Thousands of investing software packages and Web sites claim to enable you to more easily make profitable investments. As with most other advertising claims, the reality of using your computer for investing and other tasks falls short of the promises and the hype.
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In this chapter, I show you ways that your computer may help you with your investing challenges and chores. Throughout this discussion, however, please remember several important caveats:
Some highly successful investors don't use their computers (or they use them infrequently) to deal with their investments.
You may subject yourself to information overload and spend a fair amount of money without seeing many benefits if you don't choose wisely.
Don't believe everything you read, especially in the online world, where filters and editors are often absent. (Of course, as I discuss elsewhere in this book, filters and editors don't guarantee that you'll find quality investment advice and information when you read financial publications.)
Good investment software should be user-friendly and provide quality information for making sound decisions. Software that helps you make personal investment decisions also needs to provide, if applicable, well-founded advice.
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Which software is best for you depends on what you're trying to accomplish, as well as your level of investment knowledge and computer savvy. Software can help you with a variety of investment tasks, from tracking your investments to researching, planning, and placing trades through your computer (a topic that I discuss in Chapter 9). The following sections help you find the best software for your needs.
Software that can help you with investment tracking falls into one of two main groups:
Personal finance software that also includes investment-tracking capabilities
Software that focuses exclusively on investment tracking
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The broader personal finance packages such as Quicken and Microsoft Money are more user-friendly and are probably more familiar if you already use these packages' other features (such as a bill-paying feature).
In the following sections, I outline what I see as the advantages and disadvantages of using tracking software based on your needs and offer a few alternative approaches to tracking your investments.
Investment tracking software offers a number of positive features that may appeal to you:
Organization: One of the best benefits of these packages is that using them can help you get organized. If you enter your investments into the program, the software can help you make sure that you don't lose track of your holdings. The fact that investors lose billions of dollars annually to escheatment — a situation in which financial institutions turn money over to the state because the owner loses track of his investment (often because the investor moved or passed away) — is testimony to the disarray of some investors' tracking systems. Of course, if your home burns to the ground and you don't have a backup copy of your files or software off-site, you have to start your documentation from scratch.
At-a-glance access: In addition to organizing all of your investment information in one place, investment software allows you to track original purchase price, current market values, and rates of return on your investments. If you have accounts at numerous investment firms, using software can reduce some of the complications involved in tracking your investing kingdom.
Overall return data: People usually know their CD and bond yields, but ask most people investing in individual stocks and bonds what the total return was on their entire portfolio, and at best, you'll get a guess. It's the rare person who can quote you total returns or tell you whether her returns are on pace to reach her future financial goals. If someone does know her investments' returns, she probably doesn't know whether that return is good, bad, or otherwise. Feel good having made 22 percent on your portfolio of stocks last year? Maybe you wouldn't if an index of comparable stocks was up 35 percent over the same period.
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Investment tracking software can be more useful for stock traders. In my experience, stock traders, the people who would most benefit from using these programs, often don't track their overall returns. If they did, they could calculate the benefit (or lack thereof) of all their trading. (I've never worked with a stock picker who completed this exercise with me and had return numbers that beat the market indexes over the long term.)
Many software makers produce programs that claim to solve investment-tracking quandaries. (Numerous financial Web sites offer tracking tools as well.) However, investment tracking software isn't a painless panacea for investors who want to track their investments and returns.
Many people buy these programs thinking that the programs will, after a small investment of time, simplify their investment lives. My review of many investment-tracking packages suggests that you should be prepared to make a substantial time commitment to find out how to use these packages and should know that other, less high-tech alternatives may be more efficient and enlightening. Also know that a good portion of program users tire of entering all the required data and then feel guilty for falling behind.
If you want to see what your investment returns have been over the years, be aware that entering historic data from your account statements (if you can find them) is a time-consuming process, regardless of which package you use. To calculate your returns, you generally need to enter each new investment that you make as well as all your reinvestments of dividends, interest, and capital gains distributions (such as those made on mutual funds). Ugh!
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If you're not into data entry, here are some alternative routes to consider:
Organization: Keeping a current copy of each of your investment statements in a binder or file folder can accomplish the same result of organizing all of your holdings.
At-a-glance access: Investment software can track all the facts and figures for all of your investments — purchase price, market value, rates of return, and so on. But you can accomplish the same things by consolidating your investments at one investment company. (See my discussion of discount brokers in Chapter 9.)
Overall return data: You can easily estimate the return of your overall portfolio by using an old-fashioned paper and pencil. Simply weight the return of each investment by the portion of your portfolio that's invested in it. For example, with a simple portfolio equally divided between two investments that returned 10 percent and 20 percent respectively, your overall portfolio return would be 15 percent (10 × .50 + 20 × .50 = 15). If you're not adding to or taking money from a portfolio, you can simply compare the portfolio's value at year end to the prior year end.
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People who make investments at various times throughout the year and want to know what their actual returns were during the year can use software to get answers. Unless you're a frequent trader and are trying to measure the success of your trading, knowing the exact returns based on the precise dates that you fed money into investments has limited value. This fact is especially true if you're a regular, dollar-cost-averaging investor (see Chapter 3). Also know that increasing numbers of investment companies are providing personal return data via their Web site and/or on account statements.
And if you're a buy-and-hold mutual fund investor, a path that I find great value in, tracking software gives you limited benefits because of the time that entering your data requires. Mutual funds and many other published resources tell you what a fund's total return was for the past year, so you don't need to enter every dividend and capital gain distribution.
Investment research software packages usually separate investment beginners (and others who don't want to spend a lot of their time managing their money) from those who enjoy wallowing in data and conducting primary research. If you already have a plan in mind and just want to get on with investing, then go to it! But even if you don't want to conduct more specific research, some of the packages that I discuss in this section can also help you conduct online investment transactions and track an investment's performance.
You may have the problems of sifting through too much data and differentiating the best from the mediocre and the downright awful. And unless cost is no object, you need to make sure that you don't spend too much of your loot simply accessing the information.
Before you plunge in to the data jungle and try to become the next Peter Lynch or Warren Buffett and pick individual stocks, be honest about your reasons for wanting to research. Some investors fool themselves into believing that their research will help them beat the markets. Few investors, even so-called professionals, ever do. Witness the fact that over long time periods (ten-plus years), mutual funds that invest in a fixed market index, such as the Standard & Poor's 500, outperform about three-quarters of their actively managed peers thanks to the index fund's lower operating expenses (see Chapter 8).
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If you like to invest in individual securities, the Value Line Investment Analyzer helps you research individual stocks using the data that the Value Line Investment Survey provides (as I discuss in Chapter 6). This software package lets you sift through Value Line's data efficiently. You can also use it to track your stock portfolio.
A two-month introductory offer for Value Line's software costs $75 ($95 for the "Plus Edition," which also tracks small- and medium-company stocks), and an annual subscription costs $598 for monthly updates ($995 for the more comprehensive version). The software is available from Value Line at 800-654-0508 or by visiting its Web site at www.valueline.com.
Morningstar, which is better known for its mutual fund information, has followed in Value Line's footsteps in providing lots of data on individual stocks. Morningstar's Principia for Stocks has data and features equivalent to what Value Line's Plus Edition offers. This program is intended for those with in-depth knowledge of how to analyze stocks and is most definitely not for beginners. An annual subscription to Principia for Stocks with monthly updates costs $675. You can reach Morningstar at 800-735-0700 or visit its Web site at www.morningstar.com. Morningstar offers a number of ways to tap in to the more basic stock data it collects through its Web site, which I discuss in the next section.
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For mutual funds, Morningstar and Value Line both publish a number of software packages, the best of which are similar in price to the Value Line Investment Survey. These packages are geared toward more sophisticated investors who understand mutual funds and how to select them. For more details, pick up a copy of the latest edition of my book Mutual Funds For Dummies (published by Wiley).
As people interested in managing their money surf the Internet, thousands of Web sites have sprung up to meet the demand. Although the low barriers to entry in the online world make it easy for scammers and incompetents to flog their wares and flawed advice, this medium can offer some helpful resources if you know where to look and how to discern the good from the not-so-good.
The Securities and Exchange Commission shutters numerous online scams, such as the one that bilked investors out of more than $3.5 million by promising to double investors' money in four months in a fictitious security they called "prime bank."
Warning
Although you may be smart enough to avoid offers that promise pie in the sky, you're far more likely to fall for unsound financial advice, which is in abundance online. You can find plenty of self-serving advertorial content and bad advice online, so you should be wary and cautious. The next section offers tips for evaluating Internet resources.
Fraud and bad financial advice existed long before the Internet ever came around. The SEC describes online scams as "new medium, same message." The tips in the following sections can help you find the nuggets of helpful online advice and avoid the land mines.
Get an idea of who's behind a site before you trust its information. When navigating the Internet for investment purposes, remember that financial service companies that want to sell you something erect the vast majority of sites. Thus, the "free" entrance fee to these sites is driven by companies wanting you to buy what they're selling.
Some sites go to extraordinary lengths — including providing lots of information and advice and attempting to conceal the identity of the company that runs the site — to disguise their agendas. Therefore, don't turn to the Web for advice or opinions, which usually aren't objective. Approach online financial calculators with skepticism. Most are simplistic and biased.
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Many Web sites have icons that you can click to see some background on the site's sponsor and to find out whether the site solicits potential advertisers. With a simple click, you can quickly see that a site purporting to be a reference service of the best small-company stocks in which to invest may be nothing more than an online Yellow Pages of companies that paid the site an advertising fee. Look for sites that exercise quality control in what they post and use sensible screening criteria for outside information or companies they list.
Just because every Tom, Dick, and Jane can easily and at relatively low cost set up an Internet site doesn't mean that their Web sites and advice are worthy of your time. Not surprisingly, the financial companies with reputations for integrity offline are the ones that offer some of the best integrity online. For example, as I discuss later in this chapter, the leading and most investor-friendly investment companies often have the best education-oriented Web sites.
The Internet can be a useful place to do consumer research. The more enlightening message board conversations that I've encountered start with someone asking what others thought about particular financial service firms, such as brokerage firms. If you're investigating a certain financial service, the Internet can be an efficient way to get feedback from other people who have experience dealing with that firm.
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In order to find a dozen people offline who have done business with a given firm, you'd probably have to speak with hundreds of people. Online, finding customers is a snap. Those who feel wronged by a particular firm are more than willing to share their gripes through sites such as www.PlanetFeedback.com. As in the offline world, though, don't believe everything you hear, and watch out for employees of a given firm who post flattering comments about their firms and dis the competition.
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Enhance the value of the online information you gather by verifying it elsewhere. You can do some fact checking both online and offline. For example, if you're contemplating the purchase of some stock based on financial data that you read on an investing site, first check out those numbers at the library or at one of the Web sites I recommend later in this chapter.
Lots of Internet investment advice (and most of the scams) focus on smaller companies and investment start-ups; unfortunately, these are often the most difficult businesses to locate information about. The SEC requires companies that are raising less than $1 million to file a Form D. To inquire whether a company has filed Form D, call the SEC's Office of Investor Education and Advocacy at 202-551-8090 or send an e-mail to [email protected]. Also check with your state securities regulator. For contact information for state regulators, you may call the North American Securities Administrators Association at 202-737-0900 or visit its Web site at www.nasaa.org/QuickLinks/ContactYourRegulator.cfm.
And if something does sound too good to be true, check out and possibly report your concerns to Internet fraud-fighting organization sites. In addition to the SEC's Web site, check out the National Association of Securities Dealers Regulation Web site (www.nasdr.com) and the National Consumers League's Fraud Information Center (www.fraud.org; 800-876-7060).
Although you can live without the Internet and not suffer any financial or educational consequences, the quality of what's on the Internet is gradually improving, and a handful of sites are setting a high standard.
In addition to the consumer advocacy sites that I recommend earlier in this chapter, here are my top picks for investing sites worthy of your online time.
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CorporateInformation.com is owned and operated by Wright Investors' Services, which, in addition to managing money for affluent individuals, also publishes comprehensive reports on thousands of companies around the globe. Those wanting to do Web-based stock research will also enjoy the many links to other Internet investing information and research sites. This site also provides plenty of current business news.
CXO Advisory's excellent Web site (www.cxoadvisory.com) was created and is run by Steve LeCompte. In addition to tracking macroeconomic measures (such as corporate earnings, inflation rates, and so on) that affect stock prices, CXO Advisory's site also tracks the performance of numerous gurus and pundits' stock market calls. For example, you can see how accurate prominent radio talk show hosts, television commentators, magazine and online columnists, and others have been with their public stock market predictions.
What I especially like about this site is that LeCompte isn't selling anything that would create a conflict of interest. He's a superb and detail-oriented analyst who enjoys doing and providing interesting stock market research. The more I've used his site, the more I've enjoyed it (comics included from his daughter) and found it useful.
The behemoth of the mutual fund data business, Morningstar has a Web site (www.morningstar.com) that provides information and tools for mutual fund and stock research. The basic stuff is free, but to access the analyst reports and stock research reports, among other premium content, you must pony up $159 per year. In addition to providing more data than you could ever possibly digest on funds and stocks, this site includes short, insightful articles that are useful to more educated investors.
For those who enjoy analyzing economic data, the St. Louis Federal Reserve Web site (www.research.stlouisfed.org) is the place to be. In addition to sometimes heady articles such as "Pandemic Economics: The 1918 Influenza and Its Modern-Day Implications," this site provides a treasure trove of current economic data along with graphs. The long-term graphs are particularly useful in providing folks with the often missing long-term perspective in our daily diet of news.
For example, I had to laugh the other day when I saw a headline online that screamed "Dollar at Record Low." The article only mentioned the euro, and it never pointed out that the euro only came into existence in 1999! In fact, when you compare the dollar to a broad basket of other currencies represented by our trading partners, the U.S. dollar is still more than double the value it was a generation ago. Anyone can see this fact for themselves by examining the trade weighted exchange index (TWEXBMTH) on the St. Louis Fed site. (According to the site, the index is "A weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners. Broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile, and Colombia.")
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All publicly held companies and mutual funds must file annual and quarterly reports and other documents electronically with the U.S. Securities and Exchange Commission (SEC). This information is easily accessible for free (paid for by tax dollars) on the SEC Web site (www.sec.gov).
If you're researching individual companies, you can find all the corporate reports — annual reports, 10-Ks, and the like — that I discuss in Chapter 6 via this Web site. Or you can call the individual companies that interest you and have them mail you the desired material.
The SEC site isn't pretty, and searching the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) database can be challenging, especially for the novice investor. But if you're tenacious, you may find something that's hard to come by on the Web these days: cold, hard facts and no spin.
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Few sites run by investment companies are worth visiting unless you're an account holder at the firm and you want to review your accounts or conduct transactions online. The reason: Much of the content is self-serving, biased, and advertorial in nature. The nation's second-largest mutual fund company, the Vanguard Group, operates a site (www.vanguard.com) that is the exception.
Of course, you can find details on Vanguard's fine family of funds here, but you also find some of the best educational materials that I've seen online. I'm not surprised — one reason that I've long liked the company is that it advocates for investors' best interests (see Chapter 8).
And if you're one of the millions of Vanguard shareholders, you can access your accounts and perform most transactions online. Vanguard's discount brokerage division, also accessible online, allows for investing in many other fund companies' funds (as well as Vanguard's) through a single account. The company's Web site also enables you to link accounts that you may hold through most other financial institutions.