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The following is a guest post. Enjoy!
Guide to Managing Your Savings and Investments in the Internet Age
Thanks to the rise of the Internet, managing your savings and investments can now, in some ways, be easier than ever, while simultaneously being a more complicated process than twenty years ago.
The Prospect of Saving & Investing in Today's Web 2.0 Economy
Confused? Well, don’t think that you are alone. Many people find that the sheer scale of choice when it comes to the savings and investments products now offered by the major banks seems to make the whole issue somewhat intimidating. Thanks to the Internet, a quick search on the topic can bring up more information than you could digest in a working week. However, the web is not all about information overload.The Joys and Perils of Internet Banking
Internet banking also makes it easier than ever to both find fresh options and switch between these new savings and investments vehicles. Additionally, once you start to conduct a little research into the topic, you will find that it is not so complicated to narrow down the options, given your personal circumstances.
Investing Options in the Internet Age
A common misconception is that investments have to be managed, while savings kind of look after themselves after you have set the account up. However, the truth is that in the contemporary banking market, both savings and investments need to be regularly monitored, and perhaps surprisingly, it is your savings options that often require more frequent attention.
Many investments for private individuals come in the form of managed investment funds. A fund manager will commonly pick a selection of investments, in a mix that is designed to hedge the risk of losses over the medium to long term. The fund manager will monitor the performance of this fund over time, and make adjustments to the constituents of the fund as required through buying and selling the bonds or stock in question.
Different funds will have different risk profiles, with higher risk investments naturally aimed at achieving better growth. A common theme among the vast majority of investment funds, whoever the provider, is that they are intended to produce growth over a period of years. This means that moving money out of funds due to short term losses is not generally advisable, and that the prudent course is most often to leave the money where it is and await the recovery that is expected over time.
Savings Options in the Internet Age
Savings rates on the other hand will naturally vary according to the base rate of interest in your country, but also in response to competition between banks. Many of the best savings rates available are commonly offered as an introductory incentive to win your custom, after which the interest on the vehicle will often drop considerably. This means of course that you should regularly monitor the rates your savings accounts are producing, and consider moving your money around to a new provider and introductory offer every time that you see a new, better deal. And thanks to the Internet, this process is now quicker than ever, making it easier to both find the next, best thing, and move your nest egg there.
How about you all? Do you find that the new technology and resources on the Internet have made it simpler or harder to manage your investments and savings accounts? What online trading or banking platforms do you find are the easiest to use? Do you think that it's almost too easy to monitor bank and investing balances these days?
Share your experiences by commenting below!
Jacob's Thoughts - Listed below are my random thoughts as I was reading this article.
- @ The benefits and pitfalls of Internet banking and investing technology - Personally, I think that having all of the investing/banking technology and resources on the Internet are both a blessing and a huge problem all at the same time.
- It is a blessing because you have all of the data that investing "professionals" have only a click or keyboard stroke away. Investing online is also easier because you can make all of your transactions personally, without the need to call up and pay a stock or mutual fund broker.
- Additionally, Internet banking has facilitated the competition between banks across the country, helping to drive down fees/costs and increase savings rates. No longer is a person in Fayetteville, Arkansas restricted to only choosing Bank of Fayetteville and Arvest. Now, he or she can open up a high yield savings account online at most any bank in the country, including several banks that reduce costs by only having an online presence.
- On top of this benefit, online banking also makes record keeping of transactions VERY easy. No more balancing your checkbook like my Mom used to do!
- However, having all of this information and technology online is a huge problem, in my opinion, because it facilitates increased access and viewing of personal banking and investing account balances/holdings.
- While this in of itself is not a bad thing, the problem is that in a recession or weak market, having so much access to your account positions only INCREASES the chance that an investor will overreact and sell holdings at the exact time that he or she should be holding or even buying more shares!
- Just think about it! If your retirement balance is going down each day, logging in and seeing that you lost $10,000 overnight is NOT going to be good for your psychology!
- Personally, I feel it is better to only try to check your accounts once a month at least and employ a passive investing strategy.
- @ The idea of savings accounts needing more effort and attention than investments -
- Personally, I don't agree with this assessment.
- I spend maybe a whole 5 min per month checking and tending to my various dream and life values savings accounts. I have automatic transfers set up to move money from my checking account, and basically, the only time I look at my savings accounts is to check the balances for my monthly net worth and portfolio assessment.
- @ The idea that during a recession, one should simply leave their money with an actively managed mutual fund to await recovery -
- I don't agree with this assessment either.
- First, I don't agree with this assessment because 70% of actively managed mutual funds fail to beat market indices. Therefore, I promote index mutual funds as the more sensible choice.
- Second, while I do feel that it is prudent to avoid panicking and withdrawing money from your index mutual fund during a market downturn, blindly holding your money in the fund awaiting recovery is a foolish financial move.
- In my opinion, the safer option is to rebalance your portfolio frequently. What this means is that during a recession, money held in fixed income assets would be moved over to buy more shares of equity in order to maintain the same asset allocation.
- @ The idea of "rate chasing" - moving your money from bank to bank trying to find the highest rate -
- Personally, I don't agree with this practice either.
- I do admit that I was guilty of this practice back in 2005-2006 when I was just learning about saving and investing. I transferred my cash savings balances multiple times between Emigrant Direct, ING Direct, HSBC, etc as each of them competed in finding the highest rate.
- However, what I found was that all of the effort and mental energy involved in seeking out higher interest rate accounts, transferring the balance, and then closing out the old account was much more hassle than it was worth.
- Because of this, what I do now is choose a savings account at a competitive bank and simply stick with it. Even if I lose 0.05% interest per year by not using "the hot account," I'm OK with this. The ones that I have settled in to using are HSBC Direct for my life values account, ING Direct for my life dreams account, and Dollar Savings Direct for my emergency fund. I haven't changed from these in about 2 years now and am pretty satisfied.
