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Business Matters: Challenges of internet investing

February 16, 2011

By Staff Reporter

By Kevin FitzGerald

A lot of my friends are using the internet to help them with investing. Although I have some familiarity with computers, I’m not sure where to start when it comes to using the internet for investment help. Can you give me some ideas? — J.B., Yonkers

One-third of adult Americans (more than 70 million) are now online, making the internet the most rapidly growing communication medium in history. Revolutionizing the investing landscape, the internet is creating a changing class of investor who can access advice and information on an infinite number of investments.

Investors are flocking to the Net in record numbers. Case in point: there are currently more than 3 million online accounts. What’s more, Forrester Research predicts that by the year 2003, 18.5 million households will bank online and 7.2 million households will invest online.

Today, 80 percent of U.S. securities firms now offer online services to investors, as well as provide tools such as portfolio tracking and valuation. At the same time, financial and news sites offer users the opportunity to listen to or participate in interviews with financial leaders, follow market commentary and join online discussions of a particular stock. Accordingly, the Internet is a valuable educational resource that allows users to better understand financial concepts and the large range of available financial products and services.

In addition, accessing and navigating the Internet is now faster and easier due to advances in technology. With the advent of "search engines," available through various internet service providers and also integrated on individual sites, locating a detailed piece of information is no longer a time consuming task. Moreover, proliferation of networks, reasonably priced personal computers and 24-hour availability allow investors online access whenever and wherever they want.

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However, using this ever-increasing medium demands that investors proceed with a degree of caution. It is imperative that investors know where to find the right information within the huge expanse of the Internet. Whether an investor’s goal is to obtain general investment information or the specifics on a particular company, the following areas might help streamline navigation and provide a good start:

Where to Find It

Securities firms’ web sites — A securities firm’s Web site often contains timely investment information as well as general investing advice. Some securities firms now offer proprietary online services just for their clients which may provide access to objective research on a particular company or information about your accounts. This type of information is useful in researching financial information, and gaining access to market data and news.

Company web sites — When investing in a particular company, reviewing that company’s web site may be particularly useful. According to Straightline International, nearly four-fifths (79 percent) of U.S. public companies recently surveyed have an Internet presence. Many public companies include annual reports, press releases and financial statements on their sites as well as product and service descriptions. Some company Web sites are interactive, and allow individuals to e-mail them with questions.

News services — These sites are valuable for accessing timely information from an objective source. Many newspapers and magazines now have online editions so investors can retrieve pertinent news stories that may affect investments, as well as stock, bond, and mutual fund quotes.

Research databases — For more in-depth information, that may not be found elsewhere, use a research database to search for specific details on companies or investment topics. For example, old news stories on a company may provide an important historical perspective. Additionally, some brokerage companies offer clients access to their proprietary research online through secured Web sites.

Regulatory body web sites — Several of the regulatory bodies, such as the SEC, NASD, NYSE, have Web sites that provide industry-specific news and research and provide links to other government groups and agencies. The sites of stock exchanges and major indexes also provide quotes and calculations, and many have searchable databases for obtaining information on publicly traded companies.

Know the Source

While the Internet provides practically limitless opportunities for education and research, it also has the potential for abuse. Always consider the source of any information or advice you receive. Some may seek to distribute information to manipulate prices or to take advantage of unsuspecting investors. Although most online services, bulletin boards, and chat rooms display the names of users, individuals can remain anonymous behind aliases and misinformation. Remember, never make an investment decision based solely on an online tip — always research the advice further. Following are tips/information from the National Association of Securities Dealers Regulation, Inc. for online investors:

€ Be your own watchdog: The Internet is vast and resources are limited. Regulators can not keep an eye on every corner and crevice of the Web.

€ Question all advice: If the source of information or the motives behind the source is unclear — as is often the case on the Internet — challenge the validity of the information.

€ Measure twice and cut once: Never make investment decisions solely based upon what you read on the Internet. Always consult other resources, like an investment professional.

€ Do your homework: Although the Internet opens access to a variety of new information sources, there is no substitute for your own detailed research.

€ Call on the experts: If something does not seem right, trust your instincts. Notify the regulators (NASD or SEC) before you act.

Ask an Investment Professional

Investors have much to be enthusiastic about with the new opportunities technology is bringing to the financial world and the unprecedented increase of available information has empowered investors. For the first time in the long history of financial markets, investors have the tools needed to manage personal finance and investing decisions from their own home or office.

Moreover, all investors, including beginners, have access to more information than ever before, but with it comes the responsibility to ensure that the online information they receive is accurate. Now, more than ever, the personal attention and advice of an investment professional to help you sort through the many investment options available and to help determine which investments best serve your individual needs may be critical.

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The information contained herein has been obtained from sources believed to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

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Kevin FitzGerald is First Vice President-Investments at PaineWebber. He focuses on the areas of professional money management, asset allocation and retirement planning. He can be reached at 800-423-3381.

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