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Essential Tasks September 2000 • Vol.6 Issue 9 Page(s) 76-79 in print issue	Add To My Personal Library
Banking, Finance & Investments Use The Internet To Make Money The New-Fashioned Way

When it comes to finance, the Internet has changed everything. Loans, insurance, quotes, and credit cards are all a mouse click away. Many of the individuals on Forbes' list of the richest Americans owe their fortunes to the World Wide Web. Anyone can trade shares in the stock market, and everything you want to know about your checking account is probably available online. From the look of things, the Internet is the only thing you need to acquire and maintain wealth. So why aren't we all millionaires?

The answer is that we don't know the secrets of the pros. Any fool can tell you what to buy and when to sell and how much interest you should get on your money market fund, but it takes a real expert to show you how to use the Internet to manage your finances and build your fortune. We found some of those experts and asked them to give us advice. Pay heed as they show you how to use the Internet more effectively for financial gain.

Avoid fraud. The announcements are compelling when they arrive in your e-mail inbox. An altruistic person is passing along a tip about a hot stock that's just waiting to take off. Everyone who invests now, the message reads, will be rich soon. All you have to do is buy a thousand shares.

It's bogus, of course, but many people don't know that. To avoid investing in a sure loser—as these stocks are—visit the SEC's Investor Education And Assistance site (http://www.sec.gov/oiea1.htm). Here, you can learn how to spot a fraudulent investment, recognize a legitimate broker, and keep your money safe from the many scam artists prowling the Internet for uneducated investors.

Something new. The typical products and services offered by a bank have evolved little over time. Checking accounts, savings accounts, brokerage services, loans, and credit cards are still the norm. As financial institutions look for ways to compete in the age of the Internet, however, many are advertising unique services and products geared toward particular audiences. Pay attention to these new offerings. You might like what you see.

Wells Fargo (http://www.wellsfargo.com), for example, allows you to go online and order travelers cheques, cashier's checks, and foreign currency for delivery to your home or office. NetBank (http://www.netbank.com) offers its customers virtual safe deposit boxes, which can store up to 200MB (megabytes) of digital data. E*TRADE Bank (http://www.etradebank.com) has a Preferred Savings Plan, which gives certain customers the opportunity to earn higher interest on their accounts and CDs (certificates of deposit).

Look ma, no wires! Online banking customers typically use their personal computers for connecting to the Internet. In the future, this may not always be the case, says Jim Smith, vice president of Internet strategy and products for Wells Fargo.

"In the future, we think that customers will want to access it from their pagers, cell phones, and PDAs," Smith says. "Customers should start looking for banks that have the ability to innovate and add new services [for these devices]."

A few online financial institutions are beginning to roll out such wireless banking services. USABancShares.com (http://www.usabancshares.com) is one of the first institutions to offer account access via a PDA (personal digital assistant) or Web-enabled cellular phone. With USABancShares.com's Unplugged service, you can check account balances, pay bills, get customer service, apply for a loan, and make loan payments from practically anywhere using almost any Internet-connected device.

Bank of America (http://wwwbankamerica.com), Claritybank.com (http://www.claritybank.com), Mellon Financial Corp. (http://www.mellon.com), Harris Bank (http://www.harrisbank.com), and Wells Fargo are among the other U.S.-based banks currently working to develop wireless banking services.

Darwin from Ameritrade is one of several financial games currently available online that are designed to familiarize you with investing concepts and strategies. Although you have to order Darwin on CD-ROM, you can play it on the Internet with other users.

Play the game. Who says accumulating wealth takes hard work? A number of Web sites offer investing games that let you play with your money without the risk of losing it.

The games come in several varieties, but they all work the same way. You start with a certain amount of "pretend" money, which you then invest in a simulated market. Some games, such as the Lycos Investment Challenge (http://maxinvest.lycos.com) and the E*TRADE Game (http://www.etrade.com, then click the E*TRADE Game link in the lower left column), let you invest in the stock market. Other games give you the opportunity to focus on less popular financial markets, such as commodities (try Trader at http://www.geocities.com/Athens/Forum/8080/trader) or options (order Darwin on CD-ROM by visiting http://darwin.ameritrade.com).

These games weren't designed for their entertainment value, says Pete Ricketts, senior vice president of product management at Ameritrade (http://www.ameritrade.com). Ricketts says they actually provide a hands-on educational experience for people who want to learn about and become comfortable with the markets without risking anything. In some cases, the games also familiarize potential customers with a particular brokerage or financial institution. That's the case with Ameritrade's Darwin game.

"We found that people wanted to get involved with options but there wasn't a whole lot of education out there," Ricketts says. "For people who are interested in trading options, Darwin allows them to get up to speed with what exactly they're getting into, teaching them how it works, what they should expect from us, and what their obligations are."

Make the connection. The latest versions of Quicken ($34.95; 800/446-8848, 650/944-6000; http://www.intuit.com) and Microsoft Money ($34.95; 800/426-9400, 425/882-8080; http://www.microsoft.com) provide built-in links to Web sites where users can extend the functionality of their personal finance managers. Quicken, for example, can download information about your financial transactions directly from your bank. With this information, it can reconcile your account automatically so you won't have to do it at the month's end. You also can use Quicken to pay bills and transfer funds.

You should consider taking advantage of these links. You might have to pay a small fee—typically less than $10 per month—to use these features, but the time you save by automating parts of your financial management routine just might be worth it.

Surf the Web, decrease your taxes. Every financial gain has a corresponding tax bill. To minimize the size of that bill, use one of the Web's tax tools. These tools, which include calculators and estimators, not only help you plan for impending tax burdens, but they also allow you to identify ways to reduce the amount you owe Uncle Sam.

For example, use the Quicken.com tax calculators (http://www.quicken.com/taxes/investing/calculators) to learn about the effect that taxes and inflation will have on your investment returns. In addition, the calculators can help you determine how many shares of a stock you must sell to pay the taxes on a capital gain, as well as figure out which stocks in your portfolio you should sell to minimize taxes. Similarly, you can use the tax calculator at Kiplinger.com (http://www.kiplinger.com/calc/calchome.html) to decide whether to buy tax-exempt or taxable bonds, and to learn how much your mortgage payments will decrease your tax bill.

To find out how much you owe in taxes, use a tax estimator. Some tax estimators, such as the Yahoo! Finance Tax Refund Estimator (http://www.hrblock.com/yahoo/estimator.html), help you determine the size of your tax refund. Other tax estimators, such as the TurboTax Tax Estimator (http://www.quicken.com/taxes/estimator), look at your tax data and estimate how much you'll owe in taxes. After you get the results, you can talk to your tax accountant or financial advisor to discover specific ways of decreasing your taxes.

Buy, sell, and then some. The pros know that it often takes more than a simple buy or sell order to make money on the stock market. That's why they use advanced trading options, such as limit orders (buying or selling securities when they reach a predetermined price), selling short (selling securities you don't own at a high price so you can buy them again later at a low price), and buying on margin (borrowing money from the broker to buy a security). These advanced options are supported by all of the popular online brokerages. At Ameritrade, for instance, you can access the advanced options by clicking the Advanced page tab on the Trade screen.

One caveat: Don't execute an advanced buy or sell option until you fully understand what you're doing. You can learn all about advanced trading options by visiting the educational area of your online broker or by using an all-purpose financial education site, such as the GE Center for Financial Learning (http://www.financiallearning.com) or the American Association of Individual Investors (http://www.aaii.com).

Don't believe the hype. Every online brokerage claims to be the best, so which do you believe? None of them, says Ricketts of Ameritrade. He says you should look to a third-party site to find out which brokerage is the most reliable, the fastest, and the best-suited for your needs.

"A third-party site allows you to leverage what other people are measuring," Ricketts explains. "You don't have to rely on word of mouth or going to the library."

Ricketts identifies a pair of third-party Web sites that all investors should know about. The first one is Keynote Systems (http://www.keynote.com), which ranks the online brokerages by transaction speed and success rate. The other site is Money.com (http://www.money.com). Money.com will rank the online brokerages according to the factors that are important to you.

Cut credit card interest. The Internet can help you minimize the amount of credit card interest you pay each month. Simply visit one of the Web's credit card rating sites and find a card that offers a low rate and fees.

The Quicken.com's Rates section (http://www.quicken.com/banking_and_credit /bankrates), for instance, lets you search for credit cards that offer the lowest initial interest rate, the longest grace periods, and the most frequent flyer reward mileage. Similarly, the Citizens for Fair Credit Card Terms site, known as CardRatings.org (http://www.cardratings.com) gives you the option of searching for the best credit card deals based on rewards and interest rates.

Check your pensions and retirement plans. Maybe you have some money tied up in a company 401k. Don't make the mistake of ignoring those funds with the belief that they're professionally managed and they'll be there when you need them. You need to take responsibility for researching all of the funds that are part of your retirement portfolio, and the Internet can help you do that.

Don't get lazy with your 401k investments. Web sites such as the 401Kafe help you stay informed and manage your retirement funds for maximum returns.

The Quicken 401k Advisor (http://www.quicken.com/retirement/401k/advice) and the 401Kafe (http://www.401kafe.com) are two online sources that offer lots of information and advice about managing a 401k plan. The Web sites provide calculators, question-and-answer areas, related articles, and other educational resources that familiarize you with the ins and outs of 401k investments to help you learn what to expect from your own plan.

Chat, but at your own risk. Whether your goal is to get up to speed on current investing issues or you're simply looking for answers to common financial questions, chat rooms and message boards can help. These interactive areas online put you in touch with everyday investors who have experience in areas where you do not. As such, they can be an excellent and virtually unlimited information resource.

Just be careful about how you use the information you get from a chat room or message board, Ricketts says. "These are regular people talking," he says, "and you don't have any idea what their source is. You need to take precautions because they may have ulterior motives, or they didn't do their homework well enough."

To protect yourself from bad advice, verify anything you read in a chat room or message board with a professional resource, such as licensed broker or a banker, before you act on it.

Why not go directly to the broker or banker in the first place? That's a good question. The value of online chat rooms and message boards is that they help you decide what questions you should ask the broker or banker. If you don't know anything about mutual funds, for instance, you may not know enough to ask your broker about no-load funds. But if you spend some time on the Investment Basics message boards at the Morningstar Conversations site (http://socialize.morningstar.com), you would learn that these funds constitute a fairly significant share of the fund market. Once you know that no-load mutual funds exist, you can ask your broker about them and get detailed advice on how to make them work for you.

A bond in time earns just fine. The value of a U.S. savings bond isn't limited to the number printed on its face. Indeed, the value of a bond continues to grow long past its maturation date. You can find out just how much your bonds are worth by visiting U.S. Savings Bonds Online at http://www.savingsbonds.gov. At this site, you can calculate the value of your bonds and get answers to your questions about bonds.

Know your insurance needs. Do you really need enough life insurance to cover your annual income six times? Is comprehensive auto insurance worth the money? The pros know that insurance agents can be biased when answering questions like these. That's why the pros use the Internet's vast resources to find objective answers to their insurance questions.

One of the best places to start is insure.com (http://www.insure.com). InsWeb (http://www.insweb.com) and the Yahoo! Finance Insurance Center (http://insurance.yahoo.com) also provide quality educational information about insurance. Any of these sites can familiarize you with insurance terminology, help you compare prices and plans, and assist you in determining just how much insurance you really need.

by Jeff Dodd

Expert Tips From . . . Jim Smith

When shopping for an online bank or financial services, people often look at the money facts: Who has the best interest rates, the lowest fees, the fastest transaction time? But that's not always the best way to start, says Jim Smith, vice president of Internet strategy and products for Wells Fargo (http://www.wellsfargo.com). He says the process of finding an online bank or broker needs to start with trust.

"The trust that you have in the institution that's providing the service is absolutely critical," says Smith, who began working to develop an online presence for Wells Fargo long before the financial institution even had a Web page. "Do you feel that they are a place you can trust in terms of security and in terms of privacy? Do they stand behind what they're delivering? Do they have online guarantees on their site about the services that they're offering? That trust is clearly the most important thing to consumers, and it should be."

Finding an online bank or brokerage that you can trust isn't difficult. Smith suggests four things you should keep in mind as you evaluate the options. First, ask about accessibility to information and funds. It should be easy for you to get both whenever you need them. The second factor is a security guarantee. The site should guarantee in writing that it will protect your financial information at all costs.

Third, check out the breadth of services offered. The ideal here is a one-stop financial shop; a place where you can have a checking account, maintain IRAs, make investments, open a credit card account, and get a loan. This maximizes your convenience, and it keeps your data secure because you're not sharing it with several institutions.

Finally, pay attention to the site's stated purpose and listen to what others have to say about the institution. "It's one thing to enable you to transfer money from your checking account to your savings account," Smith says. "But in the long term, if you're building that relationship, [the institution] really should focus on helping the customers improve their financial situations."

"When you get right down to it, even though the Internet is a very new channel, banking and financial services are all about building relationships," Smith concludes. "So in that sense, it's no different from the way we conducted banking in 1900 or 1850."

Expert Tips From . . . Pete Ricketts

It's amazing, really. When we want to buy a $300 VCR for a home entertainment system, we do a massive amount of research. We read reviews, check the ratings, and talk to several home electronics professionals before settling on just the right one. But when we plan to invest a great deal more than $300 in a stock or mutual fund, we often just ask a next-door neighbor or close friend for a recommendation before plopping down our money and hoping for the best.

That's all wrong, says Pete Ricketts, senior vice president of product management at Ameritrade (http://www.ameritrade.com). To become well-informed—and eventually wealthy—investors, we must take advantage of the vast number of financial resource available on the Internet.

"The kinds of information that you can find online, whether you're going to Ameritrade to get our educational materials or you're going to the EDGAR Database for SEC filings, is just unbelievable," says Ricketts, who has been with Ameritrade for six and a half years and was instrumental in setting up Ameritrade's Web site five years ago. Ricketts says that much of the financial information currently posted online today wasn't even available to the general public five years ago. If you wanted to get company reports or analyst ratings or SEC filings back then, you had to hire a broker. Today, you can get that information for free all by yourself.

One of the best sources for financial information is the EDGAR Database (http://www.sec.gov/edgarhp.htm). This searchable database of SEC (U.S. Securities and Exchange Commission) filings is maintained by the SEC and available at no charge. Other valuable resources include Zacks Investment Research (http://www.zacks.com) and Morningstar (http://www.morningstar.com), both of which provide a wide assortment of investment-related data. Most online stock brokerages provide links to these and other valuable sites, but it's up to you to take advantage of them.

Expert Tips From . . . Michael Fitzgerald

Managing your finances on the Internet is much easier if you aggregate your accounts into a single online portfolio, says Michael Fitzgerald, president and chief operating officer of NetBank (http://www.netbank.com).

"If there's a psychographic commonality among our customers, it's that they're time-starved," says Fitzgerald, who has 20 years of experience in the financial industry and has co-authored four books for the banking industry. "I think that a lot of people may not know or recognize just how much time you can save managing your personal finances online. You can look at a personal financial portal that includes all of your insurance information, brokerage information, banking information, transfers between those accounts, and scheduled payments."

The ideal financial portal (as Fitzgerald describes it) would store information about your brokerage accounts, all your savings and checking accounts, loans, and credit cards. It also would provide a significant amount of customizable non-financial content, such as news headlines and sports scores. By combining the various information resources, a portal can couple financial services with real-world applications. For example, a financial portal might allow you to order tickets to an upcoming sports event. You then could pay for the ticket directly through the checking account that is part of the portal.

Unfortunately, full account aggregation is not yet a reality on the Web. A few sites have rolled out what look like the beginnings of a financial portal. Fitzgerald says that NetBank offers multiple financial products and services at its online site, allowing its customers to have the proceeds from their NetBank investments deposited directly into their NetBank checking accounts, for example. Services such as these represent just the beginning of account aggregation. Look for improved account aggregation in the next year from NetBank, Mellon Financial Corp. (http://www.mellon.com), and My BankUSA.com (http://www.mybankusa.com, a division of First Savings Bank), among others.

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