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4 Advantages the Average Investor Has Over Wall Street

By U.S. News & World Report

Nobody ever wants to go into a fight feeling like David up against Goliath. Fortunately, for the average retail investor competing against massive institutional Wall Street firms, there are a handful of advantages to being the little guy.

Traders at Wall Street investment banking firms such as Goldman Sachs Group (ticker: GS) and Morgan Stanley ( MS) have too many advantages to count. They have access to an endless supply of resources, data, technology and trading experience. They have connections within the business world and have their fingers on the pulse of every developing story in the market. Their high-frequency trading algorithms can literally buy and sell a stock a dozen times on breaking news before the average American is finished reading the headline.

These firms have a long history of success because they recruit the top minds in the worlds of finance and technology, and they pay them handsomely to identify every possible trading edge they can.

[See: 7 of the Best Cheap Stocks to Buy Under $10.]

With the odds stacked against them, it’s easy for average Americans looking to invest for retirement to get discouraged. Fortunately, there are actually some advantages to being a small retail investor rather than a big-shot Wall Street banker.

You have more options. First of all, the typical investor managing his or her own trading account is not subjected to the risk management rules that investment banks have. These banks often forbid their traders from investing in stocks priced under $5 per share or companies with a market capitalization below a certain threshold. Each institution has its own set of rules about risk levels, loss tolerance and diversification, as well.

“If institutional traders are in a losing position, they often must sell it because firm rules say they must,” says Nicholas Colas, chief market strategist for Convergex Group. “Retail traders don’t have to follow those rules and can wait out a bad trade.”

The average American retail investor is free to establish his or her own personalized set of trading rules, but Colas says some form of risk management guidelines are always a good idea.

Liquidity is less of a concern for retail investors. Institutional traders are often looking to buy and sell thousands or even millions of shares of stock at a time. Depending on market conditions, it can be difficult to get such large orders executed in a timely fashion at a reasonable price.

“Institutional traders have to move a lot of shares when they buy or sell,” says Owen Murray, director of investments for Horizon Advisors. “They have to execute their trades cautiously to prevent their trades from moving the stock price against them. This is especially true for stocks that are less liquid, such as microcap stocks.”

Retail investors buying just dozens of shares at a time typically don’t have to worry about liquidity.

[See: 7 Ways to Tell if a Stock Is a Good Price.]

Trading is cheaper. Even iconic billionaire Berkshire Hathaway ( BRK.A, BRK.B) CEO Warren Buffett says retail stock investors managing their own accounts today have a distinct advantage in terms of fees.

“The investor incurs really quite little in the way of transaction costs in investing in stocks,” Buffett said in 2014. “Compared to real estate and other types of investment it’s way less, and compared to 25 years ago it’s less.”

In addition to lower costs, today’s online trading platforms provide retail investors with an unprecedented amount of information, news and market data.

“It is a great time to be a retail investor,” TD Ameritrade chief strategist JJ Kinahan says. “The amazing platforms that are now available give retail investors the ability to easily see real-time data and news. Combine that with the amazing analytical and charting tools and the retail investor can make well-informed decisions, making the market a much more level playing field.”

You have less pressure. Patience, one of the hallmarks of Buffett’s investing success throughout his career, is also a major advantage that retail investors enjoy. Investment banks and bankers are always feeling the heat to deliver quarterly returns to impress bosses, shareholders and investors. Retail investors only have to answer to themselves. In that sense, they are afforded the luxury of waiting patiently for years for an investment thesis to play out in the market rather than being forced to chase market gains on a week-to-week basis.

Even with the advantages mentioned above, it’s still difficult for the average investor to compete with professional Goldman Sachs traders and algorithms. Fortunately, there are plenty of long-term stock market gains to go around.

[See: The 25 Best Blue-Chip Stocks to Buy for 2017.]

Since 1926, the rolling 30-year annual return of the Standard & Poor’s 500 index has stayed between about 8 percent and 15 percent. By choosing a low-cost, diversified index exchange-traded fund that invests in blue-chip stocks, such as the Vanguard 500 Index Fund ( VOO) or the Schwab U.S. Broad Market ETF ( SCHB), retail investors can capture that long-term market growth without even worrying about competing with professional traders on Wall Street.

More from U.S. News

7 Notable Quotes From Warren Buffett

10 Ways You Can Invest Like Warren Buffett

12 Terms Every Investor Needs to Know

4 Advantages the Average Investor Has Over Wall Street originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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