Online brokerages sell bear-market strategies
NEW YORK » Breaking even has never sounded so good.
As a once-bull market boom extends its descent into bear market misery, the Big Three U.S. online brokerages are having to rewrite their sales pitches. While Charles Schwab, E-Trade and TD Ameritrade used to talk about making money for investors, now in the credit crisis era, it's instead about preserving capital.
"Active traders today aren't swinging for homeruns anymore, they're happy with base hits," said Joseph Vietri, vice president of Charles Schwab Corp.'s active trading and investing services.
Indeed, the focus is just navigating choppy market conditions. The Dow Jones industrials are off more than 7 percent for the year, and since the start of the month have jumped sharply one week only to pull back the next.
This zigzag pattern has caused brokerages to begin pushing everything from risk management tools to investment seminars for wary investors. Advertising that once touted super-fast trades and reduced fees now promotes defensive measures to help protect assets.
Ameritrade's pitchman, actor Sam Waterston, star of "Law & Order," is preaching the wisdom of mutual funds in TV commercials. His sober countenance is a far cry from Stuart, the young tattooed punk who tried to teach his elders about beating the market, "socking it in the guts, holding it upside down and shaking the change loose," in commercials that helped establish Ameritrade's reputation with millions of investors.
"We're running more television spots toward risk management, things to stay more disciplined," said Jay Pestrichelli, senior vice president of the trader group at TD Ameritrade Holding Corp. "For those bold enough to trade in this market, I've talked to traders who say you'll need to work twice as hard to make half as much money."
Online brokerages are trying to remind customers about some of the conservative strategies that can be used in tough markets. They're all promoting risk management software designed to help investors determine if their portfolios might be overexposed in certain sectors, and even how to diversify.
Alternative trading strategies are being highlighted to take advantage of volatile markets -- especially investments in options contracts. The brokerages have reported a surging interest in stock options, which allow investors to bet if a stock will move lower over a period of time.
Bonds -- once considered a complicated market for retail investors to traverse -- are also becoming easier to buy online. E-Trade Financial Corp. this coming week will unveil a fixed-income platform that it pledges will make buying government and corporate bonds similar to investing in a stock.
Big swings in major stock indexes have caused investors to seek more stable fixed-income investments, such as bonds, according to the brokerages.
"They've know they needed to diversify for a long time, but as long as the markets were doing well they put it off," said E-Trade's Liat Rorer, who heads the broker's securities business. "There's no question they had a bit of a wake-up call, which caused a big flight to quality."
Investors' desire for stability in their investments tends to grow with age. With millions of baby boomers nearing retirement, the brokerages have responded by hosting seminars nationwide aimed at helping map out new strategies.
Many investors appear eager for such advice. They're enjoying longer life expectancies -- which means they're likely to need a more sophisticated mix of investments to provide adequate income.
Ken McCoy, a 58-year-old engineering manager from Redwood City, Calif., is just such an investor. He attended a recent E-Trade conference to determine how to adjust to a bear market.
Fear, he said, was the main motivation: "This is the first time in my investment life that I've actually been concerned about the stability of the whole system -- we could be on the verge of a serious financial meltdown, and I want to be prepared."