Christian Financial Planning, Budgeting & Investing
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Your Investments and the Internet

  • Craig VanHulzen Money Channel Editor
  • 2002 29 Nov
Your Investments and the Internet
I recall a time last year when a broker called me with a hot tip for my client accounts (and you thought brokers only cold called you) that had to be purchased at that moment. Not knowing the stock but recognizing the broker from previous calls, I decided to find out why he wanted me to buy this stock on other people's behalf. This broker, as with most brokers who cold call for commission, was pretty smooth. He told me why the stock was an absolute "must buy" and that I would be doing my clients a favor. Of course, he wanted the trade to be done right there and with his firm.

After much wrangling, he finally gave up and told me to go to the Internet bulletin boards where people chat about stocks. There are many of these areas, but in this case I went to the address he told me. If you have never been to a stock chat bulletin board, do so only for amusement. Many of the items this broker told me were found verbatim on various postings. He had found most of his "selling points" on this site.

The Internet has become commonplace in our lives and offers many things that were previously unavailable. The investment choices on the Internet are growing every day. Online brokers now claim they have broken down the Wall Street barrier for "regular people." Extremely low commissions and various investment tools are supposed to replace the traditional advisor.

If you decide to venture into the online world of investing, be aware that investments, like other areas of the Internet, are subject to the pranks and schemes of criminals. A firm understanding of your goals and intentions should help with your investment planning.

Here are a few items to remember as you take control of your investments.

Know your source
We tend to be trusting of others when we ourselves are trustworthy. This can be dangerous when looking for good investment ideas on the Internet. Find some good sites that have helpful content or educational columns about the stock market. Follow recommendations without acting on them. Track the performance of people's picks to see who is really worthwhile and who is just trying to push stocks for their personal gain. The stock bulletin boards can be a dangerous place to get ideas. Many people on these boards are trying to push up the price of thinly traded stocks so they can sell their shares for a gain.

Always read biographical information offered about the author of articles you find interesting. I can tell you there is some very good professional advice online but it is often hard to distinguish from the bad.

Research, Research, Research
Use the sites made available by various investment companies and investor-related content providers. Some offer a daily or weekly e-mail which will provide article snapshots for your perusal. You can easily and quickly click on the address in these e-mails to go directly to content of interest to you.

Find sites that mean a lot to you and that you understand. Search for educational content as well as investment tips or advice. Learn all about the securities you are buying. After all, if you are replacing a financial advisor, you have a lot of educational catching-up to do.

Bookmark areas or sites that offer the content you need. And BE PATIENT.

Trading Pitfalls
Trading can be extremely costly for an investor. Sure, online brokers such as Ameritrade offer low commission trading that minimizes costs. However, the advent of internet trading has sped up the volume of trading. Five years ago, the average person held a stock for an average of over 200 days. Three years ago that number had dropped to just over 100 days. Last year, the average holding time for a stock was just 50 days. It is becoming commonplace for people to trade the same stocks multiple times in a given day.

Trading is not for everyone. It can be emotional. It can be a distraction at work and even worse, an addiction for some. The markets are driven by fear and greed. If you don't believe me, try watching every minute of the market movements for a day in front of a computer with live quotes and data feeds while watching CNBC. It can be exhilarating and devastating.

Beware trading too often. It can cause tax implications, emotional stress and is costly. Consider this: What would you buy if you only had 10 purchases you could make over the course of your lifetime? If you are like me, you would do a lot of research and patiently wait for the right time to buy the most solid investments.

Unseen Costs
Beware buying a security just for the lowest commission. If you could buy a stock online or through your advisor, remember that your online broker will not help with a good fill. A computer knows what is stated as the "ask" or purchase price. An advisor could fins out how big a spread a stock may have and be able to buy the stock "inside the spread" saving you more money if you had placed the trade online.

Mutual funds can have hidden costs. How would you like to buy someone's tax gains when you didn't earn the gains. It can happen by purchasing a hot mutual fund. Let's say the hot mutual fund gained 140% last year and you decide to buy. The manager of the fund decides it is time to sell some of his stocks for gains and move to other stocks. You now own the tax implications of gains from last year. Ouch!

Decide for Yourself
If you don't have the time to properly research securities or feel that the emotional struggle may prove costly to your investment portfolio, call an advisor or find one you can work with through a trusted source. Either way, make goals, research ideas and remain patient. The market is a voting machine driven by emotion.