Personal Financial Planning: An "How-To" Guide (part 45)

Online Investor Services

by

Charles Lamson

The Internet offers a full array of online investor services, from up-to-the-minute stock quotes and research reports to charting services and portfolio tracking. When it comes to investing, you name it and you can probably find it online. Unfortunately, although many of these are truly high-quality sites that offer valuable information, many others are pure garbage, so you have to use care when entering the world of online investing. But even if you confine yourself to the quality sites, the fact is all this information can be overwhelming and even intimidating. It takes time and effort to use to the net wisely. Let's take some time here to review the kinds of investor services you can find online, starting with investor education sites.

Investor Education

The Internet offers a wide array of tutorials, online classes, and articles to educate the novice investor. Even experienced investors will find sites that expand their investing knowledge. Although most good investment-oriented Web sites include many educational resources, here are a few good sites that feature investment fundamentals:

• The Motley Fool (www.fool.com) Fool's School has sections on fundamentals of investing, mutual fund investing, choosing a broker, investment strategies and styles, lively discussion boards and more.
• Get breaking Finance news and the latest business articles from AOL at www.aol.com/finance. 
• Zack's Investment Research (www.zacks.com), a free site from The Wall Street Journal, is an excellent starting place to learn what the Internet can offer investors.
• Nasdaq (www.nasdaq.com) has an Investor Resource section that helps with financial planning and choosing a broker.

Other good educational sites include leading personal finance magazines like Money (www.money.com), Kiplinger's Personal Finance Magazine (www.kiplinger.com), and Smart Money (www.smartmoney.com).

Investment Tools

Once you are familiar with the basics of investing, you can use the Internet to develop financial plans and set investment goals, find securities that meet your investment objectives, analyze potential investments, and organize your portfolio. Many of these tools, once used only by professional money managers, are free to anyone who wants to go online. You will find financial calculators and worksheets, screening and charting tools, and portfolio trackers at the Web sites of large brokerage firms, as well as other financial sites. You can even set up a personal calendar that notifies you of forthcoming earnings announcements and receive alerts when one of your stocks has hit a predetermined price target.

Investment Planning

Online calculators and worksheets can help you find answers to your financial planning and investing questions. With them, you can figure out how much to save each month for a particular goal, such as the down payment for your first home, a college education for your children, or to be able to retire by the time you reach 55. For example, Fidelity (www.fidelity.com) has a wide selection of planning tools that deal with such topics as investment growth, college planning, and retirement planning. One of the best sites for financial calculators is FinanCenter.com (www.financenter.com). It includes over 100 calculators for financial planning, insurance, auto, and home buying, and investing.

Investment Research and Screening

One of the best investor services offered online is the ability to conduct in-depth research on stocks, bonds, mutual funds, and other types of investment vehicles. Go to a site like www.quicken.com or www.kiplinger.com, click on the "investments" tab, and you can obtain literally dozens of pages of financial and market information about a specific stock or mutual fund. For example, you can find historical and forecasted information about a firm's earnings, earnings per share, dividend yields, growth rates, and more in both tabular and graphic formats; you can also track the behavior of a specific stock relative to a market index, or to one or more of its major competitors. And many of these sites have links back to the company itself, so with a couple clicks of the mouse, you can obtain the company's annual report, detailed financial statements, and historical summaries of a full array of financial and market ratios. Moreover, you will find sites that offer detailed reports produced by major brokerage firms (some of which require a nominal charge).

In addition to the types of research information described above, investors can also use various online screening tools to identify attractive and potentially rewarding investment vehicles. Most major sites, like Quicken, Morningstar, or MSN Money Central, offer screening tools. Basically these tools enable you to quickly sort through huge databases of stocks and mutual funds to find those that meet specific characteristics, such as high dividend yields or specific revenue growth. For mutual funds you might specify a certain type of fund, a particular industry or geographical sector, and low fees. Each screening tool uses a different method to sort. You answer a series of questions to specify the type of stock or fund you are looking for, performance criteria you desire, cost parameters, and so on. The screen then provides a list of stocks (or funds) that have met the standards you have set. You can then do more research (as described above) on the listed stocks (or mutual funds) to decide which ones you want to further pursue.

Portfolio Tracking

Almost every investment-oriented Web site includes portfolio-tracking tools. Simply enter the number of shares held and the symbol for those stocks or mutual funds you wish to follow and the tracker automatically updates the value of your portfolio every time you check. You can usually link to more detailed information about each stock or mutual fund. The features, quality, and ease of use of stock trackers varies, so check several to find the one that meets your needs.

Day Trading

As discussed earlier, trading stocks (and other securities) online has become very popular among investors---if for no other reason than the rock-bottom cost of executing such trades. Face it, it is an easy convenient, and low-cost way of trading securities. But for some investors, the attraction of trading stocks online is so compelling that they become day traders. The opposite of buy-and-hold investors with a long-term perspective, day traders buy and sell stocks quickly throughout the day. They hope their stocks will continue to rise in value for the very short time they own them---sometimes just seconds or minutes---so they can make quick profits. True day traders do not own any stocks overnight---hence the term day trader---because they believe the chance of prices changing radically overnight (from close on one day to the open on the next) can lead to large losses. While day trading is not illegal or unethical, it is highly risky. To compound their risk, day traders usually buy on margin to earn even higher returns. But as we have seen, margin trading also increases the risk of larger losses. Day traders typically incur major financial losses when they start trading. Some never reach profitability. Day traders also have high expenses for brokerage commissions, training, and computer equipment. By some estimates, they must make a 50 to 60 percent profit just to break even on fees and commissions.

*SOURCE: PERSONAL FINANCIAL PLANNING, 10TH ED., 2005, LAWRENCE J. GITMAN, MICHAEL D. JOEHNK, PGS. 472-475*

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