become partial owners of the company and may benefit from its growth and profitability ^[6]. E*TRADE allows investors to trade stocks throughout the day as share prices constantly fluctuate ^[6].

Exchange-Traded Funds (ETFs) are diversified “baskets” of investments that can be purchased for one set price ^[6]. ETFs combine the ease of stock trading with potential diversification, as they are collections of potentially dozens, hundreds, or even thousands of investments ^[7]. Key features of ETFs include:

They track specific industries, strategies, or well-known market indexes like the S&P 500® ^[7].
ETFs are traded on major exchanges, making them as easy to buy and sell as stocks ^[7].
With $0 per trade, they are usually less expensive than other baskets of investments such as mutual funds ^[7].

E*TRADE offers every ETF sold, along with tools and guidance to help investors find the right ones for their portfolios ^[7]. Investors can also find ETFs that align with their values, reflect current trends, or invest in technologies such as clean water and artificial intelligence ^[7].

Mutual Funds

Mutual funds are “baskets” of stocks and bonds that can be purchased for one set price, known as the net asset value ^[6]. Unlike ETFs, mutual fund prices only change once, at the close of the trading day ^[6]. E*TRADE offers a large selection of mutual funds, including various share class options ^[8].

Key points about mutual funds on E*TRADE:

All mutual funds charge investment management fees and other ongoing expenses, which are described in each fund’s prospectus fee table ^[8].
Different share classes of the same fund offer investors a choice of how, when, and whether to pay for fund distribution costs ^[8].
E*TRADE offers both 12b-1 fee paying share classes and Non-12b-1 fee paying share classes ^[8].
Investors will generally find Non-12b-1 share classes more economical due to lower annual expenses ^[8].

It’s important for investors to understand the costs associated with various share classes, as these costs can decrease the return on investment ^[8].

Bonds and CDs

Bonds and Certificates of Deposit (CDs) are designed to pay investors steady income on a regular basis and aim to protect the value of the original investment ^[9]. E*TRADE offers access to over 50,000 bond and fixed income products from more than 200 leading liquidity providers ^[9].

Benefits of investing in bonds and CDs include:

Principal preservation: Bonds typically return their full face value at maturity, helping to protect wealth ^[9].
Portfolio diversification: Adding bonds to a stock portfolio can help balance during market swings ^[9].
Income generation: Most bonds are designed to pay a fixed amount of interest income at regular intervals ^[9].
Tax-free income: Some bonds, such as municipal bonds, offer tax breaks ^[9].

E*TRADE offers various types of bonds:

U.S. Treasury bonds: Considered the safest of all investments, backed by the full faith and credit of the federal government ^[9].
Agency bonds: Issued by U.S. government-sponsored agencies for public purposes ^[9].
Municipal bonds: Issued by state or local governments, typically offering tax-free interest income ^[9].
Corporate bonds: Issued by public and private companies, generally offering higher yields but with greater risk ^[9].
High-yield bonds: Also known as “junk” bonds, offering higher yields but with a higher risk of default ^[9].

Additionally, E*TRADE offers brokered CDs, which are similar to bank CDs but can be bought and sold in the secondary market penalty-free ^[9]. These are FDIC insured up to $250,000 per depositor, per insured bank, for each ownership category ^[9].

Building a Solid Investment Strategy

Building a solid investment strategy is crucial for achieving financial goals and maximizing returns. This process involves setting clear objectives, understanding one’s risk tolerance, and creating a diversified portfolio. Let’s explore these key components in detail.

Setting Financial Goals

To build an effective investment strategy, investors should start by identifying their financial objectives. These goals can range from short-term aspirations, such as saving for a vacation, to long-term plans like funding retirement or a child’s education. Here are some key steps to prioritize and balance financial goals:

Calculate net income: Determine the amount available for saving by subtracting expenses from total income, including any voluntary retirement plan contributions ^[10].
List and categorize expenses: Create a comprehensive list of fixed and variable expenses, organizing them into categories such as groceries, utilities, and healthcare ^[10].
Compare income to expenses: Analyze the difference between net income and total expenses to identify potential savings ^[10].
Prioritize goals: Start with building an emergency fund to cover 3-6 months of living expenses ^[10]. Then, focus on retirement savings, followed by other objectives like education funds or short-term goals ^[10].
Automate savings: Set up automatic recurring transfers to investment and savings accounts to ensure consistent contributions ^[10].

Determining Risk Tolerance

Risk tolerance refers to an investor’s comfort level with financial risk when investing. Understanding risk tolerance is essential for creating a portfolio that aligns with an individual’s financial goals and emotional capacity for market volatility ^[11].

Factors influencing risk tolerance include:

Age and time horizon: Younger investors with longer time horizons may be more comfortable with higher-risk investments, while those nearing retirement may prefer a more conservative approach ^[11].
Financial goals: Short-term objectives may require a lower risk tolerance compared to long-term goals ^[12].
Personal comfort level: Some investors may be naturally more risk-averse or risk-tolerant ^[12].

To assess risk tolerance, investors can:

Complete online questionnaires: Many investment websites offer free risk tolerance assessments ^[12].
Consult a financial advisor: Professional guidance can help determine an appropriate risk tolerance level ^[11].
Self-reflect: Ask questions about retirement timeline, investment goals, and personal feelings towards risk ^[11].

It’s important to note that while higher-risk investments may offer greater potential returns, they also carry a higher chance of losing money ^[12]. Conversely, lower-risk investments may provide more stability but potentially lower returns ^[12].

Creating a Diversified Portfolio

Diversification is a key strategy for managing risk and potentially enhancing returns. A diversified portfolio spreads investments across various asset classes, reducing the impact of poor performance in any single investment ^[13].

Key components of a diversified portfolio include:

Asset allocation: Distribute investments among stocks, bonds, and cash based on risk tolerance and financial goals ^[13].
Stock diversification: Invest in companies of different sizes, industries, and geographic locations ^[13].
Bond diversification: Include various types of bonds, such as U.S. Treasury, municipal, and corporate bonds ^[14].
Alternative investments: Consider real estate, commodities, or foreign currencies to further diversify ^[14].

Investors can achieve diversification through:

Individual securities: Carefully select a mix of stocks and bonds from different sectors and regions ^[13].
Mutual funds and ETFs: These investment vehicles provide access to hundreds or thousands of stocks and bonds, offering broad market exposure ^[13].
Periodic rebalancing: Regularly adjust portfolio allocations to maintain the desired asset mix, especially during times of market volatility ^[13].

By implementing these strategies, investors can build a solid investment foundation that aligns with their financial goals, risk tolerance, and long-term objectives. Remember that investment strategies should be reviewed and adjusted periodically to account for changing life circumstances and market conditions ^[13].

Utilizing E*TRADE’s Research and Analysis Tools

E*TRADE provides a comprehensive suite of research and analysis tools to help investors make informed decisions. These tools are designed to assist both novice and experienced traders in navigating the complex world of investing.

Stock Screeners

E*TRADE’s stock screeners are powerful tools available on both the web platform and mobile app. These screeners allow investors to filter through thousands of stocks based on specific criteria, helping them identify potential investment opportunities ^[15]. The mobile app includes screeners for stocks and ETFs, making it convenient for investors to conduct research on the go.

To get the most out of these screeners, investors can:

Set custom parameters based on their investment strategy
Use multiple filters to narrow down their search
Save and revisit their screening criteria for future use

Analyst Ratings

Analyst ratings can be a valuable resource for investors seeking professional opinions on stocks. However, it’s crucial to understand that there is no universal ranking system, and ratings can vary between firms ^[16]. E*TRADE provides access to analyst ratings, but investors should keep the following points in mind:

Ratings terminology: Terms like “buy,” “sell,” “hold,” “underperform,” and “outperform” may have different meanings across firms ^[16].
Independence: Ratings are independent of companies, and analysts face legal ramifications for rating stocks in which they have an interest ^[16].
Complementary tool: Ratings should be used as a complement to existing strategies, not as the sole basis for investment decisions ^[16].

When using analyst ratings on E*TRADE, investors should:

Review the issuing firm’s rating scale to understand the meaning behind each term
Consider the consensus of recommendations from several professional analysts
Use ratings in conjunction with their own research and analysis

Real-Time Quotes

Access to real-time quotes is essential for making timely investment decisions. E*TRADE offers real-time quotes to its users, but it’s important to note that some accounts may default to delayed quotes ^[17]. To ensure access to real-time data:

Request real-time quotes: Users may need to sign regulatory documents to access this feature ^[17].
Minimum account balance: Some accounts may require a minimum balance (e.g., $1,000) to access real-time quotes for free ^[17].
Refresh regularly: When trading, use the refresh links on each page to see current real-time bid and ask prices ^[17].

It’s worth noting that while portfolio values may show delayed prices, the actual trading interface typically displays real-time bid and ask prices ^[17].

E*TRADE’s research and analysis tools extend beyond these core features. The platform also offers:

Market news: Investors can stay informed about events that may impact stock performance ^[18].
Sector information: Compare a company’s stock price to others in the same sector ^[18].
Watch lists: Track the price and performance of stocks over time to form opinions about potential investments ^[18].

By leveraging these tools, investors can enhance their decision-making process and potentially identify promising investment opportunities. However, it’s crucial to remember that these tools should be used in conjunction with personal research and strategy development. As Rick, Vice President of Investor Education at E*TRADE, emphasizes, the platform provides all the necessary tools for traders and investors to research investments, track markets, place trades, and hone their skills ^[19].

Executing Trades on E*TRADE

E*TRADE provides a user-friendly platform for executing trades, offering various order types and options to suit different investment strategies. Understanding these options is crucial for making informed decisions and maximizing the potential of one’s investments.

Market Orders vs. Limit Orders

When placing a trade on E*TRADE, investors have two primary order types to choose from: market orders and limit orders.

Market orders are designed to be executed as quickly as possible at the current market price ^[20]. These orders are ideal for investors who prioritize immediate execution over price specificity. However, it’s important to note that market fluctuations can occur between the time the order is placed and when it’s executed, particularly for larger orders ^[20].

Limit orders, on the other hand, allow investors to set a maximum or minimum price at which they’re willing to buy or sell ^[20]. This type of order provides more control over the trade execution price, making it particularly useful for stocks that are thinly traded, highly volatile, or have a wide bid-ask spread ^[20].

Key differences between market and limit orders:

Execution speed: Market orders are typically executed immediately, while limit orders may take longer or may not be executed if the specified price isn’t met ^[20].
Price control: Limit orders offer more control over the execution price, while market orders prioritize speed over price ^[20].
Fees: Limit orders may incur higher brokerage fees due to their complexity ^[20].

Time-in-Force Options

Time-in-force options allow investors to specify how long an order will remain active before it’s executed or expires ^[21]. E*TRADE offers several time-in-force options to cater to different trading strategies:

Day Order: This is the most common type and remains active until the end of the current trading day ^[22].
Good ‘Til Canceled (GTC): The order remains active for a set period unless canceled by the investor ^[22].
Fill or Kill (FOK): The entire order must be executed immediately, or it’s canceled ^[22].
Immediate or Cancel (IOC): As much of the order as possible is filled immediately, with the remainder canceled ^[22].
All or None (AON): The entire order must be filled, but without the immediacy of an FOK order ^[22].

These options provide flexibility in managing trades and can help investors avoid unintended executions, which can be costly during volatile market conditions ^[21].

Reviewing Trade Confirmations

After executing a trade on E*TRADE, it’s crucial to review the trade confirmation. These confirmations provide essential information about the transaction and serve as official records of the trade.

Key points about trade confirmations on E*TRADE:

Availability: Trade confirmations and prospectuses are accessible in the Documents section on etrade.com ^[23].
eDelivery: Investors can opt for electronic delivery of trade confirmations and prospectuses ^[23].
General Correspondence: E*TRADE introduces this as a new preference type, with eDelivery automatically enabled if elected for any preference in the account ^[23].

By carefully reviewing trade confirmations, investors can verify the accuracy of their trades and maintain proper records for tax and portfolio management purposes.

When executing trades on E*TRADE, investors should consider factors such as execution quality, platform features, margin trading options, and pricing and rates ^[24]. These elements can significantly impact the overall trading experience and potential returns on investments.

Monitoring and Rebalancing Your Portfolio

Setting Up Watchlists

ETRADE provides a user-friendly platform for creating and managing watchlists, allowing investors to track potential investment opportunities. To set up a watchlist on the ETRADE mobile app, users can follow these steps:

Open the E*TRADE app and log in with their user ID and password.
Tap on the “Watchlist” icon at the bottom of the screen.
Select “Add to Watchlist” with the plus sign next to it.
Enter the company name or symbol in the search bar.
Tap on the desired company to add it to the watchlist ^[25].

Investors can add multiple stocks, adjust the number of shares, and even include additional details such as purchase date and commission fees ^[26]. This feature enables users to monitor potential investments and make informed decisions based on real-time market data.

Tracking Performance

Regularly monitoring portfolio performance is crucial for successful investing. E*TRADE offers tools to help investors evaluate their returns accurately. When assessing portfolio performance, investors should consider the following:

Time-weighted return: This method accounts for dividends and interest received while excluding the effect of deposits and withdrawals ^[27].
Dollar-weighted return: An alternative method that may be used by some financial institutions ^[27].
Appropriate benchmarks: Choose indices that align with the composition of your portfolio for meaningful comparisons ^[27].

It’s important to note that simple balance changes may not accurately reflect true investment performance. For example, a 10% increase in account balance due to deposits does not necessarily indicate a positive return on investments ^[27].

E*TRADE’s portfolio manager, Portseido, offers advanced tracking features, including:

Money-Weighted Return (MWR) and Time-Weighted Return (TWR) calculations
Historical risk measurement
Performance benchmarking in the investor’s preferred currency
Automatic dividend tracking and forecasting ^[28]

Periodic Portfolio Reviews

Regular portfolio reviews are essential to ensure investments remain aligned with financial goals and risk tolerance. E*TRADE recommends the following steps for effective portfolio management:

Check performance: Compare investment performance to broader markets, considering long-term goals rather than reacting to short-term fluctuations ^[13].
Monitor asset allocation: Review the investment mix once or twice a year to ensure it aligns with investment goals and risk tolerance ^[13].
Rebalance: Adjust portfolio allocations that have drifted from original targets, especially during periods of market volatility ^[13].
Adjust to life stages: Reassess risk appetite and investment goals as life circumstances change, such as nearing retirement or experiencing major life events ^[13].

E*TRADE’s Core Portfolios service offers automatic rebalancing features, including:

Drift rebalancing
Semiannual rebalancing
Review of material deposits and withdrawals
Adjustments to maintain target asset allocation ^[29]

By leveraging these tools and following a structured approach to portfolio monitoring and rebalancing, investors can better manage their investments and work towards their financial objectives. Additionally, E*TRADE provides extensive educational content and retirement planning tools to support investors in making informed decisions throughout their investment journey ^[29].

Leveraging E*TRADE’s Automated Investing Solutions

Core Portfolios Overview

ETRADE’s Core Portfolios is a robo-advisory service that combines professional management with automated technology to simplify the investing process ^[30]. This service, offered through ETRADE’s interactive digital platform, is managed by Morgan Stanley Smith Barney LLC, also known as Morgan Stanley Wealth Management ^[30]. Core Portfolios builds diversified portfolios using exchange-traded funds (ETFs) that are carefully selected by a team of financial advisory experts ^[30].

The investment strategy employed by Core Portfolios is based on modern portfolio theory, aiming to provide optimal returns based on an investor’s goals, liquidity needs, time horizon, and risk tolerance ^[31]. The portfolios are highly diversified across domestic and international equity and fixed-income ETFs ^[31]. One of the advantages of using ETFs is their typically lower internal operating costs compared to traditional mutual funds, potentially offering a more cost-efficient way to achieve broad diversification ^[30].

Customizing Your Portfolio

Core Portfolios offers several options for investors to customize their investment strategy:

Smart Beta: For those seeking a more active portfolio strategy, Core Portfolios allocates a portion of assets to smart beta ETFs, which favor equities with specific characteristics that may enhance overall returns ^[30].
Socially Responsible Investing: Investors looking to align their investments with personal values can opt for portfolios that include ETFs focused on companies known for their environmental, social, and governance (ESG) practices ^[30].
Tax-Sensitive Portfolios: Core Portfolios offers tax-sensitive ETF portfolios for each investor profile, which can help minimize taxes in taxable accounts ^[30].
Risk Tolerance Adjustment: Investors can override the suggested portfolio and choose a different risk profile that better suits their preferences ^[31].

The customization process begins with a questionnaire that helps determine the investor’s risk tolerance and investment goals ^[30]. Based on these responses, Core Portfolios constructs a tailored investment strategy ^[30].

Automatic Rebalancing

One of the key features of Core Portfolios is its automatic rebalancing capability. The service employs advanced technology to monitor portfolios daily for rebalancing opportunities ^[30]. Rebalancing is triggered under the following conditions:

Portfolio Drift: If the portfolio allocation drifts by 5% or more from the target allocation ^[30].
Material Deposits or Withdrawals: When significant changes are made to the account balance ^[30].
Semi-Annual Review: Portfolios are automatically rebalanced twice a year ^[31].

This automatic rebalancing helps keep the investment strategy aligned with the investor’s goals and risk tolerance ^[32]. By maintaining the target asset allocation, Core Portfolios aims to manage risk and potentially enhance long-term returns ^[33].

In addition to rebalancing, Core Portfolios offers tax-loss harvesting, a feature that can potentially lower an investor’s capital gains taxes ^[33]. This automated approach to portfolio management allows investors to remain hands-off while still keeping their investments on track towards their financial goals ^[33].

Conclusion

ETRADE offers a comprehensive platform to invest and make money online, providing a wide range of tools and resources to help investors navigate the financial markets. From its diverse investment products to its advanced research and analysis tools, ETRADE equips users with the means to build and manage their portfolios effectively. The platform’s automated investing solutions, like Core Portfolios, also provide a hands-off approach for those seeking professional management with a personal touch.

To wrap up, ETRADE’s user-friendly interface, combined with its educational resources and customizable features, makes it a solid choice for both novice and experienced investors. By leveraging ETRADE’s offerings, investors can work towards their financial goals, whether they’re looking to grow their wealth, save for retirement, or explore new investment opportunities. As with any investment strategy, it’s crucial to keep in mind personal financial situations and risk tolerance when making decisions.

FAQs

Is E*TRADE a suitable platform for beginners?
E*TRADE is an excellent choice for beginners interested in entering the investment world. It features a user-friendly interface, powerful trading tools, comprehensive educational resources, and a wide range of investment options, making it accessible and beneficial for novice investors.

What is the minimum amount required to open an E*TRADE account?
E*TRADE does not require a minimum amount to open a brokerage account, allowing investors to start with any amount of capital.

Can you earn money using E*TRADE?
Yes, there are multiple ways to make money on E*TRADE. These include trading stocks, investing in mutual funds, trading options, buying bonds, and using automated investing services to maximize financial returns.

Are there any monthly fees associated with E*TRADE accounts?
E*TRADE charges a monthly account fee of $15. However, this fee can be waived if you maintain an average monthly balance of at least $5,000 from the end of the second statement cycle onwards.

References