Investors must be discerning when choosing among the vast Web resources available. And few experts can better direct them than Douglas Gerlach, author of The Complete Idiot's Guide to Online Investing (Alpha Books; $18.95) and Investor's Web Guide (Lycos Press; $39.99). The former theatrical fund-raiser switched gears in 1995 and founded Investorama, a Web portal linked to 16,000 financial sites. Gerlach discussed some favorites with Staff Editor Lewis Braham.
Q:Would you say today's investors want advice more than cheap trades? A: I'm seeing a shift toward more portfolio-centric tools. People are looking for the big picture instead of hot tips. No longer do they look at their portfolios and say: "How much am I up today?" They say: "Am I achieving my goals? Do I have the right level of risk for my risk tolerance and overall objectives?" Such sites as Portfolio Science and RiskGrades are built on this premise (table).
Q:What do these sites do? A: Similar things. Both sites will tell you how well a stock performs in down and up markets, and how it compares to the overall indexes. Then you can put all those stocks together and get a risk measurement for your entire portfolio. That way you can gauge your overall investment strategy, determine what needs to be safe for your nest egg, and what's your real risk capital. You can isolate each portion or bring all the pieces together and see how they're doing. That kind of perspective has been lost in the past few years.
Q:How do you separate the good advice from the bad advice online? A: Investors need to read the fine print. If you look at a site and see it's compensated by the stocks that it promotes, watch out. The SEC changed some of its rules a while back and mandated that sites disclose any potential conflicts of interest. That's a big one. Investors are also right to be skeptical of sites that guarantee performance and those that e-mail you about hot tips; they're smarter now about not falling for such pitches.
Q:What's new for upscale investors? A:E*Trade (ET
) recently set up a personal money-management program that lets you tap into money managers from across the country, based on different styles. For a minimum investment of $100,000, a manager will take over your entire portfolio and run it as a private account, not a mutual fund. You're not getting the same sort of personalized service you might get if you found an adviser in your local area, but you are getting lower fees.
Q:What about comprehensive financial advice? How accessible is it online? A: So far, the financial-planning tools out there are really devoted to retirement planning or portfolio advice. They're not taking into account the full breadth of estate, tax, and insurance planning. Advisers who offer these services are just starting to set up shop online.
Q:What site do you think offers the best tools for do-it-yourself investors? A: I'm partial to Portfolio Science; I also like Netfolio, the personal funds service started by [What Works on Wall Street author] James O'Shaughnessy. When you go to the site, you can create your own portfolio. They'll advise you on the track record of that portfolio and the likelihood of it achieving your goals. Or you can pick from 145 portfolios they have already created and find one that best meets your risk tolerance. If you make changes, it will flag you and say: "You know what, that might not be such a good idea, for this reason." That can keep you from doing something wrong.
Q:What features would you most like to see for online investors that aren't currently available? A: Complete financial aggregation. Right now, it's fairly impossible to look at the big picture. You might enter all of your investment holdings into a site like Portfolio Science, but two months later maybe you've sold some stocks and the whole plan has changed. There's no way of keeping it up to date automatically. It would be great if you could have one site that would aggregate information on your entire financial life and use that to advise you. It's like the Jetsons view of the world, where the computer knows and doesn't necessarily do things for you, but pulls it all together for you. Sites like OnMoney.com are moving in that direction but aren't there yet.
Q:The brokerage industry was the first to feel the threat of the Internet business model. What other financial services industries are threatened? A: Insurers are in trouble because they have a very salesperson-oriented business. The minute that Web sites start offering policies online, they undercut the industry's sales channel. People are shopping for rates at sites like InsWeb and Insure.com and saying to their local insurance agents: "Hey, can you beat this?" The big banks, such as Citigroup and Wells Fargo, have also been slow to figure out the Internet. For too long they wanted customers to pay for online banking. Customers reject that notion. Why should they pay to make banks' lives easier? But right now, these banks aren't feeling the pinch from the smaller online bankers.
Q:Do you think we'll ever reach a point where technology online could replace the need for human advisers? A: It's hard for me to believe that will ever happen. When you look at firms like Merrill Lynch (MER
) and Salomon Smith Barney (C
), they're not planning for advisers to go away. In fact, it almost seems as if their online access accounts are driving people back into the full-service fold. People start doing it themselves, and all of a sudden they realize their portfolio is down 40%.
By Lewis Braham
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