Showing posts with label personal finance and internet. Show all posts
Showing posts with label personal finance and internet. Show all posts

Thursday 17 June 2010

Online Investing Tools Refine the Personal Touch



PERSONAL FINANCE May 28, 2010, 9:01PM EST
Online Investing Tools Refine the Personal Touch

Businesweek.com's latest look at online tools for individual investors reveals innovative new features for the do-it-yourself set

A year after the worst financial crisis in 80 years shook investors' confidence, mounting fear of contagion from Europe's debt crisis and rising market volatility offer fresh reminders of the need for greater vigilance. Investors and consumers may find it wise to adopt a hands-on approach in managing their personal finances and retirement accounts.
There is no shortage of resources for the do-it-yourself crowd. In its latest look at tools and technologies for individual investors, Businessweek.com examined nine websites (see slide show) that specialize in a range of areas, from actively managed investment portfolios and asset allocation advice to analytical stock research and personal finance. Whatever the topic, it is clear that there's a growing hunger for better ways to deal with money.
On kaChing.com, active investors get access to 16 different professional money managers. Their accounts can be as small as $3,000, vs. the minimum of $500,000 usually required by the managers' firms, and they pay ultra-low trading commissions because managers split commissions for each trade among all the clients who subscribe to their model on a pro rata basis.
Managers on kaChing get an investor IQ rating that takes into account how closely they stick to their stated investment style, their risk-adjusted returns (which weigh the performance of all their holdings separately), and the soundness of their investment strategy. An investor IQ must be at least 140 on a scale of 1 to 200 for a manager to be listed on kaChing.
This is a much more innovative way to measure a manager's skills than what's provided by the mutual fund industry, where no one can see what transpires in a portfolio between quarter-end dates, says Andy Rachleff, kaChing's co-founder and chief executive officer.

THE DOWNSIDE TO FIVE-STAR FUNDS

"Lack of transparency leads to an inability to develop a compelling ratings system," Rachleff says. "Without transparency, the only way to evaluate a mutual fund is on past returns, which aren't indicative of future returns," he says.
Once they have received a five-star rating from mutual-fund data provider Morningstar (MORN), mutual funds on average underperform the broad market, says Rachleff. When the influx of money that often results from Morningstar's highest rating has to be put to work, it tends to get invested in stocks that fund managers are less convinced about in order to avoid 5 percent ownership in the equities they already hold. (Owning a 5 percent stake in a company requires a more detailed level of financial disclosure to the Securities & Exchange Commission.)
Manager fees on kaChing average 1.25 percent of an investor's portfolio value, and one-quarter of the fee goes to the site. Investors also pay trading commissions on top of that, but commissions on an average account size of $10,000 tend to be 70¢ per trade, vs. the $7 to $10 you'd typically pay an online brokerage such as Charles Schwab (SCHW).


Unlike kaChing, Covestor Investment Management lets users follow both registered investment advisers and nonprofessionals, then replicate their trades. Covestor caps the risk investors can take according to their tolerance level, as well as if they're investing for a retirement account. The site won't replicate trades for stocks whose market cap is below $50 million in order to minimize liquidity risk. It warns clients about any performance drift from the model manager's returns because of the inability to replicate all trades, and it displays the average returns of investors who follow any single manager.
Clients must put a minimum of $5,000 in any model they subscribe to and the model managers set fees that can range from 0.5 percent to 2.3 percent and are split 50/50 with Covestor. In lieu of fees, nonprofessional managers receive royalty payments from Covestor for letting others follow and replicate their trades.
Growing interest in self-directed investing hasn't quieted the longstanding debate between proponents of active portfolio management and those who hew to index investing on the belief that it's impossible to beat the market consistently. In contrast to sites such as kaChing that stress active management and take a certain portion of management fees, MarketRiders offers only exchange-traded funds (ETFs) and shows users how much they can save in disclosed and hidden fees over the long run by avoiding active managers.

MENU OF ETFS AND MONTHLY REBALANCING

"The main difference with us is that philosophically we think if you start paying anybody more than 20 basis points [0.2 percent] to manage your money, you're going to end up with a lot less when you retire," says Mitch Tuchman, founder of MarketRiders.
Based on a user's age, stated risk tolerance, level of investing experience, and when he or she will begin to need the money, MarketRiders recommends an optimal asset allocation from a menu of ETFs vetted for superior performance and low fees. The site sends users monthly alerts about which holdings need to be rebalanced to return their portfolios to target allocations. Users pay $9.95 per month for the service, paying trading commissions only when they rebalance.
Andy Cohen, who manages a website that focuses on caring for older parents, began using MarketRiders a year and a half ago while it was in its beta testing phase. He uses the site to manage his retirement IRA and his 14-year-old son's college savings IRA, executing via a brokerage account at Charles Schwab (SCHW).
"I feel like I'm getting lots of diversification and it's very inexpensive," says Cohen. "I'm [investing in] stuff like commodities and international stocks, which I wouldn't have had the confidence to pick without MarketRiders telling me what to pick … and the right percentage of my portfolio to put in."
Cohen also likes the "non-nagging tone" of the monthly e-mail alerts about rebalancing. Another user, Bev Doughty, says it's pointless to use MarketRiders if you don't buy into the idea of rebalancing when assets either outperform or underperform target allocations.
Since it launched in March, Goalgami.com's audience has been primarily financial advisers who like the software's potential for helping them collaborate with clients—and communicate better with those who may not yet have figured out their goals. The site offers people privacy with which to work out various financial goal scenarios before they're ready to consult a professional adviser.

RISK CAPACITY VS. RISK TOLERANCE

Goalgami is based on the idea of goal-based investing, which holds that an individual's household balance sheet offers a better basis than a risk tolerance questionaire—the tool most advisors use to determine how conservative or aggressive a client's portfolio should be—for advisors to gauge what's appropriate for their clients.
"It's the difference between risk capacity and risk tolerance," says Advisor Software President Neal Ringquist, a proponent of goal-based investing and the creator of Goalgami. "The balance sheet measures how much risk a household should take, not how much risk they can bear to take psychologically."
On Goalgami's platform, users select goals and drop them onto a timeline or table. This allows them to see how these obligations translate into monthly costs and how they affect the user's affordability meter. With the drag of a mouse, the platform shows them how much money they could save by delaying retirement by five years, for example.


Investors aren't the only ones gravitating to the Internet in search of smarter ways to manage and build their wealth. Consumers trying to maintain a household budget, pay down debt, or save toward buying a home or some other important goal are finding comfort and practical advice at sites such asMint.com and LearnVest.com.
Ezzie Goldish, a young New York accountant, began using Mint just before the birth of his first child in June 2008. A month later, he lost his job while his wife was still working part-time so she could care for their baby. With Mint's help over the next year, the couple organized their finances and managed to pay off 40 percent of credit-card debt despite a 40 percent cut in income.
"As much as we thought we knew what we were doing, until you see [how you're spending] in front of you, it's a lot harder," he says. Goldish, who had already been getting calls for financial advice because of his profession, posted an economics survey on his blog for people in his Orthodox Jewish community. He has received hundreds of comments expressing interest in Mint from around the world.

AN ACTION PLAN TAILORED TO WOMEN

Mint can save a lot of time because it automatically integrates information from all of your accounts, eliminating the numbing task of having to input everything.
Although few people have been adequately schooled in personal finance, women tend to be especially unsure of themselves when it comes to understanding financial products and sticking to a financial plan, says Alexa von Tobel, founder of LearnVest, a website created specifically to help women meet their financial needs. Users appreciate being able to create a customized action plan that helps them save for graduate school or other goals, as well as the daily e-mail reminders to keep them motivated.
"They've created a tone that falls between your smart older sister and your best friend," says Bettina Scott, who's been using the site since last fall. "It's not like someone nagging you, but telling you this might be a good thing to think about."
LearnVest also offers insightful content written addressing how to buy a nice, affordable Mother's Day bouquet or throw a dinner party without spending a lot. "Consciously or unconsciously, it changes your mindset about finance. It makes you feel more comfortable with it" says subscriber Alexandrine Koegel.
Online tools available to investors and consumers have increased in sophistication and utility over the years. Will they prove to have made a difference over the long term? Leslie Linfield, executive director of the Institute for Financial Literacy in Portland, Me., wonders.
"Do they really stick with it?" Linfield asks. "It's about following through. Don't get caught up in the bells and whistles."
Bogoslaw is a reporter for Bloomberg Businessweek's Finance channel.


http://www.businessweek.com/print/investor/content/may2010/pi20100526_506024.htm

Thursday 26 November 2009

Five ways the internet has transformed our personal finances

Five ways the internet has transformed our personal finances
As The Telegraph marks 15 years of its online presence, we look at how the internet has transformed the way we deal with money matters.

By Richard Evans
Published: 3:40PM GMT 25 Nov 2009

1. Internet banking
Millions of people now take for granted that they can pay bills and transfer money at any time of day and without having to worry about queues – whether in branches or on telephone lines. These days, you never even have to speak to a human being when it comes to personal banking. You can also use the internet to find the best deals on savings accounts and then set up and run accounts online. Sixty per cent of people with instant-access accounts have registered for online banking, according to the British Bankers' Association.

Many people also research the mortgage market online, and some even apply for home loans over the internet.

2. Price-comparison websites
If you want to find the best interest rates for your savings or the best price for your home insurance, you can save time by using a price-comparison website. These provide up-to-date lists of the top accounts, as well as data on the best deals on credit cards and other financial products.

In the old days, we had to phone around brokers or insurers to compare prices for car or home insurance, giving out the same long-winded information every time. Most of us would have given up after a handful of calls.

Comparison sites do all the work, showing the cheapest providers, policy details and links to application forms.

Other sites, such as Kelkoo and Pricerunner, find the lowest prices for goods such as cameras, fridges and PCs.

Comparison sites are also much in demand for finding the best deals on energy, although recent research by The Daily Telegraph found that energy-comparison sites did not always agree about which supplier offered the best deal.

Consumers are becoming more savvy about these discrepancies. While a recent survey by Mintel, the analyst, found that six out of 10 people had used a price-comparison site, the consumer group Which? found that consumers lacked trust in them, with one in four finding better value financial products elsewhere.

3. Voucher codes
The recession has sharpened shoppers' appetite for a bargain – and many cost-conscious consumers have turned to the internet to track down special offers. If you want to save money at Tesco you can just type "Tesco voucher codes" into a search engine and find dozens of sites offering the discount codes – short combinations of numbers and letters that you enter into the online checkout. Hundreds of retailers operate these schemes; some also allow you to print off vouchers from the website to claim discounts in shops and restaurants.

According to research from moneysupermarket.com, more than 2.2 million discount vouchers are redeemed every day, while an internet traffic analyst found that the number of web searches in Britain for discount vouchers had increased by 48 per cent over the past year.

4. Dealing and investing
Ten years ago, small investors who wanted to trade shares had to phone a broker. Now they can buy and sell online. Nine out of 10 share deals are made online, according to Barclays Stockbrokers.

Access to information online has helped level the playing field between small shareholders and professional investors with the resources of large banks behind them. "The role of the internet is key, giving the individual at home with a laptop access to the kind of tools, research and up-to-the-minute data previously the preserve of City traders," said Des Byrne, head of Barclays Stockbrokers. "The internet brought financial democracy to newly empowered investors."

People can buy investment funds, such as unit trusts from "fund supermarkets" – online shops that usually offer discounts on charges. These funds are often held in tax-free wrappers, such as individual savings accounts or personal pensions.

5. Buying and selling
Auction websites, such as eBay, have made it far easier to buy and sell second-hand goods, which in the pre-internet age would have meant a trip to the car boot sale. The average British home is estimated to have at least £450 worth of saleable items, typically clothes, CDs, DVDs, books and toys. Online auctions offer a quick way to turn them into cash. About one billion items have been sold on eBay.co.uk in the past 10 years, and 17 million people use the site each month.


http://www.telegraph.co.uk/finance/personalfinance/consumertips/6651262/Five-ways-the-internet-has-transformed-our-personal-finances.html