Investing For Your Future

Unit 9: Getting Help: Investing Resources

Linda Kirk Fox, Ph.D., Washington State University

This unit highlights three popular ways that individual investors can learn more about investing and get reliable investment information. The first is by joining an investment club. The second is by using a computer to go online and get information about investing from the Internet. The third is by reading various publications recommended within this unit.

Investment Clubs

Why start or join an investment club? There are basically three reasons to join an investment club—education, fun, and potential financial gain. The club hopes to do well and make profits; however, financial gains are not guaranteed. Clubs provide a social atmosphere that makes learning about investing fun. Investment clubs differ from other clubs, however, in that individuals are not merely members of the club but are "partners." Typically, there are 10 to 20 partners in a club. Partnership agreement forms are filed and guidelines are established for the club. Guidelines include how much and how often partners must pay fees to the club and how to withdraw funds paid in and profits made. Guidelines are also set for the order of business at each meeting. A typical club meeting will have an update from the treasurer, an educational program, a presentation by partners presenting stocks or investments to buy, and updates from partners who are "watching" the club’s current investments.

Advantages of an Investment Club

Clubs require "dues" in the form of a set payment. These payments, typically $25 to $100 a month, are used by the club to buy stocks, bonds, and other investments. Regular payments such as monthly dues may make it easier for you to set aside money for investments. Like paying a bill each month, you’ll write a check to the club for investing. The clubs function as a learning environment with partners taking turns giving educational programs and presenting stocks or other investments to study and to consider for purchase.

Disadvantages of an Investment Club

There are also some disadvantages to investment clubs. Financial decisions must be made year-round. For that reason, investment clubs differ from many clubs in that they must meet throughout the year. The stock market closes for only a few national holidays and certainly doesn’t take an extended summer vacation. These clubs require a commitment by partners to attend meetings, hold offices such as president, secretary, and treasurer, and present educational programs. Just like any group of individuals, you may not always agree. Many clubs decide what to buy and sell with a simple vote, with the majority ruling. If you join a club, be prepared to accept decisions made by the majority of the partners even if you disagree with the investment decision.

Each investment club will establish procedures for operations such as how often to meet and where, how much dues to charge, how new partners join, the minimum time to stay in the club, and how to pay out partners who must leave the club. Clubs must also establish criteria for investments and decide how to diversify the portfolio. The club will decide if a portion of their club’s investments will be speculative or somewhat risky in nature, conservative, or growth or income oriented. Clubs may also set a policy as to what portion of the investments will be in stocks, mutual funds, or bonds, as well as set criteria for buying and for selling. Most clubs, however, know that regardless of general market conditions, funds will be fully invested, and not held in cash.

Investment clubs may also establish policies about what kind of industries or companies they will not include in their portfolio. For example, the club may decide not to invest in stocks of tobacco or liquor manufacturers. The club may set a policy to invest in companies that are environmentally friendly. Criteria may even include how the company treats employees or the number of women and minorities in key leadership positions.

Sources of Information for and About Investment Club Investing

Investment clubs themselves use a variety of sources to obtain information about stocks, mutual funds, and bonds. Clubs or individual members in the club may choose to subscribe to the Value Line Investment Survey, business periodicals, and magazines. The Value Line Investment Survey provides analysis of the information contained in the annual reports of a company. The analysis includes a look at the company’s financial history, current financial health (debt), and future prospects. Public libraries often subscribe to Value Line Investment Survey and other resources. They also may provide access to the Internet. Investment clubs will sometimes work with a broker who provides educational information, holds funds in the investment account, and buys and sells investments as decided by the club membership.

Companies file regular reports with the U.S. Securities and Exchange Commission (SEC), obtainable on the Internet. Companies publish annual reports in a slick, magazine-length format to give to shareholders, the media, and interested investors. Financial charts in the form of a balance sheet inform investors of assets—things of value owned by the company—and liabilities—claims against the firm, such as debt and taxes. The income statements contained in an annual report can help investors understand the profitability of the company over time.

Investment clubs may choose to have a stock selection committee. This committee, representing a few partners, will do the initial research on potential investments, follow the established club criteria or policies, and present the stock for consideration to the group. They may choose to use the Stock Selection Guide© which contains evaluation methods developed and provided by NAIC (National Association of Investors, Corp.). In every issue of the NAIC Better Investing magazine, a company is profiled using the Stock Selection Guide©. If you want to join an existing club in your area or if you want to start an investment club, the NAIC is a good place to start.

Additional Resources for Investment Clubs

Investing Resources on the Internet

The computer databases and information for investment decisions are no longer reserved for big institutional investors. The Internet has dramatically changed investing by opening Wall Street to every individual investor with a computer and a modem or DSL line.

Several things make the Internet appealing to investors. Once you have the hardware, software, and modem or DSL connection, the cost of getting information is low. In fact, many of the financial newspapers, magazines, and financial network sites are free. Depending on how elaborate and detailed the information you want, you can get lots of free information and some information for minimum monthly fees.

Advantages of Investing Resources Online

Going to the Internet for investing information is appealing because you are in control. The Internet is very hands-on. If you want to be actively involved, just point and click. Internet investing is also very private and can be done at home anytime. You can do many different kinds of financial transactions on the Internet. You can buy and sell stocks, bonds, and mutual funds as well as find the best rates on insurance, mortgages, credit cards, and airline tickets. The list of items you can buy and sell on the Internet is growing all the time. You can move money from one bank account to another, you can check on the value of your portfolio, and you can get an instant report on a hot new company. By eliminating the salesman, the broker, or the financial adviser, you’ve also accepted all the risks of the investment decision.

What kind of investing help is available on the Internet? First, printed information in the form of magazines and periodicals is present in cyberspace, including major publications such as:

Newswire services and television broadcasters are also delivering investing information online.

The Internet is not necessarily a passive medium. You can receive personalized updates about investments and have business and industry news sent to you automatically—weekly, daily, or several times a day depending on your interests and needs.

Through the Internet, you can find out what other investors are doing. Too busy to join a club but want to ask questions or "listen" to conversations of other investors? You can do that through organized e-mail sessions called "chat rooms" and discussion forums.

The Internet can aid the individual investor or investment club in the decision-making process. You can study stocks and mutual funds, read annual reports, and obtain stock quotes—available free through many sites. You can also set up a portfolio of investments you own or are "watching."

Disadvantages of Investing Resources Online

There are also disadvantages of online investing resources. The ease of the Internet can be a burden. Unless you resist the addictive nature of trading activity, you can find yourself trading simply because you can, rather than because you should. Investment discipline is an issue. To avoid the pitfall of the easy trade, a sound financial strategy is more important than ever.

News via the Internet reaches everyone very swiftly. But that urge to act on the financial news, or "hot tips," gets many investors in trouble. Research shows that among buyers of more volatile stocks, those who ignored the news earned more than twice as much as news junkies.

Research in the Quarterly Journal of Economics published in 1997 compared investors who watched stock funds monthly and those who checked once a year. The monthly watchers concentrated on interim volatility and moved money into lower-earning bond funds, whereas the yearly group stuck with the stock fund and ended up with twice as much money. The more you check your investments, the more they’ll seem to bounce up and down. Remember, investing is a long-term proposition. You don’t have to watch the market and your investments every day. And don’t rush to buy a stock "in the news" on the Internet.

"Churning" is a term for turnover of your portfolio. Individuals should beware of investment professionals who are constantly selling and buying investments within a portfolio—churning to make money on commissions. But when you are in charge of your own portfolio, you can also be susceptible to selling and buying too frequently. By forgetting your long term strategy, you, too, will be guilty of wasting money on commissions—even if online commissions are low. Some individual investors have reported increasing their trades from six a month to 60 a month. Don’t let this happen to you.

Investing Online: Choosing an Internet Brokerage Firm

A number of brokerage services have started online trading services. Some are new companies established for Internet trading only, while others are the newest offering in service from some long-standing brokerage firms. The major issues in choosing an online broker are cost, access, service, and support. Whichever you choose to use, there are several criteria you might consider before you actually "trade" online.

Online brokerage firms may advertise a low-cost online trade, but be sure to investigate all the costs. Some firms charge a flat fee plus some pennies, for example two cents, per share traded. Another firm may charge a low fee for a market order but more for an odd lot order (a round lot is an even multiple of 100 shares, anything else is an "odd" lot). Some firms charge an "activity fee" which is assessed on an annual basis. This fee is charged to account holders who are less active than others. Be sure to see how you fit that definition or ask to get the fee waived.

Some brokerage firms offer special offers for investment clubs that establish an account with them and trade the club’s investments through the online broker. Other brokerage firms charge clubs a per month charge for real-time quotes. Be sure to read the fine print before your club chooses one online broker over another.

What about online security, an issue most commonly mentioned by people new to online investing? The first issue is protection. What will you do if your online broker goes out of business? Most brokers have Securities Investor Protection Corporation (SIPC) account insurance of $500,000 as a base amount. Many firms add secondary coverage raising the protection to millions of dollars. The second issue is online security of the financial transactions. The computer software referred to as a browser is the system that allows you to navigate the Internet. Online security is accomplished by encryption, or coding, that occurs between the browser and the Internet site. Encryption makes it nearly impossible for someone to enter unauthorized trades or observe your account details on the Internet. Some online brokers offer dual password access, meaning that the partners in the investment club, for example, can view the online account and investments and use the brokerage resources. A second password is required for actually executing a buy or sell order.

How to Get Started Investing on the Internet

To get started investing online, go to the online investor Web sites and take a "test drive" or a demonstration which you’ll find on most of the Web sites. After you’ve selected the online broker of your choice, you’ll need to complete an account application. You can do this by completing the online application form or by printing the form, filling it in, signing and mailing it with a check. The minimum to open an account is usually between $1,000 and $15,000. An online application may speed up the process of opening your account but will require you to fund the account with your credit card, not a debit card. You will be notified by e-mail when your account is established and you may begin placing buy and sell orders online.

Summary

Whether online trading appeals to you may depend upon how you choose to use your time. You may decide you don’t have the time or that you don’t have the expertise to do your own investing. That’s why some people still go to brokers and financial planners; they’d rather let someone else worry about how the stock market is doing, give them advice, and hold their hand. The choice is up to you.

Resources

The following lists are some additional resources to assist you with investment decisions.

Books

Buying Stocks Without a Broker (1996) by Charles Carlson, McGraw-Hill.
No-Load Stocks (1997) by Charles Carlson, McGraw-Hill.
Free-Lunch on Wall Street (1993) by Charles Carlson, McGraw-Hill.
Barron’s Guide to Making Investment Decisions (1998) by Douglas Sease and John A. Prestbo, Prentice Hall.
Investing Online for Dummies, 2nd Edition (1998) by Kathleen Sindell, IDG Books Worldwide.
Starting and Running a Profitable Investment Club (1998) by Thomas E. O’Hara, Times Books.
Dictionary of Finance and Investment (1998) John Downes and Jordan E. Goodman, Barrons Educational Series.
Making the Most of Your Money (1997) by Jane Bryant Quinn, Simon & Schuster.
The Motley Fool Investment Guide (1997) by David Gardner and Tom Gardner, Fireside.
The Motley Fool: Investment Workbook (1998) by David Gardner and Tom Gardner, Fireside.
Investing Online (1997) by Stephen Eckett, published by Financial Times-Putman.
The Worth Guide to Electronic Investing (1996) by Jim Jubak, Harper Collins
Buying Stock Without a Broker (1996) by Charles B. Carlson, McGraw-Hill
WSJ Guide to Understanding Money and Investing (1994) by Kenneth Morris, et al., Simon & Schuster.

Newsletters and Home Study

Investment Home Study

American Association of Individual Investors

625 North Michigan Avenue, Suite 1900

Chicago, IL 60611

Phone 1-800-428-2244

<www.aaii.com>

 

DRIP Investor (monthly newsletter about Dividend Reinvestment Plans)

North Star Financial, Inc.

7412 Calumet Ave.

Hammond, IN 46324-2692

Phone 219-931-6480 <www.dripinvestor.com>

 

The Moneypaper (monthly stock newsletter)

1010 Mamaroneck Ave.

Mamaroneck, NY 10543

Phone 1-800-388-9993 <www.directinvesting.com/moneypaper>

Magazines

Better Investing (NAIC)           Kiplinger’s Personal Finance

Smart Money                            Consumer Reports

Money                                       Worth
 

Web Resources

All addresses begin with the http:// prefix.

Daily Financial Updates

Business Week Online <www.businessweek.com/investor/index.html>
CNN Money <money.cnn.com>
MSN Money <moneycentral.msn.com>
Silicon Investor (a onetime membership fee is required) <www.techstocks.com>
USA Today Money Section <www.usatoday.com/money>
The Wall Street Journal * <www.wsj.com>

Investing—General

Alliance for Investor Education <www.investoreducation.org>
American Association of Individual Investors <www.aaii.com>
American Stock Exchange <www.amex.com>
Briefing offers in-depth analyses of individual stock sectors <www.briefing.com>
Daily Stocks <www.dailystocks.com>
Dow Jones Industrial Average <www.djindexes.com>
GreenMoney Online Guide for socially responsible investing and green consumer options <www.greenmoney.com
Initial Public Offerings at IPO Maven <www.123jump.com/ipomaven.htm>
Investing Online Resource Center (maintained by the North American Securities Administrators Association) <www.investingonline.org>
Investor Protection Trust <www.investorprotection.org> 
Investor Web <www.investorweb.com>
Investors’ Law Center for individuals abused through investing <www.investoraid.com>
The Motley Fool, Online financial forum <www.fool.com>
NASAA (State Securities Regulators) <www.nasaa.org> 
NASDAQ (National Association of Securities Dealers, Inc.) <www.nasdaq.com>
National Association of Investors Corporation <www.better-investing.org>
New York Stock Exchange <www.nyse.com>
PC Quote <www.pcquote.com/>
Research magazine InvestorNet section <www.researchmag.com>
SEC’s EDGAR Database for company annual reports and other documents <www.sec.gov/edgarhp.htm> 
SEC’s Enforcement Complaint Center <www.sec.gov/enforce/comctr.htm>
SEC’s Office of Investor Education and Assistance <www.sec.gov/investor/shtml>
Security Dealers’ Public Disclosure site to check if your broker has had any disciplinary action filed <www.nasdr.com/2000.asp>
Stock Smart <www.stocksmart.com>
StockScreener <www.stockscreener.com>
The Stock Room www.stockroom.org
U.S. Securities and Exchange Commission (SEC) maintains database on mutual fund prospectuses and annual reports <www.sec.gov>

Investing—Mutual Funds

Investment Company Institute <www.ici.org>
Lipper Analytical Services <www.lipperweb.com>
Mutual Funds Interactive <www.brill.com>
Mututal Funds Investor Center <www.mfea.com>

Online Brokers

Accutrade, Inc. <www.accutrade.com>
American Express <www.ameriprise.com>
Ameritrade <www.ameritrade.com>
E*Trade <www.etrade.com>
Fidelity <www.fidelity.com>
Charles Schwab & Co. <www.schwab.com>
Waterhouse Securities <www.waterhouse.com>

Disclaimer

Mention of a trademark, proprietary product, or commercial firm in text or figures does not constitute an endorsement by the Cooperative Extension System and does not imply approval to the exclusion of other suitable products or firms.

Action Steps

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Author Profile

Linda Kirk Fox, Ph.D., is Dean and Director of Cooperative Extension at Washington State University. Prior to this, she was Director of the School of Family and Consumer Sciences and Financial Resource Management Specialist at the University of Idaho. Dr. Fox has developed educational programs and materials including the award winning Enhancing the Financial Literacy for Older Youth videoconference and the Idaho Financial Literacy Coalition. Her University of Idaho Cooperative Extension publications include Making Financial Decisions When Divorce Occurs and Estate Planning: An Idaho Guide.